At a time when daily deal start-ups are popping up and expiring like digital coupons, career opportunities in the business seem riskier than ever.
For those looking to land a job at a company like Groupon, which goes public this week, one of the biggest potential risks is winding up unemployed. Linking one's personal brand with that of a poorly managed start-up can also cause long-term career damage.
Job seekers need to thoroughly understand a company's business model before signing on, even if the company is steadily growing, said Harry Joiner, an Atlanta-based e-commerce recruiter at ecommercerecruiter.com. "The reputation of your company is just as important as your reputation as an employee," he said. "A lot of times when people go and work for a start-up, they don't know what they're doing, purely because that start-up hasn't figured out what it's supposed to be doing."
On average, more than one in every two new daily deal sites is destined to fold or get bought out in its first year, despite the growing number of new brands hitting the market. The number of online coupon sites reported by the daily deal aggregator Yipit.com grew from 184 to 377 between January 2011 and September 2011, while another 232 sites were shut down or absorbed by another company in the same nine-month span.
"There is a low barrier to entry in the daily deal space and that makes any company's future uncertain, especially when that company is competing against Google and Amazon," said Michael Adler, a managing partner at the recruiting firm AC Lion, which specializes in digital media. "The big risk for job seekers is opportunity cost. It's not always easy choosing the best company with the most reliable business model to work for."
Related: Getting in on the Ground Floor at Groupon
A critical element of looking for work in the online coupon business is determining if the company will stay in business. "The first thing job seekers need to do is spend several hours researching any daily deal company they want to work for," said Boyan Josic, founder and CEO of the trade site, Daily Deal Media. "It's important to look at funding and user traffic, among other things, before you jump in with an Internet coupon site that could be gone tomorrow or a month from now."
Groupon, which just a few months ago seemed like the next best thing in online commerce, has lost steam lately. The Chicago-based site's initial public offering may value the company at less than $12 billion, down from as much as $20 billion.
Groupon is also juggling several lawsuits both from and against current and former employees. Those lawsuits include a civil complaint filed in mid-October against two former sales managers accused of taking confidential trade secrets with them when they left Groupon for its competitor Google Offers, as well as a class-action suit filed in mid-September from 50 employees who said they were owed overtime pay.
"Some companies have a better employment brand than others and Groupon's missteps have started to damage that brand," said Joiner, who evaluates about 50 e-commerce resumes a day. "If I see Groupon on your resume after the company has been in the news for bad management, it makes me think you've been working for a second-grade outfit."
Groupon now has over 10,000 employees, with about 5,000 people working in sales, according to its regulatory filings. When the company was founded in November 2008, it had seven employees. A Groupon spokesperson declined to comment about the company's growth as of now, due to the regulatory quiet period tied to its IPO, but she said that they are still adding new workers a rapid pace.
Related: Salespeople Fuel Growth at Groupon
According to Groupon's chief executive Andrew Mason, a large portion of that hiring will be to substitute existing employees. Mason told potential investors last week that the company will fire and replace the lowest performing 10% of its sales force as it pushes to win stronger deals from merchants and ensure its future growth.
However, some investors have started to question whether or not the company is overstocked with workers as it is.
"Groupon has four times as many employees as Facebook and that seems not only excessive, but in many ways unbelievable given that they're losing money," said Scott Sweet, senior managing partner of IPO Boutique, an IPO advisory company that has been closely watching the company's recent moves. "Considering Groupon's laissez-faire spending, it might be not long before they face the possibility of no longer being viable."
The most recent daily deal site to face a string of losses is BuyWithMe, which cut more than half of its workforce of 190 in mid-October, after acquiring six other daily deal sites and taking on $10 million in debt. Those 109 layoffs were followed by a series of pay cuts for BuyWithMe's existing employees when the Boston and New York-based company agreed to a full sale to the luxury shopping site Gilt Groupe in late October, said one of the company's former sales employees, who did not want to be identified due to concerns about finding future employment. Now only about five or six employees are left, that employee said.
"They asked me to work for no pay and I was willing to, but then I found out about the company sale to Gilt and got out," the employee said. "I need a name on my resume now, because I no longer have one. Going forward, I'm looking at bigger brands like Amazon Local. At least with them, if the daily deal part of the business doesn't work out, Amazon isn't going anywhere."
In addition to Amazon Local and Google Offers, the other top daily deal sites, LivingSocial and kgbdeals, have fared better than their competitors and are continuing to hire new workers at a steady pace. LivingSocial, which became partners with Amazon in the beginning of the year, has close to 4,000 employees and is hiring at a rate of about 150 people a month, said a company spokesperson. Though smaller in its head count, kgbdeals now has 500 employees and is hiring at a rate of about 30 people a month, said the company's CEO Patrick Albus.
But despite that job growth, the online coupon business may be reaching a saturation point as the number of daily deal providers start to outweigh the availability of merchants, said Joiner of ecommercerecruiter.com.
In addition to competition from other start-ups and big Internet sites cloning the Groupon model, a growing number of companies are providing the software for retailers to offer their own daily deal services, like Deal Current based in San Diego, Calif., and Dealy based in Greenville, S.C. That combined competition is making it harder for the sales employees at daily deal sites to land the big name clients that often lead to better sales jobs down the road, said Adler.
"In the long-term, it's going to be challenging for some of these daily deal sales people to find jobs elsewhere, especially at higher level companies," he said. "The small business rolodex that they're leveraging is not going to be as marketable if they want to go sell for a company like ESPN or Conde Nast.
"But on the positive side, the key skills that people will usually learn after a year or two at a site like Groupon can be useful if they plan to stay in the local digital media space."
Write to Damian Ghigliotty at Damian.Ghigliotty@dowjones.com