Why Did Şehir Fırsatı Shut Down?

On the night of 23 April 2010, sehirfirsati.com went live. Its first deal was a cinema ticket for one Turkish lira. The site was the Turkish arm of CityDeal, a Berlin-based company that at the time operated in 14 European countries. According to Webrazzi, the Turkish tech news site, the general manager was Emre Ekmekçi. The team was 16 people, starting in six cities: Istanbul, Ankara, Bursa, Antalya, Adana and Afyon. The target for the end of the year was 80 cities and a staff of 50.

Five years later, on 24 August 2015, visitors to the same site were met with a different message: Groupon was ending its operations in Turkey. The plan to grow from six cities to eighty had not worked out. So why?

Every founder still reaches the same door at some point: a first-order discount, a free first month, a promo code. A discount is the quickest way to bring a crowd to the door. Keeping that crowd inside is a different job altogether. The story of Şehir Fırsatı (literally "City Deal") shows the gap between the two, through a five-year example.

What did it do?

The model was simple. Every day it sold a discounted voucher for a local service such as a restaurant, a health centre or an event. The business won new customers, the buyer got a discounted experience, and the site brought the two together. The idea was simple because the whole campaign fitted into a single daily offer.

The one-lira cinema ticket at launch was the perfect shop window for that idea: it brings the friction of the first transaction close to zero, but does nothing to guarantee a second one. That is an interpretation. Still, a campaign's success is measured not by how many tickets sold on the first night, but by what the people who went to the cinema on that ticket did afterwards.

In May 2010 Groupon acquired CityDeal, and Şehir Fırsatı became Groupon's brand in Turkey. According to Webrazzi, CityDeal had invested 2.5 million euros in the Turkish market, and the site reached 100,000 members a month after launch. Groupon's CEO at the time, Andrew Mason, said CityDeal had adapted the Groupon model to each country at lightning speed and achieved great success. Turkey was one of those adaptations.

What went wrong?

The official statement was brief. Groupon said its Turkish office had failed to meet financial expectations. The published reports give no more detailed reason. The timeline below shows the picture that emerges from published data; the causes are an interpretation of that data.

• May 2012: According to Webrazzi's analysis, the total number of users of group-buying sites fell from 3.4 million to 2.3 million in a year, even though the number of internet users grew by roughly 700,000 over the same period. Şehir Fırsatı's unique visitors dropped from 813,000 to 663,000, and its daily visitors from 65,000 to 52,000.
• August 2015: Webrazzi reported that sales at the Turkish office had recently fallen by as much as 60 per cent, and that to cut costs the company had switched from a field sales team visiting businesses to selling by phone.
• 24 August 2015: Groupon announced it was pulling out of Turkey, where it had operated as Şehir Fırsatı for more than five years. According to Marketing Türkiye, the deadline for voucher holders to claim refunds was 30 September 2015.

The market itself had changed too. In its 2012 analysis, Webrazzi wrote that the decline of the group-buying market was by then common knowledge. The 80 cities set as a year-end target in 2010 looked, by 2012, like a calculation from a different market. The growth plan had been built around the speed of the market in those years; once the market slowed, the plan could not hold.

The reaction from the competition was telling as well. According to Webrazzi, Cem Sertoğlu, one of the investors in Grupanya, the main local rival, congratulated the Grupanya team in a farewell tweet, pointing out that they had beaten their number-one competitor with far fewer resources. What is more, in Webrazzi's May 2012 analysis Şehir Fırsatı had 663,000 unique visitors to Grupanya's 551,000. In other words, the side that withdrew was the one with more visitors at that point.

Lessons for founders

• A voucher is a transaction, not a relationship. A customer who arrives with a voucher is choosing the discount, not the business. In June 2011 Utpal Dholakia of Rice University published a study of 324 businesses in the US. 55.5 per cent of the businesses made money from their voucher campaign, 26.6 per cent lost money and 17.9 per cent broke even. Roughly 80 per cent of voucher users were new customers, but only 19.9 per cent later came back to buy at full price.
• The depth of the discount is a decision too. At the end of his 2011 study, Dholakia advised businesses to offer shallow discounts of no more than 25 per cent. The aim is to leave it possible for someone who came in with a voucher to return at full price. After a deep discount, going back to full price gets harder; that is an interpretation, but it is a question you need to ask about your own campaign too: when the discount ends, does the customer stay?
• Measure your growth target by customer retention. The number of cities, members and visitors can all grow. When the market shrinks, what is left is how many times the same customer comes back. Work out your unit economics from the start with the LTV/CAC calculator.
• When you cut costs, make sure you protect the channel that carries the relationship. Replacing a field team with phone sales lowers expenses. But the face-to-face bond with businesses was the glue on the merchant side of this model. The sources do not say whether this switch was a cause or a consequence of falling sales, but it clearly did not prevent the withdrawal.
• A global brand does not mean local dominance. Groupon had the name and a global company behind it. The local rival, in Sertoğlu's words, pulled ahead with far fewer resources.

This startup's record card is in the Startup Graveyard. You can also find a similar reason for closure on the page for startups whose business model did not work.

The coupon: a piece cut off

The word coupon comes from the French coupon, whose root is the verb couper, to cut. According to Etymonline, its first recorded use in English dates back to 1822, when it described the piece cut from a bond and presented for an interest payment. Today's meaning, a document that entitles you to a discount, appeared around 1906.

So a coupon is a piece cut from a whole. With a bond, that piece went to the investor. With a discount voucher, it is cut from the business's profit margin. While the whole stays the same, the bigger the piece gets, the less there is left. What makes up for the piece that was cut is the customer who comes back a second time. When they do not, the discount remains nothing more than lost revenue. That is an interpretation, but Dholakia's figures point the same way.

Aristotle described this situation more than two thousand years ago as a kind of friendship. In Book VIII of the Nicomachean Ethics, he writes that those who love for the sake of utility love the other person not for who they are, but for the good they get from them.

"Such friendships, then, are easily dissolved, if the parties do not remain like themselves; for if the one party is no longer pleasant or useful the other ceases to love him."

Aristotle, Nicomachean Ethics, Book VIII, chapter 3, translated by W. D. Ross. In short: bonds built on usefulness come apart easily when the parties do not stay the same. Once one side is no longer useful or pleasant, the other stops loving.

How many of your customers would still walk through your door on the day you remove the discount?