Joel Cheesman

Profounder (@teamprofounder) closed its doors this week. 

If you’re not familiar with the crowdsourcing solution, you’re likely familiar with similar services like Kickstarter or Indie Go Go.

Profounder was different, however, in that it’s original premise allowed for startups to actually get money in return for a percentage of profits. A company might raise $50,000 and give one percentage point of profit each year for 4 years for every $10,000.

Other services let you give away perks or product in return for cash, but equity is a no-no thanks to some pretty outdated laws from the ’20s and ’30s.

Fortunately, that’s likely to change, but for Profounder it was apparently too late.

Shame. It was a really cool business, even managing payouts and analytics for both entrepreneur and investor alike. It also enabled start-ups to access capital without a lot of the complicated equity breakdowns that commonly occur with such deals.

As access to bank loans and investment dollars remain a common hurdle for many businesses, it’s imperative that government cut the strings that bind a great idea like Profounder from benefiting entrepreneurial endeavors.

A free T-shirt or a copy of a new album in return for funding don’t go very far.

“So what’s a typical discount you’d give a customer that wouldn’t cause you any stress,” I asked a local restaurant owner.

“Oh, 10-15 percent,” he said. Then continued, “The problem is, no one cares about 15 percent discounts. They won’t even take advantage of it. If it’s not ‘half off’ then it’s not appealing enough.”

Of course, unless you’ve been living under a rock, the flood of daily deal sites that offer half-off discounts is what he’s referring to.

For better or worse, most notably, Groupon is creating a new reality for local merchants that forces them to race toward the bottom of their already-razor-thin-margins in order to compete with other area businesses.

“I’d have to lose my ass with a Groupon,” says my restaurant-owning friend. “Unfortunately, though, it may come to that.”

If Groupon, and the even more formidable Groupon Now, which allows customers to target local deals based on smartphone navigation, is creating a very scary reality for merchants: Offering deep discounts on a regular basis in order to generate business.

Groupon Now luckily takes less of a percentage, and merchants have more control, but the deal-hogging reality remains. If people eventually get in the habit of picking lunch spots exclusively by discounts and flash sales, the landscape drastically changes for local businesses.

Of course, all this is great for the consumer, at least in the short term. Further out, I’m not so sure. If restaurants have to increase regular pricing in order to make their discounts look bigger, or the restaurant landscape mainly includes cash-rich, established players, then that’s probably not a good thing.

Call it the Walmartification of all local business.