Every now and then I’ll search Twitter for the name of my startup (“SideTour“) to see what is being said about our company. Today I took a look and found several tweets mentioning this posting on Freelancer.com.

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As I write this, the average bid price (among the 34 bidders!) is $5757. While I’m flattered the submitter has set aside $3000-$5000 to rebuild the site that myself and four engineers have built over the last year or so (with the “possibility of adding new features with easiness”), I have some exciting news for them: you don’t have to spend that money yet.

I’m going to tell you how to clone our site for free.

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Take everything the startup world is known for (launching new ideas, embracing passion, knowing when to pivot), crush it down into one 24-hour period and you’ll start to have an understanding of what hackathons are all about. Not for the faint of heart, these coding marathons require the creativity to think of an idea, the technical chops to actually build it in a day, and the chutzpah to get up in front of hundreds of people to present your work.

This Saturday, Techcrunch will be bringing the Disrupt hackathon back to the Big Apple. With over 500 hackers likely to attend, this proves to be one of the biggest hacking events in New York. But as a participant, what should you expect? And as a tech industry observer, why should you be paying attention?

As a Disrupt hackathon veteran, let me help explain what these are all about.

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Getting Off on the Wrong Foot

Topics: ideas

16 May 2011

Something to think about: often times the results we have from using a product will be dictated right from the very beginning of our experience.

For example, look at Powerpoint. Much has been written about what is wrong with your average Powerpoint presentation, but we all already know the common problems. They have too much text, are visually boring, and serve more as speaker notes than as an actual enhancement to the presentation being given.

But think about what a user is given when they create a new presentation. The “easy-to-use” template reinforces the standard header across the top, bullets underneath model. Is it any wonder that most finished presentations adhere to that format?

Or look at how getting off on the wrong foot affects online security. While at our computers, we are constantly being asked to create and enter passwords. Is it any wonder that many passwords are not secure? “Words” are easy to guess. If you were asked to create a passphrase, resulting in more unique word combinations, our accounts would be much more secure. Is it possible that one of the biggest problems with online security is simply the use of the word “password?”

Whether you are designing a product, writing a manual, or even running a retail store, analyze the first moments of any user’s experience and think of ways to improve. When you start off on the wrong foot, it can be extremely difficult to fix things later.

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Having lunch with a colleague the other day, I heard an interesting story about how his wife has been using daily deal sites such as Groupon, LivingSocial, etc.

A long-time member of the same gym, she has repeatedly seen attractive coupons on daily deal sites for other gyms in New York City (where they live). A typical deal would be something like a 30-day gym pass and 5 personal training sessions for $45. This is cheaper than the monthly fee at her current gym, which also doesn’t include any training sessions.

So she decided to quit her gym, and jump from place to place each month using coupons purchased from these sites. Considering how many competitors Groupon has spawned and the fact she is in a major city, it hasn’t been a problem finding the deals in advance.

This doesn’t bode well for local businesses.

Why Businesses Play Ball
Daily deal sites typically look for offers that are 50% or more off of the original price. They then take a 50% cut of the deal offered, leaving each business with about 25% of the original price. So why would they agree to such a deal?

Primarily because of the belief (promoted by these sites’ sales teams, of course) that this is a great source of new customers. A user will try your gym for 30 days, love it, and become a member. Or someone will visit your restaurant they found on Groupon, and then continue to return. You might take a hit on the first visit, but it’s all in the name of building repeat business.

Whose Customers Are They?
The big question is: who owns this customer? Do they truly belong to the restaurant or gym, or does their loyalty lie with the deal site? Many retailers are finding out that it’s often the latter. When users start to focus on the deal site first, the local business loses. Want to go out to dinner? Instead of visiting an old favorite, why not see what restaurant has a recent Groupon? Need a gym? Why pay full price? Just hoard a few different discount codes to use in the future. Suddenly, instead of driving new regulars, these sites will become a primary source of price competition.

The Cost of Retention
My wife recently tried a spa that had a great LivingSocial deal. After looking at the full price of services, she decided not to return. However, they recently contacted her, offering a package at the same price of the original deal. It turns out that most of the LivingSocial customers weren’t willing to pay full price, so the spa decided to extend the deals (indefinitely?) to keep them coming.

Did the daily deal bring the spa new customers that they otherwise wouldn’t have? Sure. But at razor thin margins compared to their other customers. And any word of mouth generated by this customer base will bring with it an expectation of the same low prices. It’s not difficult to see how this will continue to erode profit margins for these businesses.

The New Walmart?
It’s impossible to overestimate the effect Walmart has had on the world of retail. Since Sam Walton opened his first store in 1962, the company has reduced retail profit margins and dramatically lowered prices industry-wide. Other retailers are forced to keep their prices as competitive as possible.

Daily deal sites could have the same effect on local business. Instead of being a loss leader to acquire new customers, they could instead just drive prices down, making once loyal customers more price-conscious and harder to retain.

Be Cautious
What once seemed like an opportunity could become a major threat. Local businesses would be wise to consider what else may come through the door when they open it for a daily deal. Successful businesses aren’t just built on more customers. They also need to be the right customers.

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Long-time Internet entrepreneur Jason Calacanis recently shared an epiphany he had regarding startups. A critic of Facebook, he has come to appreciate the value of the company’s developer-driven culture. His new belief is that the primary cause of Facebook’s success (and, to be fair, mistakes) is that within the organization, developers are empowered to create products and features then push them live, all without oversight, formal review, or interference from management. They just build and launch, build and launch, over and over.

This is unusual in any company, much less one of the most popular websites in the world. While it has at times created problems for Facebook and left them with a PR mess that needs cleaning up, it has also allowed them to move incredibly quickly and keep up with their explosive growth. It also gives them a competitive advantage that other large companies just can’t top.

Being More Like Facebook
Based on this revelation, Calacanis decided to completely overhaul his company, Mahalo, and “remove everything between the developer and iterating on the product.” He cut back on people and positions, eliminating the formal role of product management. One of his more interesting decisions involved the actual creation process:

No more formal wireframes is Rule #1 at Mahalo. You build your wireframe in HTML — or maybe on a white board or bevnap at a bar.

No more mockups is Rule #2. Instead of having a product design team, we’re outsourcing our site design to independent design shops and individual designers of note.

This instantly made me think of the hackathons that we participate in at my company, Kickstart Concepts.

Running a Company Like a Hackathon
This is basically how we operate during a hackthon. With a limited amount of time, we don’t have the option to create traditional wireframes, have lengthy discussions, or entertain a formal review process. We just build. Every minute of effort needs to be spent on something usable.

For example, the advantage of building prototypes or mockups in HTML is that once you’re done, you actually have a skeleton of a site to continue working on. By eliminating traditional product management, you’re removing the massive layers of overhead that go into administration, developing spec documents, traditional project management and more. It’s amazing how this sense of focus can produce incredible results in a short amount of time.

In a hackathon, these are all removed by necessity. At Mahalo, they’re being removed to reduce drag on the product and allow the company to innovate at a much faster rate.

A Growing Approach
Hackathons demand the type of iterative prototyping, rapid-development approach we use with our clients at Kickstart Concepts. And Facebook is helping drive it’s adoption, with Mahalo being a great example. But this road isn’t without its bumps. The secret is to just have more big wins than big losses.

I’m excited to see how this change in direction will work for Mahalo. It’s not easy to make a decision like that, and I applaud Calacanis for taking the leap.

Now comes the fun part: seeing how it plays out.

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Mark Webster

About Mark Webster

One of the Co-Founders of SideTour, former TechStar (NYC Summer 2011), ex-NBA'er, and past TechCrunch Disrupt Hackathon Winner.