Groupon CEO Andrew Mason was fired on Thursday. This is a not entirely surprising development given that on Wednesday afternoon, he and his fellow top executives reported quarterly earnings that can only be characterized as disastrous. Revenue was up, but no one expected the losses the company announced, and first-quarter guidance was far below what analysts hoped for. As Mason himself acknowledged in his resignation letter to employees, "If you're wondering why...you haven't been paying attention."
"From controversial metrics in our (initial public offering) 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," Mason continued. "As CEO, I am accountable."
Four weeks ago, I saw it coming. And I think Mason surely did, too.
He and I met in Palo Alto on the first of February to have breakfast, a continuation of my reporting on the company for a future Fast Company story. We sat in the dining room at Madera, a Michelin 1 star-rated restaurant in the Rosewood, a luxury hotel that’s partly owned by Stanford University. The Rosewood is located on Sand Hill Road, across the street from legendary venture firm Kleiner Perkins Caufield & Byers. (This fall it was the subject of a story on a satirical website called the Silicon Valley Pasquinade alleging that undercover detectives had arrested several prominent VCs for soliciting prostitutes at the restaurant’s famed and very scene-y bar. The story was noted by several prominent news outlets and was often mistaken for the truth, in part because the restaurant’s Thursday night, aka "Cougar night," crowds allegedly exhibit a certain type of transactional behavior that isn’t restricted to term sheets.)
On this Friday morning at 7:30 a.m., the restaurant was still a good 12 hours away from its weekly influx of glamour, money, and what economists would classify as utilitarian behavior. Only a handful of tables in the vast dining room were occupied, and to a man (literally, there were no women) by people in suits reading newspapers or checking their smartphones.
Mason was not wearing a suit. He was wearing a brown sweater over a gray T-shirt and jeans and he looked like he just crawled out of bed, which given the hour, may well have been the case. (He once experimented with sleeping in his clothes to see if it would allow him to get out of bed later. He immediately deduced that this was a bad idea and the experiment terminated fairly quickly.)
He seemed simultaneously alert and exhausted, in the sense that you would be if you’d been pursued by a bear and turned to find it was gone; you'd remain physically drained but twitchy with the knowledge that the predator could reappear at any moment.
And this was understandable. Mason was nearly eaten alive by the market and the press in the last year. And while there were some bright spots—an analyst upgrade here and there like a daisy in a vast landscape of weeds; a vote of confidence from prestige hedge fund Tiger Management, which picked up a not-insignificant 9.9% stake in the company—for the most part you got the sense that the bear was always there, looming, waiting to maul Groupon—and Mason—at any sign of weakness.
He was four weeks away from announcing fourth-quarter earnings, and the last quarter had not been so great for him. In November the Groupon board met to discuss, among other things, whether Mason should be replaced as CEO. Groupon co-founder and chairman Eric Lefkovsky reportedly stood by Mason at the meeting, but discussion was heated and it was unclear whether Lefkovsky would continue to support him under pressure from other directors.
I asked Mason how often he talked to Lefkovsky. "Every so often" he said. Specifically? He snorted. "No comment." When I contacted Lefkovsky’s office, his spokeperson noted that Lefkovsky had decided to pull back involvement with Groupon over the summer and referred me back to Groupon’s head of communications Paul Taaffe for questions. Neither party was inclined to talk about the other.
Mason was defensive, even in discussing issues that were relatively innocuous, as if he suspected that every inquiry was a trick question. I had been heavily pitched on Groupon’s new R&D projects and the interesting technology the company was developing, yet when I asked Mason if Groupon was becoming a tech company, he protested, as if the question was some sort of accusation. "What does it mean to think of someone as a tech company?" he said. "We don’t have a small division working on a space elevator, if that’s what you mean." I clarified that my definition of tech company was very much a business definition, unencumbered by innuendo: a company whose value is primarily defined by its tech-related intellectual property portfolio.
He softened a bit. "I think in the first phase of our company, we were a glorified mailing list. We had a completely unintelligent email that we sent out once a day and we had a human sales force that was going around and procuring the deals... Absolutely IP is going to be an important and necessary part of our success. I suppose that makes us a technology company. I suppose somebody could ask us, are we a marketing company? Yes. Are we an e-commerce company? Yes. Are we a technology company? Yes."
Part of Mason’s legitimate challenge was that Groupon was not easy to define at that point. Groupon Goods was one of the company's fastest-growing revenue segments but also one of its lowest-margin businesses. It had acquired interesting emerging technology companies, many of which were promising but were too early stage to yield meaningful numbers. It had seen enormous growth in the international sector the year before only to see it tank on Europe’s macroeconomic woes, integration issues, and problems replicating what Groupon called its "North American Playbook" in international markets.
One of the impressive things about Andrew Mason is that he’s not especially threatened by other entrepreneurs. This may seem like a small matter, but entrepreneurs are a delicate species, with easily wounded egos. They’re not the types that take well to working for other people. It’s very difficult to go from directing operations with no bureaucratic or authoritative friction, no need to ask anyone for permission, to taking direction from someone else. Many of Mason’s staunchest loyalists are entrepreneurs whose companies Groupon acquired. COO Kal Raman describes him as one of the best listeners he has ever known. (Wall Street would dispute that, but I’d wager that Raman might not be wrong. Mason is just selective about who he listens to.)
SVP of product management Jeff Holden bonded with him over a two-day stay at Holden’s house where Holden says they had "one of those conversations where you see the world exactly the same way." The founder of Breadcrumb, Groupon’s point of sale system for restaurants, Seth Harris, was "a restaurant guy—it’s in your blood" but was convinced to go to Groupon because he liked Mason’s vision for empowering local businesses with better infrastructure and tools. And as Mason put it, "Whatever you think of me, I have a great team below me that’s had a lot of success."
To his credit, this is something that many public company CEOs never learn how to do.
But it was Mason’s job to define Groupon not just to a hand-picked team of executives but to the world. And communication, at least in that context, wasn’t his strong suit.
However he connected with people internally, he struggled to do it publicly. In part, this is because Mason was uncomfortable with the spotlight. He attributes some of his legend as prankster to this. "I think that story built up, and part of it was my way of dealing with the lack of comfort of being in public. But it doesn’t reflect reality or the way I behave day to day," he said. "I’m weird. But I’m a pretty serious person."
Mason never could convince Wall Street of that, and he seemed disillusioned with his experience dealing with it. "What’s just depressing to me is how—and it’s not just for us, let me generalize it—the moment a company goes public the conversation shifts from how they’re trying to change the world and the product they’re building to how they’re making money."
"All the coverage around Facebook’s new search tool was a little bit about the feature, and then it gets immediately into how the market is reacting to it. Like, who the fuck cares?"
"If you look at a lot of the issues we’ve had since going public, it feels like we’re at Wimbledon and we just keep on double-faulting," he said. "It’s like we don’t even get to play the match." He thinks the Street is callously unsympathetic. "It’s the nature of a four-year-old business that’s trying to get its arms around 11,000 people in 48 countries, a lot of them strung together from acquisition."
Part of Mason’s downfall was that he’s an idealist. He feels betrayed by a market that does not understand what he’s trying to accomplish or appreciate his good intentions. There is of course an arrogance in that—an expectation that the market should conform to one’s own ideals instead of the parameters in which it has always operated. He seems wounded by the fact that Wall Street doesn’t care as much about the quality and efficacy of Groupon’s products as it does about raw profits.
This is at best naïveté, but then naïveté has plagued Mason all along. In 2012, Groupon filed statements with the Securities and Exchange Commission that had to be restated because Groupon had used an accounting metric—ACSOI (Adjusted Consolidated Operating Income)—in its required filings that suggested a net gain in its operating income. Conventional SEC-required metrics would have suggested a loss.
To be fair, ACSOI is an important metric for Groupon internally. It’s a measurement that helps them think about long-term costs before they spend money on marketing. And considering that they believe their marketing budget is variable, it’s important for them to know what sort of profits they’re looking at without taking marketing into consideration.
But it’s not what the SEC asks for. And it’s rare that a company blatantly flaunts what the SEC wants. "Looking at it in retrospect," Mason said, "like many stupid things that people do, it looks obvious. But at the time, we were in a different world. We were the darlings of the tech world. Everything was and had gone our way, and we thought, we’ll put this metric [ACSOI] in here because we think it’s helpful. And people were like, We think you put this metric in here because you’re evil."
He continued. "They were basically like, Here’s the list of companies that have made up metrics and these companies suck. So you probably suck, too."
Mason admits that it was unsophisticated. "That was us not realizing what we were getting into in going public."
When I asked him whether he regretted going public—whether he thought he could have accomplished more without the market pressure—he became incensed. "I feel like the only reason you could be asking me that question is because you think I’m stupid or because you’re trying to see if I’m going to lie to you."
Like most reporters—and let’s face it, most human beings—I’m always interested in whether people will lie to me. But it was an honest question. I know entrepreneurs who have regretted exits for precisely that reason. And I sincerely wonder what Groupon would look like if it weren’t a public company now. I suspect Mason does, too.
But Mason fails to see why the market behaves the way it does. It is callous, to be sure, but it isn’t stupid. The Street is not unaware of the fact that it has a regimented system that does not reward eccentric behavior. Mason’s lack of prior experience and personality quirks were at odds with Wall Street’s platonic ideal of a public company CEO: a numbers-driven operator who is experienced, polished, reliably predictable, and predictably reliable. In other words, not the kind of guy who makes jokey yoga videos in his underwear or who nearly presents the mayor of New York with a pony (a GrouPony, to be exact) as a party favor for an office visit. Certainly not the kind of guy who creates an entire room in his corporate headquarters for an imaginary tenant named Michael whose belongings include an exercise bike that plays Sade when pedaled, Cheerio boxes as décor, and a toilet full of Almond Joy bars. All of which Mason had done.
The presentations that public company CEOs have to make to institutional investors are called "dog and pony shows" for a reason. Wall Street knows some of it is superficial and irrelevant. It recognizes that it’s inconvenient and annoying for the CEO to have to trot the company out, brush its hair, decorate it with pretty ribbons, and walk it around the stage. The CEO has better things to do, after all. Isn’t the CEO supposed to be building the company?
Well, yes and no. Mason failed to accept that if you’ve taken money from public investors, you have to acknowledge that you owe them. Or you shouldn’t take the money at all. If you’re a public company, you have stakeholders whose interest in your company is entirely tied to fiscal performance. Mutual funds buy you for individuals who want to invest. Institutional funds buy you because you seem promising. Individuals in Peoria buy you because they think you will perform the way you said you would, even though that fourth quarter miss wasn’t your fault. It’s cold comfort to those people that you’re empowering small businesses if your management policies disempower them by draining their investment accounts. Those people were not investing in an ideal; they were investing in a security.
So it disturbs the Street when a public company CEO won’t do these things. They think it’s disrespectful to institutional investors who have invested in the company and deserve an audience. They think it’s a sign that the CEO is trying to hide something. How hard is it to give a simple presentation about where the company is going with no drama?
Julie Mossler, Groupon’s PR director was upset on his behalf. She mentioned a 60 Minutes episode earlier in the year wherein the show’s staff was annoyed that Mason didn’t present himself as the clownish prankster they had hoped to capture on camera. "Andrew’s not being funny!" she mocked. "Where’s funny Andy?"
To be honest, I was relieved not to see funny Andy, if such a persona exists. As a human being, I’d rather see the sincerity—the irritation, the exhaustion, the frustration of being misunderstood, even if part of the misunderstanding is a function of self-inflicted difficulties that could be remedied by an acceptance of the realities to which Mason has consigned himself by virtue of going public. I’d rather see Mason as a complete person and not a character optimized for amusement. I ask him how his wife would describe him, and he says, "She’d say ‘I wish he was home more so I was capable of characterizing him." It’s intended as a joke but there’s a tinge of sadness to it. Mason doesn’t like talking about himself. It makes him uncomfortable. But even his attempts at self-deprecation fall flat.
Mossler, both by virtue of her role and her longstanding relationship with the company (she has been at Groupon from whatever constitutes "the beginning"), is extremely sympathetic to Andrew. Like several of the other senior executives with whom I spoke, she seemed protective of him, and not simply because it was part of her job. She believed in him.
But the market did not.
Mason is by most accounts a passionate, smart guy who cares deeply about creating a superior product. He hires people who have more experience running companies than he does and finds ways to gain their trust. If he can learn how to tolerate the things that the public company CEO must do for the public market and come to peace with the fact that it entails walking the be-ribboned pony around the enclosure and smiling while doing it, maybe he has the potential to be an effective CEO of another public company.
But I don’t think he’d like it. And I don’t think it would be the best use of Andrew Mason.
[Image: Getty Images]