small businesses are revitalizing the economy, and american express open is here to help. that's why we are proud to present "your business," on msnbc. hi there, everyone, i'm j.j. ramberg and welcome to "your business" where we give you tips and advice to help your business grow. there is no question that the various online daily deal sites like groupon and living social have received a lot of media attention. most of it has focused on the millions of consumers who've signed up to get sizable

discounts from their local merchants. much less attention has been paid to the small businesses who are using groupon, and giving those discounts. as we discovered, what's a boone to some has been disaster for others. open your e-mail on almost any given day, and, if you're a 95% groupon discount on expensive laser genie beauty treatment. she jumped on it. so did this groupon customer, also of beverly hills. >> i was thrilled. and i was very excited and gung

ho. i wanted to get going right away. >> these two customers who purchased the laser genie offer were not the only ones initially excited by this discount. >> definitely had high expectations. >> that's rose, co-owner of laser genie. she made the offer for her services on groupon. at first, she was overjoyed when more than 3,000 people signed up for it. >> we thought it was the best day of our lives. we were like, wow. basically just made $300,000. we were so happy. >> make a turn. go like that and pedal. >> john huntington, start-up owner of hydro bikes in long beach, california. also made his first groupon offer last year. it was august 24th, 2010. just two months after his opening day. and he remembers it well. >> i made 13,800. that day. so that was a very profitable day. it was a great 17 hours.

>> how many is the back table set for? >> ray hasser, 14-year owner of lasher's restaurant also in long beach was haile skeptical when groupon approached him. at first blush he didn't see how what amounted to a 75% discount could possibly make him a profit. >> i put the math to it. and i came up with some ideas that i thought i could make money, and still take advantage of the tremendous impact. >> indeed the impact can be tremendous. groupon told lasher that nearly 700,000 people saw his offer. which resulted in over 600 groupons sold. >> when it goes on groupon it goes out to millions of people. around the world. i mean i have groupon people have bought groupon in china. >> but what seemed like a lucky windfall to one small business owner can feel like a disruptive tornado to another. >> of course it makes me sad. it basically ruined my business for these people. i paid for people's treatments out of my pocket who will never

be my customer. >> according to a study done last year at rice university jones school of business, 32% of small to medium sized businesses reported they lost money running their groupon promotions. >> so there's 3,085 customers. as a gis to get yourself ready to be able to serve those customers, we had four additional staff members just dealing with the phones and e-mails, and we had four additional nurses to serve basically the clientele. it wasn't enough. >> she says despite her best efforts, the thousands of new customers rapidly overwhelmed her business, and crowded out her regular customers. while most of her groupon customers never bought anything else from her, and never returned. >> you know, i tried calling a couple times. the phone line was busy, always went to voicemail. i checked their website and they said they had such a huge influx of customers it would be better to e-mail. >> there's always a question of capacity. every business has its own limits when it comes to how many clients or customers can be served in a day. at laser genie despite the extra

staff often working seven days a week the owners rapidly became overwhelmed. >> after about a week we were booked about four months ahead of point. so then the next people who would call i would tell them your next appointment will be four months from today so the anger started building in that regard. >> and the angry groupon customers vented on the internet. >> they were putting bad reviews online. so we were getting one-star reviews because people were angry that they couldn't get an appointment. we went from five stars to two stars because of groupon and it's really cost us a lot of our business. >> the damaged reputation from unhappy groupon customers was, indeed, painful. >> it hurts. it hurts a lot. but you know, you start doing damage control and you start trying to apologize everywhere for everything. >> we spoke to groupon about rose's situation. they claim many of her difficulties were the result of not following their recommendations. however, they also say they've made changes since this happened last year. >> laser genie ran very, very early in the life cycle of groupon. and certainly, i mean, we never

want to hear that a merchant is upset. the model is broken if merchants aren't happy and consumers aren't getting what they paid more. we've made lots of improvements on the merchant services side. >> if you take the cost of providing highly discounted services, the cost of salaries for additional staff, the extra cost of the many no-shows and the lost income from regular customers switching elsewhere, for rose, the groupon deal added up to a financial fiasco. >> the debt that has resulted from this groupon is about $200,000. >> quite a different story from john huntington, who says his more modest deal, of 50% off a $20 ride, put his then-unknown business on the map. >> i'm making more money from the people and the walk-ons now than i was making before i had groupon. so my daily increase in dollars immediately tripled. >> ray lasher didn't think groupon was worth it at first. the steep discounts didn't make sense to him.

until he realized that he could upsell his customers by keeping the groupon value below his average receipt total. >> my case let's say to make it easier they spend $100. $50 of that is the groupon. they spend another $50, that second $50 that they're spending, i'm making my full profit and i've got people in empty chairs. >> ray also says timing is key. since the last weeks of the offer get the biggest number of groupon customers, ray schedules his offer to expire during his slow periods, early fall. >> as you get toward the end of your groupon expiration date you see a very heavy influx of business. not only do you have to prepare for that but it's not a bad idea to try to time that. so i time the end of my groupon into one of my slower periods of time. >> clearly, large numbers alone are no guarantee of success. >> it's definitely not worth it. the numbers don't make sense. the effort doesn't translate into more sales. more growth. >> but, if you can find a way to harness the numbers, ray and

john say, bring them on. >> i honestly have some great reps at groupon who've guided me and helped me with this. and it will be great for some. and it won't be greet for others. i know that. >> it's a complicated issue, and as we just heard, groupon has made some changes. so let's weigh the pros and cons of the daily deal sites with this week's board of directors. reva is the founder of grow biz media and mo is a principal at spark capital. great to see both of you guys. all right, so as we were watching this you were both kind of shaking your heads a little bit. what's your reaction? good, bad? what do you need to look out for? >> i think you really have to plan ahead of time. you can't just say, yes, and do it. i think the restaurant owner said i set it to expire slow time. maybe there's something you can do to offer it during a slow time. don't enter into this during a peak time of your business, because you are going to just

alienate existing customers. >> it seems like it's just running numbers. >> well, i think what people forget, people look at groupon and they think it's this silver bullet, but the reality is it's just another marketing channel. >> right. >> year offering a promotion to drive people into your store, and you have to calculate how to do that effectively. that includes how many people you're offering the promotion to. how do you price that promotion. what that means in terms of the gross margin and the contribution margin to your individual sale. how that affects from the lifetime value of the customer. you know, there's so many -- there's factors that you need to weigh when you do any marketing. >> i also wonder, are the people who are taking such deep discounts the kind of people that you want at your business? are they really going to come back? >> you're introducing them to your business with the -- they walk in there, the expectation, i had a great experience, because i spent no money. so the next time they walk in, they're actually spending money.

they may not walk in again. i think you have to look at what you sell to see is it a return type of product, or service anyway, that people are going to -- where you're introducing yourself to them and they're going, wow, this was great, i'm going to come back on my own. >> that's actually quite a good point. there are some businesses that are just not cut out for groupon. if you're in a, you know, one-time transactional business. for instance, what we saw on video, you know, laser hair removal treatment. how often are people going to do that? you know, you come, you get the hair removed, you're done. what are you expecting? >> i think it's a many-step process. i'm not sure. >> for sure. but perhaps somebody said 50% off i always wanted to do my arms, and they're done. unless they have a way to really drive the rest of it, it's not really going to work. i think you also raise another good point, there is a bit of an adverse selection problem here which is, and this has always been the case, you know, bargain hunters, discount shoppers are

going to you know, be the most prone to take up the offer. so you do have to guard against that in this business. >> i wonder, though, if you also make some money on the people who never redeem them, right? i have this groupon that i bought for a restaurant down the street. i didn't know they expired. i just learned this. but i have to go look. >> i think that's offset, largely, by, you know, the deep discounts. i think the reality is, you do have to watch for the adverse selection. you're going to get some of that. and part of it is figuring out what kind of offer to make. how to tie that in to some loyalty. >> the restaurant guy seemed very smart about, you know, he wants to fill his chairs. >> there's a lot of overload on this, though, too. you know, groupon, it's living social, your daily newspapers are doing it. >> everyone is doing it. >> so as a consumer you're kind of sort of inured to it now. oh, yeah, whatever, i don't have time to look at this. you don't want to waste your money. i kind of like niche ideas where you can sort of more target that niche market.

>> but there are plenty of groupons for niches, also. >> yes. >> the restaurant guy did something really interesting, which is he did the math, which said, you know, if i do a 50% -- let's say i do $50. >> he just made it -- >> that was the average check size is bigger, even if that customer never returns he's going to be profitable. >> to your original point, this is just another marketing channel, and so you run your numbers, you get your roi, makes sense for some people. not for others. thanks so much you guys. books on being more effective in business are a dime a dozen. but here now are five books that could change the way you think about managing. courtesy of "time" magazine. the e-myth revisited, why most small businesses don't work and what to do about it by michael gerber, argues that technical skills alone aren't enough. he says effective management skills, and vision are also necessary to become a successful business owner. the one minute manager by kenneth blancheard and spencer johnson offers simple advice to

would-be effective managers. one tip, keep both praise and reprimand of your employees to one minute. stephen r. covey's the 7 habits of highly effective people is a handbook that points to confidence as the key to success. good to great, why some companies make the leap and others don't, by jim collins, looks at what characteristics fortune 500 companies share that result in long-term business success. and jay conrad levinson's guerrilla marketing reshapes how small companies think about promoting themselves. when we come back, a small business optimism remains weak. plus, we'll have tips on maintaining good business partnerships. and how a provocative name change resulted in big profits for the makers of these giant fans. sam: i'm sam chernin. owner of sammy's fish box.

i opened the first sammy's back in 1966. my employees are like family. and, i want people that work for me to feel that they're sharing in my success. we purchase as much as we can on the american express open gold card. so we can accumulate as many points as possible. i pass on these points to my employees to go on trips with their families. when my employees are happy, my customers are happy. vo: earn points for the things you're already buying. call 1-800-now-open to find out how the gold card can serve your business. what's in a name? you may not realize just how important a name can be. it can define your company, and your brand. in fact, sometimes a simple name change can completely revitalize a small business's sales and

culture. for some in a really big way. what do you get when you take a unique product -- >> it's like walking in to a seven-foot tall crayon. >> combine it with an unusual corporate culture. and an extremely descriptive brand name. you get the lexington, kentucky, based business big ass fans. >> it's definitely eye catching, ear catching. however you want to say that. it inspires a lot of interest and it's great for customers. >> the company is the brainchild of kerry smith. he saw design for massive fans that could inexpensively heat and cool large industrial spaces. he began selling the fans under a name that didn't have the same name for it. >> kae upped it hvls fans, high volume, low speed. the problem is it is a little difficult to understand or remember a name like that.

>> longtime staffer paul sums it up another way. >> while the name was dedescriptive it was not memorable. >> when they brought the fans that range from 60 to 24 feet in dee am ter, the response was always the same. >> they would ask us are you the guys that make those big ass fans? it was a constant thing. after about two years we relented, and said well this whole hvls thing, that's not going any place. everybody calls us big ass fans. >> smith figured he was on to something. they had used the big ass fans name informally in advertising. and he decided to go all the way and rename the company. a decision that paid off instantly. >> our natural customers, who would be the directors of maintenance, maintenance supervisor, plant engineers, plant managers, this was very acceptable to them. this was in their jargon. >> you can find big ass fans in all kinds of locations around the country. from fitness centers and restaurants to famous football

stadiums like lambeau field. >> it is something just a little bit different than what they're used to, because it's obviously not run of the mill. >> the people at big ass fans take pride in delivering the highest quality product. something that's important for a company that could easily be written off as a gimmick. >> but what that imposes upon us as a company, we have to have the absolute best. >> with a name like big ass fans you know there has to be some serious engineering behind it, otherwise, it wouldn't make it to the market. >> so what does the future hold? well, carey smith has big plans for his big fans. >> we see a big ass fan in every's living room. >> and while he's confident that the business would have been a success regardless of the name, he has no doubt that the change to big ass fans was the right move. >> because it is such a good dedescriptive of what we do. and i think people appreciate that and they appreciate the fact that it's very, very honest. i mean it really is. >> love it or hate it, you

remember it. that's the key thing to do with a brand. >> we'll get to some of your business questions in just a moment. but first, i wanted to ask rieva and mo about the nfib's new optimism index. it hit its lowest level since march 2010 at 88.1. it dropped 1.8 points in the last month. i want to just talk to you guys about this for a second. because you know, we have nfib on the other day, and awhile ago they were on and for the first time we were hearing some glimmers of optimism. then suddenly things just turned around again. in your network, you were concerned with different worlds. technology, where things a booming. what do you see out there? >> well, i mean, the point you made is a good one. obviously i'm a sector that is a growth sector of the economy. and hopefully will continue to be such for awhile. there's capital flowing into those businesses. and you know, we're seeing a

share shift of advertising dollars to those businesses. >> so people are optimistic. >> and we're seeing commerce, in the emcommercial world just increasing tremendously on the web. so a lot of dollars are shifting to my world. so, you know, that's obviously a good thing for the tech sector. from a macroeconomic perspective, you know, we have some serious issues in this country, large -- it all largely stems from unemployment, and that trickles its way all the way through the consumption piece of the economy. >> so, you deal with many other kinds of businesses. what are people saying? what do you think would make them turn around? >> first of all, i think those august numbers are skewed. skewed to the news that came out. if you turn on the tv, out. if you turn on the tv, you have politicians fighting each other. of course you lose optimism. i did a lot of work with the los angeles development center this summer and going around lots of

different cities throughout california, and these were small business owners and they were not pest amidstic. i don't think america's small business owners are sitting around in a sunk. it's more money in the economy. it's not like we can fix the small business but we have to give people more money to spend. that's the what the concern is. >> the first question is about paying an employee. >> we're looking to hire a person, so what is the best way to structure a salary -- >> for a sales person, in case you didn't understand that. how do you structure salary? >> well, you can do 100% commission. i think that's tough. today's economic times you might be able to attract people, but once things pick up they are

gone. an incentive keyed structure that plays into what you want to do. if you want to push new products, pay them more. existing products going, you don't have to pay them so much on a bonus structure. >> is there a place somebody can go to figure out the math? >> there are resources on the web that you can find, but it varies from industry to industry. and they all have little different schemes. you largely want to keep the base to the minimum it needs to be to get the person onboard, and you want to structure it where they have targets they need to meet and they have bonus commission targets against those targets, and they scale up and down based on performance, and you put in kickers if you kill it. >> basically, your goals. >> if you cap a sales person -- >> they are done.

>> i actually disagree with that. i have had experiences where we had somebody make over $1 million to 1.5 million bucks. and what i found is you actually can cap it if you offer specific bonus targets above certain milestones. so it's a cap without a cap. you don't want it to scale linearly. >> a cap where you get something. >> yeah, you still get a prize. >> this is from steve, and he writes i have a supplier that makes mistakes and cuts corners with the products and that costs me time and money to correct. unfortunately the supplier makes products that are popular with my customers. what can i do when i can't rely on one of my biggest suppliers.

it's easy to say stop working with them but seems this person is in a bind and can't stop? >> i would say fake it until you make it. you know what i mean? you have to give them the illusion that you actually have other options on the table to try and get some leverage out of the negotiation. the reality is it's a negotiation, and you need leverage, and have alternative sources for suppliers and look for alternatives, but you can't put yourself in that position. >> never rely on one supplier. what if that person goes out of business? you go out of business. it's your business and you can't put your business in the hands

of somebody else's business. >> thank you guys so much for all of your advice. it was helpful. all you have to do if you have a question, openforum.com/yourbusiness. if you would rather, you can e-mail your comments and questions, and the address is yourbusiness@msnbc.com. going into business with a partner could be a positive experience with so many benefits. i, for example, started by company with somebody, my brother, actually, and i don't know what i would have done without him. unfortunately, sometimes things don't work out as well as they have in my situation, so think through many of the what ifs before they actually happen. and leonard green is a

professor. what happens if somebody gets sick? a lot of us don't think about that, what if you get sick, do i take the company, does your web get the company or what? >> they don't think about, hey, who is going to pay for somebody to replace you? do you have disability insurance or other kinds of things. there has to be rules, flexible rules, but rules that say for a short period of time what we do, and then for the long term, what do we do. everybody agrees up front that that's what is going to happen. >> at least you have a starting point? >> definitely. >> are there ways to resolve these? are there simple things you can put into a contract saying this is how we will deal with this? >> and some of the shows talk about advisory boards, and that's a wonderful thing and it's a sounding board and gives you an independent persons to

look at, but guidelines are so important. you can't think of everything, but say, you know, let's figure out something, if something comes up we are not expecting -- >> this is how we are going to deal with it, too. you have, a., b., c. and then other. >> what if you need more money? then the partnership interests are going to change, and the question is what do you do if you need more money? you brought somebody in the beginning, because that's the way you needed it, but when you need more money that person gets dilut diluted. think about it. >> what if somebody gets divorced? that's something to think about. their marriage has nothing to do with my business, but really it has everything to do with your business. >> divorce and death means that

maybe somebody else gets your interests. the divorce proceedings or through the will. >> a lot of people don't have a lot of money to go spend with an expensive accountant or a lawyer, and it's at least worth one meeting. >> yeah, at least give road map is, because if you don't know what that is, it gives you a look at what the road map is. >> partnerup.com is a free website that helps people kind business partners. candidates search for opportunities based on what they are looking to contribute. the site is a social network that allows business owners to share advice and resources with other members. to learn more about today's

show, just click on our website. it's openforum.com/yourbusiness. it will have more information to help your business grow. don't forget to become a fan of the show on facebook. we love your feedback. follow us on twitter, it's twitter.com/msnbcyourbiz. i refuse to come in and leave the same way i came in. that was my thing, because i knew underneath everything else there was a bigger person than what i portrayed myself to be. >> we'll tell you how the life program is changing lives and helping to launch businesses as msnbc news take as closer look at our education nation. until then, i am j.j. ramberg,

and we make your business our business. shazi: seven years ago, i had this idea. to make baby food the way moms would. happybaby strives to make the best organic baby food. in a business like ours, personal connections are so important. we use our american express open gold card to further those connections. last year we took dozens of trips using membership rewards points to meet with farmers that grow our sweet potatoes and merchants that sell our product. vo: get the card built for business spending. call 1-800-now-open to find out how the gold card can serve your business. good morning from new york, i'm chris hayes. ann