November 23, 2014

What Groupon’s Firing of Andrew Mason Means for the Company and the Industry

On Thursday, Groupon booted Andrew Mason from his seat as the daily-deals company’s CEO, less than a day after it announced disappointing fourth-quarter results and a tepid forecast for the first quarter of 2013.

Groupon

While less than surprising, Mason’s firing marks the end of an era filled with offbeat humor, bad accounting and controversial Super Bowl commercials.

That said, Mason and his tenure at Groupon did have laudable highlights, including an IPO that was the second biggest for a U.S. Internet company. Groupon also blazed a trail and carved out an industry that countless copycats and innovators benefited from.

Now that Mason has exited the biggest stage in the business (with a severance package totaling $378.36), what does the future hold for Groupon and the deals industry as a whole? We spoke with eight experts to find out.

Jana Francis, co-founder and President, Steals.com:
“In the wake of Andrew Mason’s firing, deal sites should pay close attention to his parting words: ‘have the courage to start with the customer.’ Daily-deal sites everywhere need to take a close look at themselves and really consider whether or not they’re truly putting their customers first. Many have made revenues their top priority, with quality and service taking a backseat. They’re pushing out as many deals as possible, creating shopper fatigue and very little actual value to the customer. Too many sites — both voucher and product-driven — also leave the fulfillment of their deals to their vendors, which means they ultimately have no control of the brand value or customer experience. It’s a recipe for disaster and the model needs to change. The recent firing of Mason at Groupon should force the deal-site industry to re-evaluate their business practices and focus on what’s most important: the customer.”

Michael Tavani, co-founder and head of product, Scoutmob:
“Andrew had an incredible run that was very impressive. It’ll go down as one of the fastest growing companies ever, and you have to credit him as the founder and CEO. Also, he practically invented the local daily-deals industry. It turned out to not be sustainable enough for the investment and money required to scale that big, but a lot of good was created by him. The real downturn, in my opinion, is that they grew too fast for their own good. They weren’t forced to figure out the real economics.

Ultimately, it’s good for Groupon to start fresh and get some new blood in there. The whole industry won’t be impacted at all by the news.”

David Moore, CEO, City Rewards Network:
“When Andrew Mason founded Groupon, he failed to recognize a fundamental principal: All parties involved in a transaction must benefit if you hope to sustain a long-term business model. Mason essentially took merchants’ profits to increase his revenue model, and his shareholders are paying the ultimate price. As Groupon went into high-growth mode, it only exacerbated the problem.

Even with Mason out, the Groupon business model is still flawed. Merchants are required to deeply discount to the point of losing huge on campaigns. They don’t return to run another Groupon. There is a happy medium in the daily-deal industry, and the new Groupon CEO, whoever it will be, must figure that out quickly. The company must make amends with merchants. Groupon has contaminated the coupon/discount industry, and they need to repair that as fast as they can.

My company also works directly with merchants, and our business model has lasted more than 12 years because we always consider how it affects the merchant offering the discount or deal. It’s a three-legged stool: consumer, merchant and coupon provider. Groupon was greedy and took more share from the merchant than was required.

Andrew Mason - Groupon

Andrew Mason, former CEO of Groupon

I’ll add that what Mason did with Groupon as an entrepreneur and for the startup rocketing to IPO is admirable. However, the founder of a high-tech, high-growth company rarely has the skill set as a CEO to take the company to the next level. Groupon is still a very valuable company and it can be salvaged if they find the right executive team to do it.”

Phil McDonnell, co-founder of CoupFlip:
“The storm clouds above Groupon are not evaporating simply because Andrew Mason has left the building. Now is the time for the leadership team at Groupon to act and address the core issues that still exist around daily deals. Specifically, Groupon relies on selling 5-6 deals to each active customer. That strategy only works long-term if you’re customers have great experiences with their deals and come back for more. Ask yourself a simple question: If you spent $50 on a Groupon and didn’t use it, would you buy a Groupon again? Today, one in three deals still goes unused. Groupon needs to confront a few key issues in 2013 if they want to have a sustainable business in 2014 and beyond:

- I can’t schedule a deal: Many people get stuck with deals to hair salons, hotels, etc., that they simply can’t schedule for various reasons.

- I won’t use a deal: Many people buy a deal and realize they don’t really want or need that. Simply put, plans change. Secondary markets play an important role here, but most people still let these deals expire.

Without swift, decisive action, Groupon is bound to continue to underwhelm customers and businesses alike. That said, the silver lining here is that no company is better positioned than Groupon to build a great solution. This is Groupon’s race to lose.”

Andreas Scherer, managing partner, Salto Partners:
“For some time, investors had doubts about the sustainability of Groupon’s business model. The company was able to grow its topline, but it wasn’t able to show how to make a profit. Andrew Mason’s last stance was to point out the growth in gross billings, a number that indicates how much, overall, Groupon’s clients spend with the company. His argument didn’t address the sustainability issue and it didn’t convince the stock market. In the end, it didn’t convince Groupon’s board either. It’s time to go back to fundamentals. Groupon needs to show how it can stand out in a crowded space of deal-of-the day companies. It needs to create value for its customers and merchant partners. Most importantly, Groupon needs to have a convincing path to profitability. No matter who runs the company, Groupon’s stock price will be bumpy at best until the company shows that it can turn a profit and is able to grow at the same time.”

Patrick Lefler, founder, The Spruance Group:
“The departure of Andrew Mason may eliminate some of the short-term distractions that were clearly affecting Groupon, but it will not be a catalyst for change in the fortunes of the company. That will only occur when its business model changes. Until then, the company will continue to languish. Having said that, the coupon business is huge and remains ripe for innovation. Just because the Groupon business model isn’t working doesn’t mean the space can’t be conquered. It will just take a different company with a better business model. You can be sure that there are tens — if not hundreds — of startups today that are applying the lessons learned from Groupon’s mistakes to exploit their ‘second-mover’ advantage.”

Rob Frankel, founder of i-legions and PeerMailing:
“Ever since Groupon came on the scene, even before the IPO, its business model was dubious. However, its lack of brand strategy was the final nail in the coffin. For a brand to succeed, it not only has to be perceived as ‘the only solution to its prospects’ problems,’ it also requires all four of the following characteristics:

1) clarity

2) credibility

3) authoritativeness

4) defensibility

Groupon has none of these and never had. That’s the disconnect and its fatal flaw. Until it gets fixed, any CEO who takes over will be in for a tough time.”

Rita Gunther McGrath, professor at Columbia Business School and author of “Discovery-Driven Growth: A Breakthrough Process to Reduce Risk and Seize Opportunity”:
“There are a mix of things at play in this firing. The first is that it is the rare founder-entrepreneur that can manage the operational and execution challenges of running a large, complex steady-state business. Mason is in many ways the epitome of what great entrepreneurs can accomplish and of the pitfalls that can beset them. I never did like the original Groupon business model, as you know, but Mason went all-in on it in a feverish attempt to grow at all costs. That only makes sense if you think you are building a first-mover advantage, which implies that you have some kind of barrier to prevent competition from copying you. At Groupon, no such thing, so essentially you are spending missionary money creating a category that others will soon charge in to. And the quirky, irreverent confidence-in-one’s-own-convictions attitude that can work when a company is small and finding its way can be a liability when it gets larger and — God forbid — is faced with the expectations put on a publicly traded company. When the entrepreneur is successful at making the transition, it is often because there is a partner handling operational issues while the founder does the vision and external-image thing.

The second issue is that there is only so long that, in a public and supposedly accountable company environment, that key stakeholders will put up with the organization not doing what it promises. Mason hasn’t done a great job of making sure that key stakeholders are informed, feel engaged and feel they are being taken account of in his strategy decisions. So the rope gets shorter, patience runs out and the key players feel they have no choice but to have a parting of the ways. It is crazy to go public before your business model is stable — Mason himself recently observed that he was ‘surprised’ people still regarded Groupon as a daily-deals business. That kind of substantial change in business model doesn’t give people confidence that the decision to become public was wise. It wouldn’t surprise me if it was a reaction to having turned down Google’s rich bid for the company.

So what now? My guess is that there will be a new leader with serious operational chops brought in, someone who can see what is of value that was built in the company. Then, depending on what this person concludes, Groupon could use the grace period of new leadership to redefine its value proposition, shop itself to prospective buyers or even sell itself to private-equity players to do the reconfiguration needed to develop a viable business model. It may well shrink to serve those truly loyal customers that value its business. Whatever happens, I think we can expect a serious rethinking of what Groupon does for its customers.”


By Jason Hahn

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