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Big Deal
LivingSocial CEO Tim O’Shaughnessy has created the hottest local start-up since AOL, and he plans to revolutionize how consumers shop. Can Washington keep him satisfied? By Garrett M. Graff
O'Shaughnessy's company has evolved through three business models—each more successful than the last. Photograph by Chris Leaman.
Comments () | Published December 3, 2010

The challenge of venture capital—the seed money for start-up companies looking to make it big—is that nearly every entrepreneur wants to do something never attempted before. “Everyone who comes in claims to be extraordinary—the job is determining who actually is,” says venture capitalist Don Rainey, who has to make quick judgments about proposals that cross his desk and the people who parade through his office at Grotech Ventures in Vienna.

At the time that Rainey’s firm invests, he’s rarely paying attention to the product—he’s judging the people. Rainey has developed a list of traits he seeks in entrepreneurs. They should be thoughtful, precise, hard-working, and willing to hire others who will challenge themselves. But at the top of Rainey’s list is a motivation that defies easy explanation.

“They should be performing for someone who isn’t there,” he says. “They need to aspire to a goal not reasonably achieved. It’s magical.”

In other words, the best entrepreneurs aren’t just driven; they also have a hunger for success—an overwhelming desire to be the best. They need to feel they have something to prove—maybe to their families, maybe to the world. They need to be hungry. They need to be like Tim O’Shaughnessy.

In March 2008, after meeting with O’Shaughnessy—then-26-year-old CEO of the start-up Hungry Machine—Rainey told his four partners, “You wait and see—this guy will be the best young CEO we’ve ever seen.”

O’Shaughnessy, for his part, walked out of the meeting and told his three cofounders, “This guy’s going to be the one who funds us.”

What O’Shaughnessy pitched to Rainey 30 months ago was neither the company the founders began nor the company they run today. Twice the group has developed a successful business model, and twice the founders have thrown it away to gamble on a new enterprise. “We reach plateaus and then figure out how to jump to the next one,” says cofounder Eddie Frederick.

Yet that initial meeting, in Grotech’s Tysons Corner office a few floors from the networking hub the Tower Club, began a partnership that has brought together some of Washington’s best-known names to create LivingSocial, the area’s hottest consumer-technology company since America Online—a start-up that might breathe new life into the regional tech community and revolutionize local shopping.

Business is in Tim O’Shaughnessy’s blood. His father runs a freight company in Apple Valley, Minnesota, and Tim’s older siblings have succeeded in their own ventures—one is an opera singer, another a financial trader, the third a physician. At age eight, Tim recruited as his first employee his friend Nathan Johnson, who last year was best man at O’Shaughnessy’s wedding to Laura Graham, daughter of Washington Post Company CEO Don Graham. The boys used O’Shaughnessy’s $8-a-week allowance to buy candy in bulk. With the help of a red wagon to haul their wares, they traveled from playground to playground selling candy. In a week, they could triple or quadruple their money. O’Shaughnessy’s first competitor was one of his older brothers, who began showing up at the playground hawking king-size candy bars.

Tim O’Shaughnessy’s competitive spirit has remained. “That was a way of being,” he says. He spent his high-school years at St. Thomas Academy, Minnesota’s only Catholic military academy, and came to Washington as a freshman at Georgetown University. He chose a double major in marketing and what the university calls OPIM—operations and information management. “That combination is the exact thing I’m doing,” he says.

“I knew from a very young age that I wanted to create something,” O’Shaughnessy says. “I knew that most millionaires worked for themselves and most philanthropy came from those millionaires. If you really want to change the world for the better, that’s the logical path.”

To help pay for college, he started a handyman service and worked as a live-in chef for a family in Chevy Chase. He quickly began to feel the pressures of making payroll for his burgeoning business: “I always approached it as ‘I need to pay $20,000 in the next five months,’ so how do you solve for that?”

In 2004, during his senior year, Tim O’Shaughnessy was involved in a class consulting project for AOL. A day after the group’s presentation to corporate executives, he received a call from an AOL recruiter. “David Gang wants to hire you,” the recruiter said. O’Shaughnessy talked to the executive vice president for AOL products and politely explained that he had postgraduation plans to bartend in Maine for the summer and then begin a job with Navigant Consulting in DC.

Gang wouldn’t take no for an answer. “You’ll start in two weeks,” he told the senior, who two weeks later started work at AOL’s Tysons headquarters.

After two years at AOL, O’Shaughnessy ended what he calls his “Virginia tour of duty” and moved to AOL cofounder Steve Case’s start-up, Revolution Health. In his first year there, O’Shaughnessy watched the organization grow from 50 employees to more than 280—a growth path similar to what LivingSocial has experienced this year.

As the sometimes chaotic Revolution Health grew, O’Shaughnessy was repeatedly promoted and learned lessons about how an expanding company thrives.

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Posted at 02:06 PM/ET, 12/03/2010 RSS | Print | Permalink | Comments () | Washingtonian.com Articles