The checkered past of Groupon's chairman
tech.fortune.cnn.com
tech.fortune.cnn.com
What's bizarre?
Basically he picks a bunch of ideas or voices, arbitrarily decides they had utmost influence on history, giving no evidence for this, then connects them to cherry-picked historical events, omitting any events that would contradict the narrative he wants to present, and also any counterpoints within the ideologies he's 'debunking.' If anyone seriously finishes watching those shows and takes it all at face value, they have some serious epistemological issues.
Was Rand happy? Think how ridiculous this is: all the stuff she accomplished in her life time, and the documentary focuses on one spell of unhappiness stemming from a personal betrayal, to paint her as a 'failed invidividual.' Think of all the difficulties other philosophers/writers ran into - yet we let their ideas stand on their own merit. Of course Rand was not happy every single day, and there's nothing about her philosophy that suggests she ought to have been, but she was (rightly) satisfied with her life.
http://venturelevel.com/post/4798285366/why-groupon-sucks-fo...
Now that the social buying model is better understood, I feel like merchants are in a much better position to determine whether or not a Groupon deal actually makes sense for them.
Courtesy of nh: http://www.youtube.com/watch?v=D_UYtYAChi8
Lefkofsky might be able to hedge against the decline of the stock, but hedging 20% of a big company (especially because it'd be difficult to build a portfolio which replicated Groupon's situation and risks) is a pretty tall order.
All that said, I tend to agree with your sentiment...
It is because I think he is smart that I think his cashing out to the extreme is a very bad sign. Otherwise, he should have kept the stock and been significantly richer upon the IPO of Groupon.
This is what Groupon is guilty of so far:
1. Having such a profitable business model that everyone and their mom has launched a copycat or sub-niche clone in a fairly short time span. (Google, Facebook, Amazon, and countless other small players.)
2. Bowing out of a Google acquisition over regulatory concerns that arguably would have derailed their growth.
3. Re-investing what would have been profits right back in to the business instead of sitting on them.
4. Letting early investors cash out early.
The competition in this space is brutal and the top players have seemingly bottomless pockets . Without an IPO Groupon will fail. With it, they have a chance of being around for a while.
The "quality of deals" issue is separate. Just like a novice advertiser can blow a million dollars on display advertising and have nothing to show for it, the novice business can screw up their Groupon/Living Social/any daily deal site offer. That doesn't mean there is something wrong with the model. This is a two sided equation in a marketplace with incredible consumer demand -- its not a pyramid and with or without Groupon it will be around for a long time.
1. Remember Enron? Lehman? Arthur Andersen? WorldCom? Parmalat? Countrywide? I could go on. I suppose the rule is "you're an amazing entrepreneur (unless you get caught)"?
2. It's you and me who pay the price when these companies collapse.
Well, that's not true. They spend $1.43 for every $1 in revenue.
I also wonder how much Groupon is riding high based on the reasoning, "Well, if _Google_ thought highly enough of it..."
(forgetting that Google was willing to bet on it _on_condition_ that Google had control/oversight of the operation)
"To demonstrate the economics of our business model, we have compared the revenue and gross profit generated from the North American subscribers we acquired in the second quarter of 2010, which we refer to as our Q2 2010 cohort, to the online marketing expenses incurred to acquire such subscribers. The Q2 2010 cohort is illustrative of trends we have seen among our North American subscriber base. The Q2 2010 cohort included 3.7 million subscribers that we initially spent $18.0 million in online marketing to acquire in the second quarter of 2010. In that quarter, we generated $29.8 million in revenue and $12.8 million in gross profit from the sale of approximately 1.2 million Groupons to these subscribers. Through March 31, 2011, we generated an aggregate of $145.3 million in revenue and $61.7 million in gross profit from the sale of approximately 6.3 million Groupons to the Q2 2010 cohort. In summary, we spent $18.0 million in online marketing expense to acquire subscribers in the Q2 2010 cohort and generated $61.7 million in gross profit from this group of subscribers over four quarters."
A typical cohort that returned >3x what it cost? Sounds like a good business to me.
1. Costs to gain subscribers goes up each quarter 2. Costs to retain subscribers goes up each quarter 3. Marketing costs to get deals for subscribers goes up each quarter
Costs to retain subscribers is missing..what part of loss is that? Do not know have not finished reviewing the S1..
and other difference compared to Amazon..Amazon founders did not attempt a cash out during the loss years...
http://www.lefkofsky.com/blog/when-you-dont-know-what-to-say
He seems both honest and it's evident he's determined and learns a lot from experience.
He's clearly the type of entrepreneur that VCs always ask for: the "go big or go home" type. Seems like his early investors didn't grasp that.
I wonder if he'll distribute any of his Groupon proceeds to some of the investors who backed him early. The ones who didn't turn on him when things went south, anyway.
The exhortation 'go big or go home' is clearly a challenge to 'win' at all costs. How people internalize that challenge reflects on their character and their moral compass. Its all about what someone considers and 'acceptable cost' at that point.
Me, I have no idea what will happen.
On the one hand, Groupon resembles a lot of fads. On the other hand, I've admired their execution and innovation over the years.
I can't predict whether they will succeed better than a coin flip.
If you can, put some money on it. :)
Before I posted it, I did a tiny bit of research on InnerWorkings and ECHO. They are the 2 main companies Lefkofsky has been involved with in the past 10 years. Both are public companies, with around half a billion in annual revenue each, both are profitable, and both seem to have many large, satisfied customers.
If you're going to judge an artist, would you look at their recent paintings or what they made in elementary school?
Thanks for the useful links.
More information led me to change my mind.
My hope is that Groupon files an new disclosure in a couple months that has better numbers. That is the real solution that everyone is waiting on now.
Our minds can be changed again, just like they were changed with the first IPO filing. From my perspective, this would be a very mature and robust solution to the problem at hand.
Groupon just happens to be the latest example.
Two very interesting things have come out of Groupon's history so far, the first is that they turned down a $6B buyout (which seemed amazing to me at the time) and then they did a fund raise where most of the stock was insiders selling.
That particular combination makes me wonder if the buyout was rejected because the way money would have been shared around was stipulated by previous term agreements, and some of the investors didn't want that, so they did the series D or what ever it was which allowed them to funnel money to specific investors, so that now if they take a hair cut on valuation those investors are 'protected.'
So the fact that they are bleeding cash will force some sort of financial transaction to occur (buyout, bridge loan, chapter 11 bankruptcy), if they are having a hard time getting the offering fully subscribed they may be shopping the company around, and if they are doing that they are in a much weaker position than they were before.
I mean back in 2000 I was too young to understand all that, but was the bubble partly due to misinformation by of the public? I feel like with all these stories about the IPO being cast in a negative light, and how connected we are now w/ information, the average person would be much more careful.
Hm.
It really didn't seem like there was a lot of out-right deception then, or even misinformation. Companies will always say they're great. There's enough information out there to inspire some skepticism if you're open to it.
I'm no professional at this, but my uneducated observation is that, then and now, there's a lot of money to be made, and people are willing to risk riding the wave as long as they think they can get out before the crash. It's just simple greed. Nobody really believes these companies are actually worth what they're being pitched at; but "if I can quickly double or quadruple my investment, then get out clean, why should I miss out? After all, I'm smarter than everyone else..."
There's a generation ten years younger than you that doesn't.
So there is more info now. But the only way that information out there helps is if it makes it to the traditional media which broadcasts it to the regular non-tech site reading public. And that appears to be happening actually.
http://en.wikipedia.org/wiki/Irrational_exuberance
Not really misinformation, just a suspension of judgement.
Forget 2000, what about the real estate bubble? That didn't happen that long ago, yet nobody remembered 2000, and nobody remembers the last couple of years.
The main difference now is that the average person is not really gung-ho into the stock market, or hasn't been for the last few years, particularly with regard to buying/selling individual stocks.
Most of this stuff today seems to be 401k and IRA fund managers being fleeced by this and HFT.
PS
Keep in mind, most of the 'investors' who didn't get too badly burned off of the dot com stuff after 2000, moved their money into real estate since the NASDAQ was comparatively 'in the shitter'.
Check out these great dotcom documentaries (both show meteoric rise and epic failure):
http://www.imdb.com/title/tt0262021/
http://www.imdb.com/title/tt0256408/
and this AWESOME business sci-fi book about the same time period:
http://www.amazon.com/gp/product/1887128905/ref=as_li_ss_tl?...
In the 2000s, you had the "New Economy" bullshit: The internet was changing everything and the most important thing was to start a company that carved out your niche of the New Everything. Profits or even cashflow fundamentals could wait until after the land-grab.
There was a kernel of truth of course, the Internet has changed a great deal. That's what made the argument sound plausible.
With the housing bubble, the argument was "real-estate never goes down," "the population keeps getting larger so demand always goes up." "houses are real things with real value."
Again there's a kernel of truth to the argument --- just enough to hide the reality of the bubble from people who don't take a hard look at the numbers with a critical eye.
And moreover, during 2000 as well as the housing bubble, very many people who participated believed there was a bubble. Goldman Sachs were long on housing derivatives for years before they went short in the final few months.
There's a lot of money to be made running with the herd in a bubble so long as you veer off before the herd goes off the cliff.
While Lefkofsky is selling his stock at will, you should note that the CEO is holding on to most of his portion of the company.
Everybody and their cousin worries about their expenses, and that is totally understandable, but let us not forget how many acquisitions they have made in the past. If most of the money they have raised went into founders' pockets, then most of the income they have made went into buying other sizeable companies and paying some 7000 employees.
There are 15M small businesses in the US. Groupon made nearly $3B last year servicing only less than half a percent of those. For better or for worse, Groupon could be bigger than Google and turn a solid profit.
I was actually quite impressed with Groupon initially until I saw its numbers and that its major stockholders were cashing out hundreds of millions of dollars in stock pre-IPO. That raised with me huge alarm bells and it changed my opinion drastically.
My extreme leariness of Groupon is based on facts that I've learned as I used to be a fan, although a relatively uninformed one.