1) You get cut a check for a substantial amount of money, potentially weeks or months in advance of having to provide the good/service which justifies the money.

2) Exposure to a new audience, who you could ideally:

a) convert into recurring customers

b) upsell into more lucrative services

c) use as social proof / infection vectors for recruiting more customers

3) Did I mention the cash flow thing? Seriously. I think that is huge. Groupon is in the business of calling people on the phone and promising to give them a lot of money. And they do it.

It is a form of advertising --- an expense already built into virtually every small business plan in America --- that (a) pays the business money and (b) puts the business into direct contact with the target market.

Behold: a link! http://boss.blogs.nytimes.com/2010/11/23/doing-the-math-on-a...

It depends on the type of small business and the situation that it is in. There is a wide range of risk vs. reward opportunities.

For example: If you are a service business, assume you are a massage therapist. If you are a new business your overhead tends to be the space you rent from a salon. So discounting your product to get 1st time customers in and filling potentially empty hours that are only costing you money is a good thing even at a reduced rate. Add to that knowing that if you do a good job some of those customers may repeat is a win win for your small business. Not only do you get business you might not have normally had you gain the true potential for future business and the opportunity for some word of mouth marketing as well.

A restaurant on the other hand is a much different situation than the massage therapist example from above. A restaurant owner has a lot of cost built into their product. Not only do they have overhead but they have a cost of goods sold and usually have a limited margin on everything but alcohol. Restaurant coupons are seemingly always in demand and the daily deals sites are always looking for more offers from them. Crafting a deal that can insure profitability is key because more often than not these coupon using customers don’t come back until they get the next coupon.

If you are an e-commerce small business and you are selling a product you have to be much more careful. Business with large margins and sales prices in excess of $100 seem to do best. Businesses with smaller margins almost always lose money on their sales because they don’t have the margins to be able to absorb the discount plus their share to the daily deals site.

I work with a few of the largest players in the space so if you need help or advice let me know.

Instant results for minimal effort

You could cultivate similar levels of foot traffic over a longer term for a lower level of effective spend by setting up your own mailing list, Facebook group, running targeted local ad campaigns etc. to distribute your own coupons. But that involves hours of effort. You could pay a third party to run the campaigns for you (my flatmate makes his living running them) but you're committing even more money up front, and unless the third party is supplying or buying a mailing list for you it's still going to take a while for the results to become obvious.

A small business offers a deep discount in hopes of future repeat business at the regular price.