Exclusive: Eric Lefkofsky’s First Interview As Groupon’s CEO

The chairman and cofounder of the beleaguered company defends daily deals, opens up about its problems, and tries to redefine the service as a next-generation Costco.

Exclusive: Eric Lefkofsky’s First Interview As Groupon’s CEO

Where was Groupon chairman and cofounder Eric Lefkosky when then-CEO Andrew Mason got fired on February 28? On a two-month sabbatical in Southeast Asia. For the last year, Lefkofsky had been pulling back from any active involvement in Groupon. The serial entrepreneur and Chicago area investor had shifted his focus to investing in and building companies at Lightbank. His stated goal: To be the Warren Buffett of tech.


So much for that.

When Lefkofsky and I sit down to talk in his office in Groupon’s Chicago offices in the landmark Mail Order House building that once housed the one-time retail innovator Montgomery Ward, this past Monday, it is day 10 of his new job as interim co-CEO of Groupon. Lefkofsky, 44, was Andrew Mason’s earliest investor, back when Mason’s idea was to build a collective action site called The Point, and he is still one of the company’s largest shareholders.

Lefkofsky is wiry and compact, with salt-and-pepper hair. He speaks emphatically and without hesitation, his eyebrows rising behind his glasses on particularly important points he wants to make. If hoodies and soccer slides are the favored sartorial choices of the platonic dotcom entrepreneur, Lefkofsky favors the sweater vest.

As he and I chat, Lefkofsky struggles to find the right metaphor to describe the four-year old company’s struggles in the last 18 months since going public. “You have a company that’s four years old, right?” he says. “It’s a like a toddler in many ways–and yet it’s got 11,000 employees in 48 countries, so it’s a big global company and…”

He changes his mind about the toddler analogy.

“It’s like flying a plane,” he says, “and you’re trying to find the right altitude and you’re doing it with a four-year-old company and four-year-old processes and four-year-old systems.”


Groupon’s problem, of course, was that the stock market perceived the company’s situation as neither plane nor toddler, but toddler flying a plane. The stock was down more 80% since its November 2011 IPO, and the market didn’t react well to Mason and CFO Jason Child’s Feb. 27 explanation of what had happened, which was in keeping with its ongoing reaction to the company’s post-IPO performance. Mason, while generally regarded as a brilliant product developer and visionary, had been unable to effectively communicate to Wall Street what the company was doing right or get in front of its mistakes, of which there had been many. He was resentful about that particular aspect of the job and disillusioned with the market, noting in an earlier interview with some palpable disappointment that “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.” The stock slid 28% to $4.30 a share and criticism of the company and of Mason in particular reached a crescendo.

Mason was gone the next day. Lefkofsky former and former AOL president and board member Ted Leonsis were appointed co-CEOs.

Lefkofsky is aware that he is subject to much of the same market scrutiny that Mason was. He comes in with some baggage: He had some early failures in his entrepreneurial career, including over-leveraging his first company and selling his company Starbelly to Ha Lo, a public company that went bankrupt shortly after the sale. Both instances resulted in lawsuits. Lefkofsky also controversially cashed out $382 million of his equity in the last pre-IPO round of funding, in January 2011, which accounted for almost 50% of the raise, an aggressive liquidation which was construed as, among other things, a vote of no-confidence.

Now he’s CEO and is, by necessity at least, committed. He and Leonsis both have public company experience and they hope that will remedy some of the damage done in the last 18 months. “For whatever reason in the first 12 to 15 months of us being public we did not do a very good job of controlling the process,” he says. “It felt very often like the process was controlling us.” But he adds, “We did a lot of work this year out of that to make sure we that we don’t have the material weakness designation to make sure we’re now [Sarbanes-Oxley] complaint, to make sure [we have] all the internal controls.”

The “we” is significant. Lefkofsky and Leonsis were responsible for board oversight and presumably had some responsibility for making sure the company was performing and that big mistakes wouldn’t happen. Lefkofsky may have stepped back, but presumably not so much as to ignore it altogether, which would have potentially been a breach of his fiduciary duties as a board member.

Andrew Mason

Ask him about this, though, and he insists that ultimately, the decisions were Mason’s. “In Andrew’s letter to the employees when he notified people that he was leaving, he accepted responsibility,” he tells me. “You could say, ‘Well everyone was here and everyone’s to blame including the senior manager, the board, whatever.’ But at the end of the day, the CEO is the CEO. And he makes those tough calls. If they go well, you’re a hero, and if they don’t go well, you’re accountable.”


Lefkofsky is now the one accountable not just for how he communicates with the market, but also how he takes a large public company that has expanded well beyond its original model of daily deal emails and makes it one cohesive entity. An internal frustration expressed by many of the Groupon executives with whom I spoke was that no one outside of the company really understands what it is anymore. Yes, there’s the daily deal email that everyone knows and either loves or loathes, but there are also other lines of business that management believes are integral to the company’s future. For consumers, daily deals have expanded into Groupon Goods, a direct retail business with curated products selected for the user; Groupon Now, a real-time deal generation platform that allows users to search for things they want and find relevant offers; and new offerings like Groupon Getaways, which features travel discounts.

For merchants, Groupon has been developing payment and point of sale systems that make it easier for them to understand the economics of their businesses and generate demand for their products, including a suite of products, informally called “merchant OS.”

Strategically, this means that the company is moving from a demand-fulfillment model (i.e., filling empty seats at a restaurant on a Tuesday during non-peak hours) to a demand-generation model (if you’re hungry and you want sushi, check the Groupon site or app for relevant sushi deals in your area). It also means moving from a push model (the company “pushes” you a deal email) to a pull model (it “pulls” you into the site or app, where you make a transaction). And the company estimates that more than 40% of its transactions now take place on mobile devices.

Lefkofsky isn’t worried that the seemingly disparate mix of services is confusing to customers. He picks another metaphor. “You walk into a Costco, and there’s lobster and there’s T-shirts, and you don’t leave and say, ‘No! I will never buy [T-shirts and lobsters in the same place]. In your mind, Costco has merchandised a series of things for you all around a value proposition that means something to you. And if you want to buy wine or lobster, or you want to buy T-shirts, or you want to buy batteries, that’s what you want to buy.” He also compares Groupon to Amazon, a company where several current Groupon executives once worked, noting that Amazon’s roots were in books but it successfully extended into lines that were interesting to its customers holistically.

But that is not how most people view Groupon. It is the daily deal email company, and that business is perceived to be in decline. Lefkofsky acknowledges this. “There’s a belief out there that if you send me an email every day, at some point I’m going to get tired of opening it,” he says. “And you send me an email every day that’s at 50% off, and you’ve got a margin that’s on top of that, at some point merchants are going to get tired of running with you. There’s also the sentiment that at some point people like Google or Amazon or Facebook are going to do this better. And what’s interesting is that when you look at the data, none of those things have really played out.”

Lefkofsky would like people to view Groupon as a tech company, which would certainly be more appealing than a sales-driven, email-based daily-deal company. “I think we are a tech company today,” he stresses. “If you look at the investments we’re making in technology, the sheer headcount, the investments we’re making in technology both domestically and abroad, I think technology’s at the heart of what we do.”


As proof, he points to Groupon’s smart deals platform, which personalizes offers for users, and its “deal bank” platform, which allows merchants to create and manage ongoing offers. “All of our merchant tools are really sophisticated technology,” he says. “I just think it’s a matter of when do people outside the company start to realize that we’re a technology company. That I can’t control,” he admits. “It’s a matter of perception.”

Lefkofsky and Groupon may not be able to control perception, but he can certainly influence it. Groupon has long prided itself on avoiding corporate jargon and speaking directly in internal communications. (This may be best exemplified by Mason’s announcement that he was leaving the company, which poked fun at that sort of double-speak. “I’ve decided that I’d like to spend more time with my family,” he wrote. “Just kidding–I was fired today.”)

But that directness doesn’t necessarily translate into transparency. The company breaks out revenue lines at the top levels, but won’t go into specifics of which business lines are responsible for what ratio of revenue. “We can’t disclose that” is a popular refrain. One of the downsides of Regulation Fair Disclosure, a well-intentioned SEC regulation designed to ensure that all investors in a given public company receive material information at the same time, is that it’s become a convenient excuse for not disclosing at all. Won’t disclose becomes can’t disclose, with some legal justification.

Some of Groupon’s merchant OS products seem very promising, but it’s not clear how much of the overall business they’re expected to occupy. Breadcrumb, Groupon’s point of sale system for restaurants, for example, is elegant, simple and is being adopted by some high-profile and influential restaurants (Alinea in Chicago, Atera in New York). But the market for restaurant point-of-sale systems is a small slice of the overall local merchant market. And several of the products only launched last quarter and the company won’t be specific about what sort of market traction they’re getting. When I ask, I’m told that it’s “too early to tell.”

An actual breakout of the numbers could be very convincing. A demonstration of some material growth with merchant OS products would demonstrate that the company was making strides in becoming less reliant on sales and more on technology.

Groupon execs are not unaware of this. I spoke with COO Kal Raman an hour before I sat down with Lefkofsky, and he mentioned that he looked forward to the point at which he had to issue no commentary during earnings calls because the numbers would speak for themselves. Conveniently, those kind of direct, transparent, positive numbers are precisely what the market responds well to.


To be fair, some of the numbers that are being released are positive. “[Last quarter] we sold 50 million Groupons for the first time in a quarter” Lefkofsky notes. “Demand for Groupons has never been higher. Our customer satisfaction scores have never been higher.” The company also measures the ratio of merchants that choose to run with Groupon again, and Lefkofsky reports that number is more than 50%. In order to make sure that those numbers stay positive, and the negative numbers improve, Lefkofsky will have to better define the company externally and ensure that the non-daily deal business lines are growing and thriving in their respective markets.

He also has to retain the confidence and support of Groupon’s executive team, which is composed of several ex-entrepreneurs, many of whom joined after their companies were acquired. He’s confident he can do just that. “I get the importance of technology, the importance of having world-class product people and engineers working toward a common goal,” he says. “Fundamentally, I’m as aligned with that part of the business as Andrew was.”

He acknowledges that there are differences between him and his former cofounder. “He could code and I can’t. He had technical skills I don’t have. So there’s probably a connection there, but I don’t think he had any more respect than I have.”

In the meantime, Lefkofsky has resigned from his other board memberships and has handed off his responsibilities at Lightbank to his partner Brad Keywell, who was also an early Groupon investor. “It’s just best to kind of keep it clean, so I’m really 100% focused here,” he says. “I’m here now full-time.”

[Eric Lefkofsky and Andrew Mason Images: Getty]