Lessons from the first few years of Groupon ...
Adam Rifkin stashed this in Startups
I've never before used the phrase fabulous BusinessInsider piece.
But that's how I describe Nicholas Carlson's Inside Groupon.
The lesssons I learned from reading this article:
1. You never know what part of an endeavor will actually have huge potential for success until you see what people are actually doing with your product.
Every Monday, Lefkofsky, Mason, and a handful of early employees would meet to talk about the Point's progress. One Monday, in the middle of 2008, Lefkofsky raised an idea he thought could revitalize the struggling start-up, based on a campaign he'd seen launched on The Point.
Ordinarily, people used The Point to organize around some sort of cause that might make the world a better place.
But in this case, a group of users decided their cause should be saving money. Their plan was to round up 20 or so people who all wanted to buy the same product and see if they could get a group discount.
"Eric said maybe this is the thing that we do," says a source who was at the meeting. "Maybe we set up a separate page, make it dedicated to group buying."
2. Even if the team dismisses a good idea, don't let go of it. Revisit it when it makes sense.
In his initial business plan for The Point, Andrew Mason had actually mentioned group-buying as a possibile way the startup could eventually make money. But when Lefkofsky brought it up more than a year later, Mason and The Point's other early executives dismissed the idea. "It didn't seem core to our mission," says the person who was at the meeting.
Through the rest of the summer and early fall of 2008, Lefkofsky would not let that idea go. He'd bring up all the expensive purses his wife and all her friends were buying, and say, "It's crazy! Couldn't they buy 20 of them and get a discount?"
Around this time, the global economy entered free-fall as the sub-prime mortgage crisis exploded and credit markets ground to a halt. Then in September 2008, Lehman Brothers filed for bankruptcy and famous Silicon Valley venture capital firm Sequoia sent out a presentation called "R.I.P. Good Times." Mason and Lefkofsky decided to lay some people off.
"There was this pressure from the market crash [and] looking at our burn rate and revenue — it was time for us to try something to scratch that itch," says a source close to early employees.
Groupon — a side project launched out of desperation by a team of do-gooders who professed no real desire to make big bags of money — was born.
3. The best use of venture capital is to scale a business that's working and creating many copycats.
"We realized the main barrier to entry is going to be scale. So we wanted to get to as many cities as we can because we saw direct, outright, verbatim copies of what we were doing, popping up all over the place pretty quickly. We said we can either go chase them and beat them back and fight them legally, or race ahead and do what we do, as best we can. So the choice was to not look back, and try to be better and bigger."
4. The best startups have a "soul" and a "mastermind".
Andrew Mason is the "soul" of Groupon, but chairman and early investor Eric Lefkofsky is the "mastermind," according to one source close to Groupon board members.
"I think people would be surprised at the level of involvement that Eric has in the day-to-day business," says this source.
Besides pushing for Mason and The Point to experiment with a product that would become Groupon — and then pushing for its hyper-expansion — Lefkofsky was, according to several sources, the real operator behind the entire enterprise during its early days.
"Andrew is not a puppet. However, if it weren't for Lefkofsky, Groupon couldn't exist as it does," says one source.
That's because early on Mason needed "filling around the edges," says another source close to Groupon's board.
So Lefkofsky — who is good at "efficiency in operations and financial discipline" — had to do "a little bit of what a COO would do and a little bit of what a CFO would do, and little bit of what a chairman would do," while Mason focused on product and development.
5. If you're growing revenues wildly, companies will want to buy you.
Sometime in the early to middle part of 2010, Yahoo corporate development boss Andrew Siegel reached out and offered to buy Groupon for a price between $3 billion and $4 billion. What attracted Yahoo most to Groupon was the promise of personalized offers.
What attracted Groupon to Yahoo was just about nothing.
6. Turning down a buyout offer from Google changes you.
"So Google offers $6 billion to buy the company, and Andrew and Eric, to their credit, after lots of discussions with the board and lots of people, say we know there's a lot of money at stake and we know we can make a ton of money personally if we sell the company right now to Google — we get our money, we would cash out — but we don't think that's the right thing. We're going to stay with it and continue to build the company," recalls one source close to Groupon investors.
"And we go: 'Great. [But] if you say no to Google, then you've got to IPO."
A number of sources close to Groupon say the whole ordeal — Google's offer and the IPO goal — changed Andrew Mason, and changed his outlook on the company.
Says one source: "When [the sale to Google] didn't happen, Andrew said to himself, 'I'm going to be CEO.'"
Another: "I think he was definitely energized, and he realized there was added responsibility now of that fork in the road."
7. Have a long-term big vision and mission.
Groupon bulls, meanwhile, like to point out that many analysts said all the same things about Amazon, which struggled through its own transition from light-speed growth to squeaking out a profit.
These bulls say that thanks to products like Groupon Now — a mobile app that shows users deals at nearby merchants in real time — Groupon is on its way to becoming something much more than a daily deals company. They say it is becoming "a yield management platform for business."
Thanks for this -- I had read the article and really liked it too. I had similar takeaways. The early realization of a business model lurking inside what they were doing requires good listening (and as you point out, tenacity to push the team to try it and pivot).