Lessons from Groupon:

The Wall Street Journal just ran a comprehensive article on 3/1/13 “Struggling Groupon ousts its quirky CEO”. Being Chicago based, as I am, I have followed Groupon’s evolving story over the last few years.

Groupon’s premise is to issue daily coupons for mostly retail services to large groups. Thus the name.

A couple years ago, a lot of our Chicago friends, especially young ones, thought this was the greatest.

Some retail service and restaurant people we knew were not as excited to issue often hundreds of coupons at or below their cost to try to attract new customers.

But, for a while at least, Groupon became Wall Street’s latest darling. After turning down $6 billion from Google, it went public. Its initial stock offering (IPO) in November of 2011 was well received with the stock starting out over $25 and a total market capitalization or value of $16 billion.

Today, the stock is closer to $5 and the total market value below Google’s old offer. Not good.

In my book, The Business Zoo, we look at the critical factors that can lead to an individual or firm’s success or failure. Let’s look at a few of these using Groupon and see what lessons we can learn.

Strategy. Harvard’s Michael Porter stressed the need to understand your industry and have a significant advantage or barrier to entry versus your competitors. Although Groupon was one of the first to make group coupons big, it only took a short while for others to follow. You needed an office, a computer and a phone.

Groupon has recently stated they were reviewing and improving their business model. A little late.

Financial Integrity. Right after their IPO, Groupon had to revise/lower their financial results. They had used the novel approach of not expensing all their selling costs to obtain customers. The SEC also questioned their financial disclosures. Never good.

Culture. Groupon, like many startups and tech firms had a unique company style and approach. They acted aloof and private even after going public. This works for Apple, to a degree, but you must be growing and increasingly successful to do this. They are not.

Leadership. Groupon’s recently fired CEO was young and even described himself as a bit weird. He had an older partner who helped him start the firm. But recently the older partner was upset with the company’s performance and apparently its younger CEO. Issues at the top of a company must be resolved before they destroy the whole firm. But can a successor turn this ship around? We will see but it will not be easy.

Board of Directors. It took a year and a half before the Board decided to change leaders. Then it was reported that one Board member was contacting possible replacements for the last month. There are no secrets in most industries so this behavior seems hard to understand. But do not get me started on Boards of Directors, I spend a whole Section in my book on them.

So Groupon and its new leaders have their work cut out for them. But when there are issues with the Board, the Leadership and the company’s Culture, it may be too late. If you read that Groupon has hired some famous investment banker to “pursue strategic alternatives” that means the Board has figured it is time to exit.

Then its bye, bye Groupon and all those great deals!