In some ways, the take-off of the social media engagement app Stealz happened by accident.
The founders came together to start a nonprofit organization to help school systems raise more money. In the process, they met owners of restaurants, bars and venues and learned of a key problem in marketing and growing their businesses. The busy owners of those establishments didn’t have the time, or the content, to take advantage of social media.
In many other ways, Stealz’s growth into Triangle-area McDonald’s, Applebee’s and Which Wich restaurants and hundreds of independently-owned businesses across the East Coast is by design.
The founders recognized the problem they could help restaurants and entertainment venues solve, and they solved it.
They do it in a way that both excites and mobilizes customers—offering points redeemable for freebies, coupons and discounts in return for patronizing, photographing and then sharing those photos through social media.
Different from daily deal companies or couponing apps, they charge businesses a subscription fee, averaging to about $45 per month. The restaurant or bar decides what deal to offer (1 point at local McDonald’s restaurants gets you a free McFlurry; 50 points equals unlimited refills of McFlurry for 24 hours).
And they use cutting-edge iBeacon technology—to collect the content and automatically tie it to the store or venue, and to woo customers in as they walk past.
But the early success of the app—45,000 downloads, 500 business subscribers and a handful of larger chain restaurant partners—is only the beginning for the two-year-old startup. The founders have two giant challenges to overcome—to attract users by the masses and to retain those users once they’ve downloaded the app.
The challenges aren’t unique to Stealz—according to June 2014 research from the app analytics firm Localytics, 39 percent of apps are opened 11 or more times and 20 percent are opened only once.
“Retention is tough,” says CEO and co-founder Jimmy Zidar. “Ours is growing at an impressive rate, but it’s not where we want it to be as a company, and a lot of that comes down to improving the technology and user experience.”
An early September update to the app has already generated positive feedback. Stealz is working on ways to encourage the existing user base to be better promoters.
“The most important thing we can do is make sure the product is really easy to use and that our users are enjoying it,” says Zidar. “If our users are having a good experience sharing Stealz photos, that’s going to increase awareness more than anything we could ever pay for.”
The Stealz back story
Zidar and co-founders Brent Nolan and John Charlesworth were friends in high school at Cardinal Gibbons in Raleigh, but came back together after college and working corporate jobs in 2011. They began working on Stealz in 2012, and by October had brought on Brant Elliot as CTO and quit their jobs to pursue the business full-time.
The first customer was a paying one. Ruckus Pizza paid an annual fee in February 2013 to use Stealz at its three Triangle-area restaurants to deliver discounts to customers in return for photos taken and tasks completed and shared through social media while dining.
“They are still one of the best customers on the app,” Zidar says. Despite bugs and issues in the first six months, “they really believed in the concept.”
Winning customers since then hasn’t been hard. Many of the businesses the men approached had turned away from the daily deal model—they’d lost money or failed to attract the loyal customers promised. Some used loyalty punch cards. Most lacked a concerted and effective social media presence despite their promotional strategies.
Stealz recruited college students in the summer of 2013 to sign on businesses in their towns, earning $100 commission on each sale. The founders hoped to add 100 or so businesses to the platform but 200 across 12 states took the bait. Though it proved an unexpected early management challenge—the businesses each required handholding and training—the early validation attracted the interest of angel investor David Gardner.
Gardner likes to get in early to help shape the marketing strategy and the team and to grow sales. But he wanted to do his own due diligence first. That involved driving around with Zidar and picking four restaurants for him to randomly visit and pitch Stealz. Zidar made four sales.
Gardner offered him a term sheet, and the deal closed 30 days later. After Gardner, investors lined up. By May 2014, Stealz had raised $480,000 from 15 investors including Triangle Angel Partners (TAP) and RTP Capital. More than $1 million was pledged, giving the team confidence they’d have help if more funds were required.
They also attracted advisors in TAP’s Jan Davis, Michael Olander Jr. of O2 Fitness, Canvas On Demand founders Tom Lotrecchiano and Joe Schmidt, Jeff Brock of Morehead Capital, John Replogle of Seventh Generation Inc., Jesse Boulerice, a Carolina Hurricanes star, and Tania Malik, who sold her online counseling company COPE Today a year ago to Epiphany Health Ventures of Nashville.
The biggest value of the investor/advisor network is its connections, Zidar says. Olander’s dad owns the Apple Gold Group, operator of local Applebee’s, which runs 135 Applebee’s in five states, 12 of which will go live with Stealz by the end of October.
Connections to the local franchisees of Which Wich, now with 7 Stealz locations, and McDonald’s, which launched Stealz with 31 locations this month, also came from the group.
“It’s hard to have a really strong network at our age,” Zidar says. “They asked what they could do to help and they’ve done it.”
Differentiating from the competition.
Plenty of companies are in the customer loyalty or engagement space, presenting both challenge and opportunity for Stealz. Besides older players like Groupon and LivingSocial, there’s Belly, billed as a customer loyalty program that awards points that customers can redeem for rewards. The Chicago startup raised $25 million from high-profile investors like Andreessen Horowitz, New Enterprise Associates and Cisco, and in August announced a 2,600 store roll-out with 7-Eleven. Though Belly also has iPads in some McDonald’s and Chick-fil-A restaurants, it has traditionally targeted independent businesses that lack loyalty programs.
Stealz thinks it has an advantage by penetrating the restaurant industry. Focus will increasingly be on larger chains which Zidar says like that “people can post positive content through Stealz,” since they’re often on defense on social media.
Even bigger than other technology platforms is competition from the custom punch cards or email marketing strategies developed internally at restaurants and stores. But those don’t offer any social engagement—Zidar sees that offering as a driver for independent businesses to subscribe.
Another key strategic advantage are the beacons (which retail at $99 for three) attached to the ceilings of 150 Stealz client locations today (eventually, all will have the technology).
Those beacons use Bluetooth technology to recognize Stealz app owners when they enter a geo-fenced area, check them into the location and notify them of deals when they’re in close proximity of the business.
For example, walk down Glenwood Avenue past the Armadillo burrito joint and a notification will pop up on your phone luring you into the business with a deal or point-offer.
“It makes the user experience infinitely easier than it used to be,” says Zidar. “They used to have to remember to pull out a phone and scan a QR code. Now you just walk in, share and you’re done.”
New challenges with a growing team.
The May funding helped Stealz add developers and the best-performing intern from the previous summer, Jody Cumberpatch, to aggressively acquire users. Any additional eight workers are part-time and 20 are contracted on an as-needed basis.
The founders expect to average a hire a month through the end of the year to handle account and project management as more restaurants and venues subscribe. They’ve since split their time—Jim handles finance, strategic planning and partnerships, “the whale-hunting,” he calls it. Brent is chief sales officer, working with account reps and keeping customers happy. John is the creative director and “mastermind of the app,” Zidar says.
Brant is CTO and he “makes the app happen.”
Stealz has enough funds to keep its aggressive growth happening for at least a year—Zidar hopes to raise a series A round of $2 million to $5 million in the third quarter of 2015 for the next stage of expansion.
He won’t share Stealz’s specific goals for customers and sales at that point. Continued success, he says, “moreso depends on proving our model and its ability to become a mainstay in the lives of our current subscribers and users.”