Groupon’s co-founder, Andrew Mason, was fired by its board today after another spectacularly unsettling earnings miss.
Some of the snarkier comments on Twitter allude to the 19% voting stock he still controls and the $230m his stock is now worth.
But for entrepreneurs, I am going to guess that regardless of the riches, being ousted from their own creation has to be somewhat painful. But to Andrew’s credit, he seems to have handled it with finesse, with his farewell email (now famous) saying:
From controversial metrics in our S1 to our material weakness to two quarters of missing our own expectations and a stock price that’s hovering around one quarter of our listing price, the events of the last year and a half speak for themselves. As CEO, I am accountable.
Moving beyond that though, this entire episode is meaningless.
The people that are temporarily taking over for the CEO are on Groupon’s board. So how are they off the hook for Groupon’s dismal stock performance and constant post-IPO slide? Andrew’s removal from the board seems merely a signal to the outside world that they mean business.
At a very fundamental level, the business model – the “daily deal business” – has problems, especially for large players. But it is not flawed, as some has alleged (are you listening, Matt Yglesias?).
Restaurants and “service/experience” offerers around the country will always have excess “inventory” and daily deal sites will always do business. But the problem is that there are no “economies of scale” in this business, there are no barriers to entry and maximizing “lifetime customer value” – very important to small local businesses – is far from assured.
(a) Anyone can easily get into this business and as long as they have enough foot-soldiers to violate “no solicitation” notices and people to work the phones, they can sign up any number of local businesses.
Local – because meals and services are always consumed by those that are local to each area. As your Inboxes can attest to, anyone and everyone has jumped into this business.
(b) What can a company that is national or international do in this business that a business that knows a particular area very, very well, can’t?
(c ) Once a restaurant signs up with Groupon, anecdotal evidence suggests that the half-off coupons attract bargain hunters who don’t come back to the restaurant without another Groupon.
So “good” restaurants and other experience peddlers are not really cultivating a clientele via Groupon, thereby reducing Groupon’s attractiveness. This, in turn, means that Groupon is merely helping sell unsold inventory…but if any company can do that, why should that business use Groupon again and again? So if Groupon has to secure each deal afresh – that’s certainly not helping its operating expenses.
So Andrew Mason’s ousting and his candid letter to Groupon employees will attract some media buzz for a couple of days. After the buzz dies down though, nothing would have really changed.