Business Standard

Book Extract: Look beyond the 'now'

Baba Prasad 

Author: Baba Prasad
Publisher: Random House India

ISBN: 9788184005738
Price: Rs 499

By 12 November 2012, just after the first anniversary of the Groupon IPO, the narrative for the company was very different. It was becoming apparent that the Groupon story was turning out to be as unrealistic as any fairy tale. Its $20 share was selling at $2.69, nearly 90 per cent below its opening price; for all its wit, Groupon was clearly a laughing stock, a failed stand-up comedy. Groupon has not yet recovered, and even today, its stock is around $5, roughly 80 per cent lower than its opening price. Andrew Mason was fired as CEO in February 2013.

What happened? We get a hint of what happened from Mason's final letter to Groupon employees in which he said in his wickedly funny way, 'After four and a half intense and wonderful years as CEO of Groupon, I've decided that I'd like to spend more time with my family. Just kidding - I was fired today. If you're wondering why ... you haven't been paying attention. From controversial metrics in our SI to our material weakness to two quarters of missing our own expectations and a stock price that's hovering around one half speak for themselves.'

What happened was that Groupon had prioritized communicative intelligence at the expense of the other intelligences and was paying the price for it.

Lack of analytical intelligence
Groupon did not seem to exercise analytical intelligence; in fact, it became questionable whether Groupon possessed enough of it. The article in Time reporting Andrew Mason's firing said: In the summer of 2011, as Groupon was preparing its IPO, the company raised eyebrows with a funky financial metric it called Adjusted Consolidated Segment Operating Income (ACSOI). There was just one problem: because that figure excluded marketing costs, which make up the bulk of the company's expenses, ACSOI made Groupon's financial results appear better than they actually were. After the Securities and Exchange Commission (SEC) raised questions about the metric-which the Wall Street Journal called 'financial voodoo' - Groupon downplayed ACSOI in its IPO documents.

Groupon's sales teams-well equipped verbally but not analytically-drew up campaigns for local merchants that hurt them financially. Merchants collaborating with Groupon had to offer discounts of at least 50 per cent, and were led to set abnormally high limits in terms of the number of customers for whom the offer would hold or in terms of the time periods for which the offer would be valid. Thus, small merchants would be flooded with large numbers of low-paying customers, sometimes for long periods. The New York Times was now writing a different kind of story about Groupon: it recounted the stories of merchants who were complaining about having to take loans to meet the operating expenses to serve these customers. In a leaked internal memo that the Wall Street Journal published, Eric Lefkofsky, who had now taken over as CEO, wrote to Groupon employees, 'Yet we all know our operational and financial performance has eroded the confidence of many of our supporters, both inside and outside of the company.'

Lack of visionary intelligence
Underlying Groupon's fall was a tremendous lack of visionary intelligence - the incredible sense of carpe diem that focused singularly on the short term dominated the spirit of the company. There was no conceptualization of long-term growth. Any question that dealt with either of the visionary elements - What is the long-term impact? How widespread will be this impact? - became taboo in the soda-water environment created around the free-flowing words and the gaseous venture capitalist funds available to Groupon. Questions such as 'What would make customers come back to the merchants who were offering groupons?' or 'What would make merchants come back to Groupon again and again?' never came up for the

Reprinted with permission from Random House India

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First Published: Mon, August 10 2015. 00:07 IST