groupon and others love it. that's coming up on "your business." hi there, everyone. i'm jj ramberg. welcome to "your business" where we give tips and advice for your business to grow. there's no question that groupon and living social have received a lot of media attention.

most of it for consumers who signed up to get discounts from local merchants. small businesses using groupon and giving discounts. what's a boom for some has been a disaster for others. open your e-mail on almost any given day and, if you are a member, the odds are good you'll find an eye catching discount from groupon or living social or one of the many other deal sights. >> periodically i get e-mails for groupon. they were offering amazing specials. i decided to do it. i always wanted to do laser. >> she was one of several hundred thousand consumers who saw this, 95% groupon discount on laser geneny beauty treatments. she jumped on it.

so did this customer. >> i was thrilled and excited and gun hoe. i wanted to get started right away. >> they were not the only ones excited about this. >> definitely had high expectations. >> that's the co-owner of the laser jeannie. 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. wow, we basically just made $300,000. we were so happy. >> pedal like a bad woman. >> this is the start up owner of hydrobikes. he made his first groupon offer last year, august 24th, 2010, just two months after opening day. 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. >> the owner of lashers restaurant was highly skeptical. he didn't see how what amounted to a 75% discount could make him a profit. >> i put the math to it. i could make money and take advantage of the impact they have. >> indeed, the impact can be tremendous. groupon told him nearly 700,000 people saw the offer. >> when it goes on groupon, it goes out to millions of people around the world. i have groupon people that bought them in china. >> what seems like a lucky windfall to one can feel like a destructive tornado to another. >> it makes me sad. i paid for people's treatment

who will never be my customer. >> according to a study, 32% of small to medium size businesses lost money running the promotion. >> there's 3,085 customers. you get ready to be able to serve those customers. we had four additional staff members dealing with the phones and e-mails. it wasn't enough. >> she says despite her best efforts, the thousands of new customers rapidly overwhelmed the business and crowded out regular customers. most groupon customers never bought anything else from her and never returned. >> i tried calling a couple times. the phone was always busy. i checked the website. they had such a huge influx of customers, it's better to e-mail. >> every business has their own limits when it comes to how many clients or customers can be

served in a day. at laser jeannie, the owners became overwhelmed. >> after a week, we were booked four months ahead. then the next people i would tell them your next appointment will be in four months. the anger started to go up. they were putting bad reviews online. we were getting one star reviews. >> we went from five stars to two stars because of groupon. it's cost us a lot of our business. >> the damaged reputation was indeed painful. >> it hurts. it hurts a lot. you start doing damage control and start trying to apologize everywhere for everything. >> we spoke to groupon about her situation. they claim the difficulties were the result of not following their recommendations. however, they say they have made

changes since this happened. >> certainly, we never want to hear a merchant is upset. the model is broken if merchants aren't happy and consumers aren't getting what they paid for. we made lots of improvements. >> if you take the cost of highly discounted services, cost of salary for additional staff and the cost of many no shows and the lost income from regular customers. for rose, the groupon deal was a financial fiasco. >> the debt that's resulted from this is about $200,000. >> quite a different story from john huntington where a 50% off a ride put his unknown business on the map. >> i'm making more money from the people and the walk ones now than i was making before i had groupon. my daily increase in dollars immediately tripled. >> ray lasher didn't think

groupon was worth it at first. the deep discounts didn't make sense to him until he realized he could up sell the customers keeping the groupon below the average receipt total. >> say they spend $100. $50 is the groupon. they spend another $50. that second $50, i'm making my full profit. i have people in empty chairs. >> timing is key. since the last weeks of the offer get the biggest number of groupon customers, he schedules it to expire early fall. >> as you get toward the end of the expiration date, it's not a bad idea to time it. i time the end of my groupon to my slower period of time. >> large numbers alone are not meaning success.

>> it didn't translate to more sales or more growth. >> if you can harness the numbers, bring it on. >> i have great reps. it will be great for some and not for others. i know that. >> it's a complicated issue and groupon has made some changes. let's weigh the pros and cons of the daily deal sight with the board of directors. rita is the founder, president and ceo of grow media. great to see both of you guys. >> great to see you. >> as we were watching this, you were both shaking your heads a bit. what is your reaction, good, bad? >> you have to plan ahead of time. you can't just say yes. the restaurant owner set it to expire slow time. maybe offer it during the slow

time. don't enter into it during a peak time of your business or you will alienate our regular customers. >> i think what people forget is they look at groupon and think it's a silver bullet or magical thing that is going to drive new customers. it's just another marketing channel. >> right. >> you are offering a promotion to drive people into your store. you have to calculate how to do it effectively. that includes how many people you offer the promotion to, how you price it, what it means to a profit margin, how it affects the lifetime of a customer. there's factors you have to weigh. >> i wonder, are the people who are taking such deep discounts the kind of people you want at your business? are they really going to come back? >> you are introducing them to your business. they walk in with a great

expectation. i have a great experience. i spent no money. the next time, they might spend money or not walk in again. you have to see what you sell. is it a return product where you are introducing yourself to them and they are saying this is great, i'm going to come back on my own. >> that's a good point. some businesses are not cut out for groupon. if you are in a one-time transactional business for instance what we saw in the video. laser hair removal. how often are people going to do that. you come in, get the hair removed, what are you going to do next? perhaps somebody said 50% off, i wanted to do my arms. they come in and they are done unless they have a way to drive the rest of it, it's not going work. you raise another good point, there's an adverse selection here, which is -- this has always been the case, bargain

hunters, discount shoppers are going to, you know, be the most prone to take up the offer. you have to guard against that in this business. >> i wonder, if you make money on the people who never redeem them? i have a groupon i bought for a restaurant down the street. i didn't know they expired. i just learned this. >> there's definitely some breakage in the model. i think it's offset largely by you know, the deep discounts. the reality is you have to watch for the adverse selection. you are going to get some of that. part of it is figuring out the offer you are going to make. >> the restaurant guy seemed smart about wanting to fill his chairs. >> there's a lot of overload. there's groupon, living social, everybody is doing it. >> as a consumer, you are ignoring it. whatever. i don't have time to look at this. you don't want to waste your

money. i niche ideas to target that niche market. >> there are plenty of groupones. >> the restaurant guy did something interesting. he did the math that said if i do a 50% -- say i do $50 worth of food for 25 bucks, he knows the average check size is bigger. even if they never return, he's profitable. >> this is just another marketing channel. you run the numbers. makes sense for some people, not others. thanks you guys. books on being more effective in business are a dime a dozen. here now are five books that could change the way you think about managing, court see of time magazine. technical skills alone aren't enough. effective management skills and vision are necessary to become a successful business owner.

the one minute manager offers simple advice to would be effective managers. one tip, keep praise and reprimand to one minute. the seven habits of highly effective people is a handbook that points to confidence as the key to success. good to great. why some make the leap and others don't. look at the characteristics fortune 500 companies share that result in long term business success. markets reshaped how small companies promote themselves. when we come back, small business optimism remains weak, plus tips on good business partnerships and how a provocative name change results 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

sales and culture. for some, in a really big way. ♪ you spin me right round >> what do you get when you take a unique product -- >> it's like walking in a seven foot crayon. >> combine it with a culture and a descriptive brand name. you guessed, big ass fans. >> it's eye catching. however you want to say it. it inspires a lot of interest and it's great for customers. >> he saw a demand for massive fans that could heat and cool large industrial places. >> we called it hvls fans. high volume, low speed. the problem is it's difficult to

understand or to remember a name like that. >> long time staffer sums it up another way. >> while the name was descriptive, it was not memorable. >> when they brought the fans that range from 60 to 24 feet in diameter, the response was always the same. they ask are you the guys that make the big ass fans? it was a constant thing. we relented and said this whole hvls thing, it's not going any place. everybody calls us big ughtthey something. they used the name informally in ads. he decided to rename the business. it paid off instantly. >> our natural customers, maintenance supervisors, engineers, managers, this was very acceptable to them. this was in their jargon.

you can find them in fitness centers to lambeau field. >> it's different than you are used to. it's not run of the mill. >> they take pride in delivering the highest quality products, something that is important. >> it imposes upon us as a company, we have to have the absolute best. >> with a name like big ass fans, there has to be serious engineering behind it. otherwise, it wouldn't make it in the market. >> what did the future hold? >> he has big plans for his big fans. >> we see a big ass fan in everybody's living room. >> he's confident it would have been a success regardless of the name, but the change to big ass fans was the right move. >> it's a descriptor of what we

do. people appreciate that and the fact it's very, very honest. >> love it or hate it, it's honest. it's the key to any brand. we'll get to some of your business questions in a moment. first, i wanted to ask reba and moe about the index. it hit the lowest level since march 2010 at 88.1. it dropped 1.8 points in the last month. i want to talk about this for a second. we had them on the other day. for the first time we were hearing numbers of optimism and then things turned around again. in your network, you work in a different world, technology where things are booming. what do you see out there? >> well, the point you made is a good one. i'm in a sector, a growth sector of the economy and will continue to be for awhile. there's capital flowing into

those businesses and we are seeing a share shift of advertising dollars. >> people are optimistic? >> yeah. the e commerce world is increasing on the web. a lot of dollars are shifting to my world. it's good for the tech sector. we have some serious issues in this country. it largely stems from unemployment and trickles its way all the way through. >> reba, you deal with other kinds of businesses. what do you think would make them turn around? >> the august numbers are skewed. if you turn on the tv, politicians fighting with each other constantly or i have lost my inner pollyanna. it seems depressing. of course you lose optimism. i did a lot of work with the los angeles small business development center going around

lots of different cities throughout california. they are small business owners and they are not pessimistic. they were there to learn more and think this is what i have to do to propel my business. i don't think small business owners are sitting around in a funk. they need more customers. it's more money in the economy. we can't fix the small business. we have to give people more money to spend. it's really what the concern is. >> let's move on to the questions from the audience. the first is about paying an employee. >> we are looking to hire a salesperson. what is the best way to structure a salary. >> for a salesperson in case you didn't understand that? commission or what? >> it's about motivation for sales people. how are they best motivated? 100% sales is tough. once the economy picks up, they are gone.

the best is salary plus. a structure that keys into what you want to do. push new products, pay them more. keep existing products going, you don't have to pay them so much. >> is there a place to go to figure out the math? >> i'm sure there's resources on the web. it varies around a sizable ad team. we had our own commission structure and different industries. they have different schemes. largely, you want to keep the base to the minimum it needs to be to get the person on board. put as much as you can in commission. structure it where they have targets they need to meet and bonus commission. targets against those targets. they scale up and down. >> basically, put together your goals. >> you have to lay out the

objectives. >> if you cap a salesperson, they are done. >> they are done. >> i disagree with that. i had experiences where we had somebody make over 1 million bucks between 1.5 million and 1 million. it's great but the next year, they expect the same thing. what i found is you can cap it, if you offer specific bonus targets above certain milestones. it's a cap without a cap. you don't want it to go linearly. you still get a prize. >> this is the next question from steve. i have a supplier who makes mistakes and cuts corners with products which costs me time and money to correct. the supplier is located near me and makes products popular with his products. what should i do when i can't

rely on one of my biggest suppliers. it's easy to say stop working with them. they are in a bind and can't stop working with them. >> you need more than one supplier. to have that much supply concentration to begin with, the rooster will come to roost at some point. if you haven't done that, i 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 to get leverage out of the negotiation. the reality is, it's a negotiation. you need leverage. you need to create it in the right way. you have to fake it. then ultimately, you have to look for alternatives. you can't put yourself in that position. >> you should never rely on one supplier. what happens if they go out of business, then you have nothing. you have to start right now finding alternative suppliers for negotiation or not.

it's your business. you can't put your business in the hands of someone else. >> thank you for your advice. it was helpful. if you have questions for our experts go to our website. the address is openforum.com/yourbusiness. hit the ask the show link. again, openforum.com/yourbusiness. e-mail your comments or questions. going into business with a partner can be a positive experience with so many benefits. i started my company with someone, my brother, actually. i truly don't know what i would have done without him. unfortunately, things don't always work out as well as they have in my situation. think through the what ifs before they happen. leonard is the ceo of the green group, which provides tax

accounting and consulting services. he's also a profess sor. what happens if someone gets sick? a lot of us don't think about that. do i take the company, does your wife? >> they also don't think hey, who is going to pay for somebody to replace you. do you have disability insurance? there's got to be rules, flexible rules but rules that say hey, for a short period of time what we do and then for the long term, what do we do. everybody agrees up front that's what's going to happen. >> at least you have a starting point. >> definitely. >> are there easy ways to resolve these? is it too much of what if? are there simple things to put into a contract? >> certainly, if you set down somebody else in your shows, it's a wonderful thing. it's a sounding board. there's an independent person or

persons to look at. guidelines. you can't think of everything. if something comes up that we are not expecting. >> this is how we'll deal with that, too. you have a, b, c, d, other. >> the toughest one is what happens if we need more money. you have people on the show each week that talk about we need more money. then the partnership interests are going to change. the question is, what do you do if you need more money? you brought somebody in in the beginning because that's the amount of money you needed. then when you need more money, then that person gets diluted. think about it. >> this one, what happens if somebody gets divorced? you don't think of that because marriage has nothing to do with my business. it has everything to do with your business. >> divorce and death is a tough

one. divorce and death means that maybe somebody else gets your interest. there the divorce or the will. >> a lot of people don't have a lot of money in the beginning to spend with an expensive accountant. it's worst at least one meeting even if they don't spell out the answers at least to give you the questions. >> the road map. you are going to make the decisions. if you don't know what the road map is, how do you know what questions to ask. >> better to spend tiny money now than heart ache later. >> amen. >> thank you. do you wish you had a partner for your current business? if so, check out our website of the week. partnerup.com helps entrepreneurs find business partners. conditioneds search for opportunities based on what they are looking to contribute. it's a social network that allows business owners to share advice with business owners and

other members. to learn more about today's show click on our website, open forum.com/yo forum.com/yourbusiness. don't forget to become a fan of the show on facebook. we love getting your feedback. you can follow us on twitter@msnbc your biz. next week, we visit an oregon prison to find out how the inmates are getting the education they need to turn themselves into entrepreneurs. >> i refuse to come in and leave the same way i came in. that was my thing. i knew under everything else there was a bigger person that what i portrayed myself to be. >> how the life program is changing lives and helping launch businesses as we take a closer look at our education nation. until then, i'm jj ramberg.

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