Travel back in time with me to October, 2010. Stanford. Startup School.
Andrew Mason has been talking, sharing the origin story of Groupon, the lessons learned about entrepreneurship, the pitfalls, the joys. He is fun and engaging. You wanna like him, you wanna see Groupon succeed.
We get to the part of the talk where questions are asked and answered. He answers some early softballs. Then one brave soul stood up with a real query that only Mason could answer.
Is Groupon a sustainable business, given what we'd been hearing from merchants online?
It was as if a mask had dropped. Where once there was cheer and energy, there was now a sullenness. The man seemed affronted at the notion that his business would be challenged in this way. Despite the fact the opportunity to ask just such a question was one of the great values of a venue of this sort. Despite the fact that Groupon's sustainability had been the elephant in the room the whole time. This was right after some of the first stories from distressed Groupon merchants had been trickling out.
Petulant, absent all of his previous ebullience, Mason asserted the business was sustainable, offered no supporting details, and demanded the next question.
A good leader has the intellectual honesty to recognize their missteps and explain them, along with the remedies explored. The expectation for that is even more acute when you've been elevated to the role of mentor.
It was in that moment, his phoniness laid bare, that I decided Groupon was likely melting puppies in its basement, Mason knew it, and didn't know how to reverse the operation.
I'm taking it you're basing your opinions on the way he answered the question, not the answer itself, right?
The way I'd have answered it to match the tone of every other thing he'd said goes a little something like this:
"You know, it's a fair question. Obviously, I believe the answer is yes.
We're still learning a lot about how to scale this business and educate new partners. We could have done a better job in some cases, and I think that's what you're seeing when people are frustrated by us online.
We're working with our merchants to understand what they need to make sure everyone – both our customers and our merchants – gets a great deal."
"Yes, our company is not just sustainable but is set for a new period growth. Our team has worked hard to get a foothold in the market and our next iterations on our product are going to be twice as awesome. stay tuned."
which is also a bullshit dodge and a deflection, but its a way of doing it with grace and style, and even potentially allowing for the audience to believe they might be capable of fixing a broken business model with some innovation and hard work.
But really, hopefully it's a move in the right direction for the struggling company. There's opportunity to open new revenue streams especially considering that businesses are still creating new Groupon deals.
"This guy" ...Get off it. Ideas > events > people. Leave it to HN, tearing down the mainstream success stories of our clan in ever decreasingly creative ways.
BTW, he wasn't a happy guy. He described very clearly at that event he forgot what being happy felt like while building GRPN. Sorry to bust your editorial bubble, but when you make a bold + false assertion, your detractors will use it to debase your entire narrative.
I'm learning that for a certain segment of humans the presence of rich people bring out claws and fangs, like a full moon.
Groupon made a lot of money on the backs of small business owners too unsophisticated to understand the nature of the deals they were making. Whatever lack of happiness Mason sustained, it was mirrored in spades by the folks who were burned by Groupon's rapacious sales force and very casual approach to delivering checks on time.
This is a sketchy-ass company we're talking about and this guy made a lot of money off that sketch. Let's be real.
My sarcasm isn't directed at you personally, but all broad strokes who delight in black ink when focusing on the aesthetic of someone's career. Schadenfreude fruit hang low.
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People of Groupon,
After four and a half intense and wonderful years as CEO of Groupon, I’ve decided that I’d like to spend more time with my family. Just kidding - I was fired today. If you’re wondering why… you haven’t been paying attention. From controversial metrics in our S1 to our material weakness to two quarters of missing our own expectations and a stock price that’s hovering around one quarter of our listing price, the events of the last year and a half speak for themselves. As CEO, I am accountable.
You are doing amazing things at Groupon, and you deserve the outside world to give you a second chance. I’m getting in the way of that. A fresh CEO earns you that chance. The board is aligned behind the strategy we’ve shared over the last few months, and I’ve never seen you working together more effectively as a global company - it’s time to give Groupon a relief valve from the public noise.
For those who are concerned about me, please don’t be - I love Groupon, and I’m terribly proud of what we’ve created. I’m OK with having failed at this part of the journey. If Groupon was Battletoads, it would be like I made it all the way to the Terra Tubes without dying on my first ever play through. I am so lucky to have had the opportunity to take the company this far with all of you. I’ll now take some time to decompress (FYI I’m looking for a good fat camp to lose my Groupon 40, if anyone has a suggestion), and then maybe I’ll figure out how to channel this experience into something productive.
If there’s one piece of wisdom that this simple pilgrim would like to impart upon you: have the courage to start with the customer. My biggest regrets are the moments that I let a lack of data override my intuition on what’s best for our customers. This leadership change gives you some breathing room to break bad habits and deliver sustainable customer happiness - don’t waste the opportunity!
I will miss you terribly.
But those personality traits do not necessarily make him a good CEO.
In my non-professional opinion, this is what's happening:
"Three oranges in a meeting with four of us?
No question - I give my oranges to the others.
15 minutes ago:
"For Groupon Employees: https://www.jottit.com/v5wux/
(Apparently, sharing oranges is necessary but
Though I'll bet now the regret at that turndown has to be killing him, and many others.
Ha, this is somewhat like Dick Chaney letting Bush take the fall for the Iraq fuck up and then take over in 2008 "to fix things".
(before you start hitting downvotes, read some background about this guy).
"Altogether, $946.8 million, or roughly 86% of the funds raised across the three investments, was paid out to Groupon directors, officers and stockholders. Just $151.4 million was retained by the company to use as working capital and for general corporate purposes."
What an atrocity of a web business, just ugly.
Shareholders get to vote for the board and they have a broad range of statutory protections that ensure company accounts are audited, compensation arrangements are disclosed, etc. But as far as a general right to make money? Nope. You'd only have a chance with that kind of lawsuit if the board made an obvious, colossal blunder that should have been obvious to anyone at the time.
No, it's a scam they run to get a class-action settlement and protection from any other similar (possibly meritorious) lawsuits, regardless of who loses money in the market. Every major decision (such as a merger) by a company, is met by an ambulance-chase race to file class actions with boilerplate charges. Check the financial news ~7 days after any public-company acquisition happens for the near-duplicate stories with differing law firm names.
Anyone who follows Groupon more closely understand what that's likely to mean for the changes in direction they had been trying to pull off?
Now that I shared those anecdotes, your guess is as good as mine.
The after hours action is most likely driven by the many algorithmic trading systems making trades based on news flow.
In other words, we'll have to wait for some rational period of time before deciding if traditional buy and hold investors are excited by this change in leadership.
Should have taken the $6 billion buyout from Google when they had the chance.
Honestly, it all doesn't really matter after their IPO revealed bonuses were more important than investing into their business.
1) Make it clear to employees, shareholders, and the public that there will be another change coming. Everyone should know that a company run by co-CEOs is unlikely to be permanent. This also helps with recruiting since outside candidates know they have a legitimate shot.
2) Set up explicit competition between the two biggest contenders to win the slot. I personally believe this is dirty and guarantees the loser to leave (which I think is net bad -- the loser was a contender for CEO for a reason).
3) Reduce the need to fill someone's shoes. By giving what was one person's job to two people, those two people can focus on their areas and excel individually without unfair comparisons to their predecessor. This is especially important when the predecessor was a public figure. Think Tim Cook comparisons to Jobs. Microsoft did this with the E&D division when Robbie Bach left (Phones and Xbox went to different people).
From my many years of experience in business I can say that anytime you have a serious offer on the table you have to decide if you are willing to risk going for door number two.
You can always point to cases where people didn't sell out and ended up better but with business you have to look at the downside not just the upside. Over the years that is the biggest mistake that I have seen people make in negotiation.
I'll give you an example with domains. I'm in the process of buying a domain for a startup and the startup will pay $50,000 maybe even $100,000 for the domain. But the owner won't even engage preferring to shoot for the stars and thinks he will get a million. He won't even state a price. At this point we will cut bait and find another name. I know fully well this business (I also own names) and I know that this domain has about a 2% chance of selling for anywhere near that amount in coming years. I have domains that I've held for 15 years and have never gotten a single offer on. I've had domains that I've held for 15 years that I've sold for big money. Anytime someone comes along with a serious offer I focus on how long it will take until the next offer will come in - if ever. Business and gambling are two different things.
I have found my client another domain that they are happy with.
how is that bs ? I have a vanity domain that I'm not interested in selling.
Otoh, if I approached Marissa Mayer to buy a domain she owned I wouldn't consider "I don't want to sell" "BS".
If I approached McDonalds and wanted to buy "hamburger.com" from them (hypothetical) and they said "don't want to sell" I wouldn't consider that BS.
But this company, that is their business (domains). It is BS.
Lastly, If your vanity domain name is (hypothetically once again) "nowblog.com" maybe you aren't interested in selling it. If someone offers you $100,000 you might be interested, correct?
For a fairly popular example of some other founders who didn't accurately value their company :
Only in the minds of a few people.
The startup CEO has to be a cheerleader and biggest believer. And at the same time, the biggest realist, the most aware of the downside risks. There are times when you have to push the kool-aid aside.
"Nobody knows future."
History is littered with startups that didn't exit in frothy markets, then cratered. Timing is everything. Andrew's advisors should have been aware of the downside risks, should have had some experience with previous business cycles. IMHO they gave bad advice.
Not very many with a $6b offer
Respectfully - no. (And by that I mean respect++ - I learned a lot from your book!)
The company had been around awhile, and there was data to guide the decision. Growth rates, customer acquisition costs, engineering costs, etc. At the time of the offer, a lot about Groupon's financial model was well known. It could have led to a better decision.
So Groupon walking away from the deal could have been their only option.
That said, Google is one company that could make this sort of product work as one of the major expenses Groupon has is buying advertising.
Pincus, Zuck and many others will have as long as they want to turn their companies around and wont be out unless they decide to quit. They learned from Steve Jobs.
He got outplayed by smarter and savvier businessmen who had been down this road many times before.
Among other places: http://bit.ly/Y3hfft
And yes Rocky Agrawal and the Grumpy Accountants Professors and PrivCo.
And the accounting tricks continue - even most Wall Street analysts covering the company for a living have not picked up on it - but for "Groupon Goods last fall they changed the way they account for those purchases. (Remember for Goods their "deal-share" is even smaller than their 37% or so for restaurants/spas/etc. It's under 10% for tablets, laptops etc. So when they at first sold a $2000 flat screen TV, they booked (as forced by the SEC finally) just their $200 cut. When revenue growth slowed, they (meaning likely Eric Lefkofsky instructed) Groupon to find a way to recognize the entire $2,000 sales as their revenue. And the only way (again, speaking as a CFO who knows this intimately - not boasting my opinion is better than anyone else's, just sharing the real facts, I don't own or short the stock - and the only way they could recognize the entire $2,000 example TV sold is if they "took possession of it, then re-sold it" in plain language. And one of the requirements is that Groupon has (even briefly) the "risk of loss" (that is, the TV breaks while legally/technically in their possession before shipped to the buyer). I.e., find a way that Groupon's technically not just a deal middleman on Goods and let the buyer and seller deal with each other, but be the Reseller like Amazon.
So they literally (and this is not speculation, this is in the SEC filings - not highlighted and sort of minimally mentioned, but it's there) - they literally state starting with their third quarter 2012 10Q that beginning that quarter Groupon signed a new contract retaining a 3rd party company to act on its behalf to receive the goods from the Goods merchant, then that company acting on Groupon's behalf - with a contract that says Groupon bears "all risk of loss" and then ships it to the buyer. Now that sounds awfully inefficient, and it is, because it has to be shipped twice, reducing Groupon's margins to near zero on Groupon Goods. But it takes Groupon Goods revenue from 10% of each sale to 100$ of each sale. Starting to get the picture?
So in the last 2 quarters they reported a dramatic spike in Groupon Goods revenues (no profits of course) but analysts - not knowing any better - began to upgrade the stock, saying yes the daily deals business is slowing to almost 0$ year over year, but look at Groupon Goods! Its revenue is suddenly growing like gangbusters! (I have to give hat tip here to an Accounting Seminar that used it as an example, and to PrivCo who published a Research Note detailing it, but I checked everything in the SEC filings and can say with 100$ certainty, but of course you can confirm it yourself.)
So price targets were raised, and many former bullish turned bearish analysis (like Ken Sena from Evercore) turned bullish again, and said Groupon is going to surprise all the naysayers! Groupon Goods is its true future, it's growing in triple digits in revenue now! (Because their revenue recognized went from 10$ of each sale to 100%, by having this fulfillment company acting on their behalf briefly taking possession of the goods and contract says Groupon has "all risk of loss" - even though the possession was sometimes for 10 minutes, since they just put it in a box and shipped it right away to the waiting buyer who had already pre-ordered it. No inventory, just in and right out the door.
One more fact you should know (again gotta give hat tip to PrivCo securities lawyers on their staff who pointed this out), go to the section on "Related Party Transactions" (i.e. this is where a company is doing business or hiring a company owned by a senior Officer, Director or Major Shareholder). And in that section - brief as it is - it says one of those Related Party Transactions is that they retain and have a contract with a fulfillment company founded in mid-2012 that is owned by Eric Lefkofsky and Brad Keywell (Groupon's co-founders, Board members and largest shareholders). Yes you read that right. They saw daily deals declining sharply, and decided they had to find a way to "grow Revenue" - without actually selling any more stuff. So they quickly formed this company that signed exactly the contract terms needed verbatim that would allow the accountants to deem Groupon as having taken possession and acting as a principal / reseller and not an agent and recognize the entire Goods amount purchased.
And most Wall Street analysts (Evercore's Ken Sena was on TODAY on BloombergTV still touting the Groupon Goods revenue growth as reason to buy the stock, even though daily deals fell for the first time ever year over year.) He's clueless, and he's telling his clients Buy based on Groupon Goods revenue growth spurt since last summer.
I'll let the HN crew react to above instead of just saying out loud what I think of that or what you should. Share what you think of that.