By Ally Marotti
Chicago Tribune
WWR Article Summary (tl;dr) Columnist Ally Marotti takes a look at the trials and tribulations of “Groupon” which is celebrating 10 years in business.
CHICAGO
Groupon launched a decade ago this fall with a two-for-one pizza deal at Motel Bar in Chicago, a humble beginning that preceded a whirlwind rise and an even faster fall.
Its business model resonated with deal-seeking customers and small merchants scarred by the Great Recession.
Users waited each day for the company’s emails to land in their inboxes, offering a deal from a local business that only kicked in once a certain number of vouchers was sold. Groupon hired a team of writers to rope people in with wit and sarcasm, and it offered incentives to users who spread the word to friends.
The company became one of Chicago’s biggest tech success stories since the dot-com era. Even now, after years of shrinking, Groupon is still held up as a triumph of the city’s tech scene. It employs more than 1,500 people locally. Two of its founders, Eric Lefkofsky and Brad Keywell, rank among the highest-profile entrepreneurs in the city and have gone on to form billion-dollar tech companies that use big data to battle cancer and make heavy machinery more efficient.
But the growth at Groupon was too much, too fast. Company leaders have spent the past several years trying to figure out what Groupon should be, backpedaling on growth and reducing the company’s reliance on those wry daily emails.
Companies aren’t supposed to grow from $40 million or $50 million in revenue to more than $3 billion in a couple years, said Lefkofsky, a former CEO and current chairman.
“Parts of the growth we handled really well, and other parts, in hindsight, we didn’t handle very well,” he said.
Catching a tiger
Groupon became a household name with consumers. Small business owners usually came on board once they understood the group buying concept, said Sarah Greubel, director of sales for Things To Do, Groupon’s live events and experiences category. Greubel was employee No. 24, hired in May 2009 to launch Groupon in Atlanta and San Francisco.
The first deal she launched in San Francisco was a $15 tour of San Francisco Bay with tour operator Adventure Cat Sailing Charters.
The morning it went live, hundreds of the tours were sold before lunchtime.
Michelle Witkowski, a product designer, works at Groupon in Chicago on Nov. 14, 2018. (Jose M. Osorio / Chicago Tribune)
“(That) was unheard of at the time,” Greubel said. “We literally sat and all stared at the screen as people were purchasing these tickets.”
It was a wild time, filled adrenaline, fear and chaos, she said. Employees gathered deals that went live the next morning.
“We were … living on the edge,” she said. ” ‘Oh my gosh, we have to go live tomorrow. What do we have?’ ”
It was relativity easy to replicate the business in each new city with the help of social media. Competitors also could mimic Groupon’s model, which created challenges for the company down the road.
Once Groupon spread from Chicago to New York and Boston, it became apparent the company could get very big, very fast, Lefkofsky said. “And that’s exactly what happened.”
Groupon went international in 2010.
That year, the company turned down a nearly $6 billion acquisition offer from Google, opting to go public the following year. Co-founder and then-CEO Andrew Mason rang the Nasdaq opening bell on Nov. 4, 2011, amid a shower of green confetti as Groupon debuted on the tech-heavy stock exchange at $28 per share, a price it hasn’t reached since.
By 2012, Groupon was in almost 50 countries, and by 2014, annual revenue grew to more than $3 billion.
The rise was meteoric, Lefkofsky said. When a business model takes off that quickly, it’s like catching a tiger by the tail, he said. “You’re really trying to keep a grasp on it.”
A precipitous fall
During much of the company’s ascent, current CEO Rich Williams was in Seattle, working in marketing and advertising at Amazon and watching Groupon from afar.
One day, a Groupon employee he knew asked for his thoughts on a commercial the company was planning to air during the 2011 Super Bowl. It was Groupon’s first foray into TV advertising, and Williams knew right away the commercial wouldn’t work, he recalled.
“My feedback was, ‘Are you nuts? These are going to get you guys killed,’ ” he said.
The ad started out like a pledge drive for Tibet, highlighting the human rights violations it had endured under Chinese rule. Then the commercial cut to actor Timothy Hutton, who said Tibetans “still whip up an amazing fish curry” and that he saved money at a Chicago Himalayan restaurant via Groupon. The commercial was widely regarded as a spectacular failure on advertising’s biggest stage, as many viewers felt it made light of the Tibetan people’s struggles.
Scrutiny became a constant for Groupon when it filed for an initial public offering later that year. Before Mason ever rang the opening bell, analysts were picking apart the company’s financial statements, and Groupon had to amend its IPO documents several times.
The company’s share price declined about 80 percent in its first year as a public company. Skepticism surrounded its ability to maintain revenue growth and the sustainability of its business model. Even the rise of its retail site Groupon Goods, which sells everything from towel sets to furnace filters, drew concerns about the transparency of the company’s accounting methods.
Earnings continued to disappoint. By 2013, with the company’s shares trading around $5, Mason was ousted as CEO. In an exit letter to employees, he wrote, “If you’re wondering why … you haven’t been paying attention.”
Changing Groupon
Williams, who joined Groupon in 2011, moved through several positions before being named CEO in 2015, taking the helm from Lefkofsky.
When Williams took over, he started to shrink and simplify the company. It went from operating in almost 50 countries to 15 and from a peak of more than 12,000 employees in 2014 to about 6,500 currently. Groupon reduced its dependence on email, narrowing it from all of the business to one-fifth.
“We knew we had to do some things that were going to create noise,” he said.
It increased the amount it spends on marketing, upped the number of deals it offers and rolled out products such as Groupon+, which lets users link deals to their credit cards and get money back through their cards after they make purchases.
Groupon acquired one of its biggest rivals, LivingSocial, in 2016 for an undisclosed amount. Washington, D.C.-based LivingSocial was familiar with downsizing at that point, having shrunk from a peak of more than 4,000 employees to about 200.
Going forward, the goal is to move away from the voucher and attract users to its site in search of deals on everyday purchases, Williams said. But Groupon isn’t there yet.
“Groupon is a household name, but still too many people think of it as a thing they used to wait for in their inbox,” he said. “(We’re) changing the way people think about the brand so that when they’re hungry, they think to check Groupon; when they’re bored, they think to check Groupon. They’re not waiting when they wake up in the morning for someone to send them an offer.”
Where are they now?
Mason moved to San Francisco within months of leaving Groupon in 2013 and released a seven-track album about business leadership called “Hardly Workin’.” He launched Detour, an audio tour startup that sold to Bose earlier this year for an undisclosed price. Now he’s CEO of Descript, which was born out of Detour and makes software that transcribes audio. Mason did not respond to requests for comment.
Groupon’s two other co-founders, Lefkofsky and Keywell, stayed in Chicago. The serial entrepreneurs each founded a company now valued at more than $1 billion.
Keywell, who stepped down from Groupon’s board a little over a year ago, launched Uptake Technologies in July 2014.
The company, which collects and analyzes data from heavy machinery, now employs about 700 people, most of whom are at its headquarters in the Goose Island neighborhood. Uptake, which has faced its own growing pains, declined to make Keywell available for comment.
Lefkofsky launched cancer-fighting data startup Tempus shortly after stepping down as Groupon’s CEO. Tempus, which is valued at $2 billion, employs about 550 people and operates out of the same building as Groupon and Uptake, the former Montgomery Ward catalog building at 600 W. Chicago Ave.
Tempus gathers and analyzes data for doctors to use in cancer treatment, and the company has plans to apply its technology to treating other diseases and to expand outside the U.S.
Lefkofsky has tried to learn from what worked at Groupon and what didn’t. It’s easy now to say what Groupon should have done differently, he said.
The growth it experienced its first few years was difficult to manage. He learned to be patient and not to be short-sighted. He learned about the work it takes to control rampant growth and that the scrutiny of public markets can make that job more challenging.
“When you’re in that job where you’re running the day-to-day operations, I think you bring everything with you from the past. You bring it all. The good and the bad,” Lefkofsky said. “My approach has always been to try to kind of repeat everything that has gone well and really do the opposite of what-what hasn’t. … I think we’ve done more things right than wrong.”
