Groupon is my personal favorite poster child for the shortest cycle time of rise and fall ever. [Its] long journey from flailing startup to multi-billion-dollar Wall Street obsession has played out like an opera, with subplots involving orgiastic young sales reps, brutal German managers, a puppet-master chairman, and amazing levels of greed. It started as ThePoint.com, a site launched in November 2007 that lets you start a campaign asking people to give money or do something as a group–but only once a “tipping point” of people agree to participate. By delaying action until enough people come together to have a real impact, The Point help[ed] consumers, employees, citizens, activists, parents–or anyone–come together and solve problems that they couldn’t solve alone.
Founder Andrew Mason and his investors soon realized The Point was headed toward failure, and fast. The founders worked on it a year and they went through about $1 million but got no traction. Its business model was not working. Just about the same time, [Mason] was launching a little side project called Groupon that would apply the tipping point concept to buying discounted goods and services. They didn’t build any technology–just a wordpress website that posted a 2 for 1 pizza deal for the restaurant literally in the lobby of their office building. Groupon then used handmade PDFs, a pizza coupon [and] gave away 20 free pizzas. Although they only received 20 redemptions, the founders realized that their idea was significant, and had successfully empowered people to coordinate group action.
The popular view of a real entrepreneur is someone with a big vision, and a stubborn determination to charge straight ahead through any obstacle and make it happen. The vision part is fine, but successful entrepreneurs have found that the extreme uncertainty of a new product or service usually requires many course corrections, or “pivots” to find a successful formula. Some of the most successful startups of the past decade had to pivot toward a new idea before catching on [when their] original ideas didn’t work out: Groupon, Twitter, PayPal, Flickr. Fab.com pivoted from a failed social network for gays to a retailing powerhouse valued at $200 million in less than 6 months. The designers of a check-in app called Burbn decide that what their users really like to do is share pictures, pivot to become Instagram, and bang: 18 months later, they sell to Mark Zuckerberg for a billion dollars. What pivot doesn’t mean is abandon your idea or your vision, [but] what it MAY mean is change your business model. More than any other word, pivot has come to define startup life [and] is poised to overtake “Fail” as the fashionable Silicon Valley right of passage.
Groupon’s success… helped turn the company into a cash-generating machine. The company, whose name is a combination of “group” and “coupon,” was called the “world’s fastest growing company,” with 100 million subscribers in 45 different countries and a valuation as high as $25 billion [and] represent[ed] what the dot-com boom was supposed to be all about: huge sales, easy profits and solid connection between bricks-and-mortar retailers and online consumers. In the fall of 2010, search giant Google offered nearly $6 billion to buy Groupon, the daily-deals site that became the quickest firm to rack up $1 billion in sales and the second-quickest, behind video behemoth YouTube, to hit a $1 billion valuation. Six billion dollars is nothing to scoff at, so what was Groupon thinking when it turned down Google’s deal? [A] disastrous IPO.
Mason’s IPO headaches revolved around an accounting flaw that has plagued his company since its birth. [Then] Groupon was forced to restate earnings results for its first quarter as a public company after discovering “material weakness” in its accounting controls… forcing us to wonder if they used a Groupon for accounting services. The tone surrounding talk about Groupon continues to get grimmer and grimmer, and that isn’t likely to change unless Castle Groupon does something drastic to right its course. The startup that pioneered online daily deals for coupons is an example of how fast an Internet darling can fall [and] there are big questions about Groupon’s future. For one thing, the days of spectacular growth rates are over.
Judging by the experiences of some small business owners, Groupon has tremendous make-or-break power. A daily deal from Groupon can turn a business around, in ways that are good or, possibly, deadly. The idea of getting a $50 meal for $15–is clearly compelling to consumers, does it work for the retailer? A recent survey from Susquehanna Financial Group and daily deal aggregator Yipit suggests that daily-deal remorse may be a widespread trend among businesses, show[ing] that of 400 businesses that had offered discounts through social-deal companies like Groupon and LivingSocial, a majority (52 percent) said they would not offer another deal in the next six months.
A significant chunk of local restaurants, spas and stores hate Groupon: “It is for desperate businesses.” “The financials just can’t work out.” “Groupon is the worst marketing ever.” “We did Groupon. It was O.K. It brought in new customers–we kept most of them. But the margins are a killer.” Groupon Was “the single worst decision I have ever made as a business owner.” [Their] stor[ies] echo other merchants who have claimed that Groupons actually result in unprofitability, administrative nightmares, and, to cap it all off, that they rarely become repeat customers willing to pay full price. The salespeople are encouraged to squeeze as much as they can from the businesses, and it very, very often results in disaster for the businesses themselves. Cybercriminals are now offering group discounts on malware, [with] emails allegedly from Groupon, with the misspelled subject line of “Groupon dicount gifts,” claim[ing] that one of your friends has shared a Groupon deal with you. Attached to the emails is a file called Gift coupon.zip, which contains a Trojan horse designed to infect Windows computers.
Then Groupon Now!, Groupon’s Bet on the future, got off to a disappointing start. Groupon Now [was] basically a way to give shoppers “a gentle nudge” to come and try out a new store, coffee shop or restaurant, a real-time, location-based offers service for those who want to immediately redeem a coupon. Tap the app’s “I’m hungry” button, and you might be offered a discount on a slice at a pizza parlor a few blocks away but you’ll have to move fast: The deals will be time-sensitive and good for just a few hours. But bad news, Groupon: the product you were betting your future on doesn’t work. What had been the place to work in Chicago’s tech world is even losing its luster with some employees. Recruiters report a growing number of Groupon workers calling up to find a new golden opportunity.
If the definition of news is an unexpected or unusual event, then the decline of Groupon’s stock may no longer qualify. Shares of Groupon Inc. fell to a new low Monday, pulling its total market capitalization under $6 billion, below the value of Google Inc.’s reported offer to acquire in the company in 2010 [and] triggering the Nasdaq’s short-sale circuit breaker. The system, which is triggered when a stock drops more than 10% from the previous session’s closing price, is aimed at shielding stocks from manipulation by short sellers. Groupon’s stock has fallen roughly 67% year-to-date. [Now it] has found a new way to mislead its investors… inflat[ing] its first quarter North American revenue by 5% to 8%.
There has always been something sort of scammy about Groupon. This is a company with a shrinking moat that will find new customers increasingly hard to come by [because] over time, people become increasingly resistant to every form of Internet come-on, and the old verities–give your best prices to your best customers–always come to the fore. [Indeed], Groupon Might Be Worth Only $5 A Share. Meanwhile, Facebook, Groupon, Pandora and Zynga have Drained Almost $50 Billion from Investors. [Perhaps scarier], discounted Barry Manilow tickets [are] available on Groupon. [So] it’s not surprising that Groupon is beginning to see diminishing returns. When you operate a business model based on offering the lowest prices, you eventually attract competition in the race to the bottom, where prices become unsustainable and revenue falls.
Finally, all eyes have turned to Andrew Mason, Groupon’s 31-year-old CEO, who once paid a man to dress up like a ballerina in the office, who propagates false rumors about himself owning 20 cats, and who films himself doing yoga in his underwear. [He] is trying to figure out the next thing for his company… building what Mason calls the “operating system for local commerce”–a suite of software and technology services that would embed Groupon into every facet of every transaction on Main Street… a kind of Yellow Pages to search for new ideas on where to dine or where to find the lowest prices offered by thousands of local businesses. Merchants would use the system not only as a form of advertising but also as a touch point for every sale they ring up and a hook for bringing customers back. The company will now sell services directly to vendors, but like the “Groupon Now!” deals from earlier this year, this move offers little promise for a struggling company.
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