Groupon founder and CEO Andrew Mason was interviewed by Techonomy’s David Kirkpatrick on stage at the annual DLD confab in Munich, Germany.
Below are my notes – Mason’s responses are slightly paraphrased.
Also read: DLD 2012 – @Jack Dorsey: “Twitter Has A Business Model That Works”
As you can tell from how filled the room is: there’s a lot of interest in Groupon. Can you start by telling us how you would describe the company today?
Groupon has evolved quite bit since we launched three years ago. We started off with a single ‘deal of the day’ in each city, and today we often offer dozens of deals in numerous cities, across many categories (travel, goods, etc.). We think of it more as a curated deal marketplace then a daily deal site now.
And as we go wider and expand into new categories, where are passion lies remains in local commerce. We think technology will fundamentally change the way local merchants do business, with the surge of mobile devices and whatnot.
We now have 150 million subscribers, and we’re good at getting customers in the door of the merchants we work with. Our aim is to change the way people shop locally, giving more buying power for consumers and enhancing transactions and inventory management for merchants.
Do you consider Groupon to be a technology company?
Groupon is a cyborg. It’s a tech company with an important human core. Figuratively speaking, if all Facebook or Google employees would take a few days off to go to the beach, the business would, in general, continue to run smoothly. If we would do it, it would be hell. We talk to thousands of merchants on a daily basis, so that’s a huge human component. If we’re not a tech company, then I guess you could call us an operations-sales-marketing company, which is exactly why our model is not as easy to replicate as some may think.
So the first phase of the business is being hybrid tech/human company, but in order to unlock the next phase, such as moving into more realtime local commerce (Groupon Now and Rewards for example) it makes us more of a tech company again. We’ve tried to set ourselves up from the beginning to be both.
There’s been a lot of skepticism about Groupon, from myself included I must admit. What’s your basic point of view on the way you’ve been perceived? Does it bother you?
When we filed our S1, I got the feeling that the press went from being overly ‘cheerleady’ and giving us uncritical praise to piling on. We’re not a perfect company, and we’ll always be iterating and learning. Obviously, I think the criticism was largely unfounded, particularly during the ‘quiet period’ which make things more difficult because it prevented us from setting up dialogs.
I see two problems with understanding Groupon. One is that your business appears to be easily replicable, making it hard to identify what your sustainable unique advantage is. The second, which reinforces this perception, is the fact that so many shareholders, yourself included, took unprecedented amounts of money off the table during fundraising rounds, plus some investors like Eric Lefkofsky having a bad reputation.
To address the first point you raised, about our model being so easily replicable: it frankly doesn’t matter that you don’t understand. I agree that the barriers for entry for competitors are low, you know, how hard could it be to build an email list? But what the data also shows is that the barriers to success are high.
The ratio of companies that have tried their hand at this and those who have succeeded, is lower than any business model. If you look at how quickly large tech companies like Facebook, Google, OpenTable and Yelp have pulled out, it amazes me how off people still are on this. We combine operational excellence with a human component, which is a big part of our business. We consider ourselves to be our biggest competitor. It won’t be a ninja move from one of our rivals that will kill us.
About taking money off the table: there’s a number of ways I can address this. I strongly defend the practice. If you have a startup, I’d say you should take money off the table early if you have the opportunity. The reason why is that it alleviates the pressure to be short-term focused. I took several millions of dollars off the table (some investors way more than that) and I hit my threshold, I felt comportable enough not to worry about money anymore.
Things will come along in the history of your business if you’re successful. Opportunities to sell, for example, which you’ll be more inclined to entertain if there’s financial pressure, forcing you not to think about the long-term but instead about your own financial well-being.
Unless we want a world where every startup sells to Google or Facebook or Amazon, we should stop considering taking money off the table before an ‘exit’ a bad business practice.
Also, I’ll point out that if we did not believe in the business, we had way more opportunities to take more cash off the table than by doing what we did. It’s a good practice of hedging along the way. Investors will tell you to diversify your portfolio no matter how much believe in one stock. Our investors did exactly that.
You also have to realize that we had enormous demand from investors before we went public, they were falling over themselves. Getting them on board was a strategic benefit. Bringing in great people, good long-term shareholders and familiarize them with the company. There were two ways we could achieve this: by diluting all the shareholders or by letting them sell stock to new, sophisticated shareholders. We’re not screwing them. I will add that none of our investors are complaining about the insider selling.
I give you a lot of credit as a manager, with the successful pivot that you did. How many employees do you have now?
We’re now 10,000 people, and we’re 3 years old.
That’s one of these stories that have never been seen before.
Yes, it’s amazing. If you would take a zero off everyone of our metrics, it would look very normal. We grew enormously fast. The biggest reason for that is the fact that local ecommerce is the largest market out there, and the model works. We’ve also managed to expand to other countries quickly.
Can you address the perceived ‘problem’ with two of the Samwer brothers having so much control over the way you expand internationally?
Marc Samwer is 100 percent Groupon. Can I embarrass you? The Samwer brothers have a reputation for cloning. And before I started a company myself, maybe I would have looked down on it too. You need to realize that execution is the hard part, the idea is easy.
The Samwers are the best operators I’ve ever seen in my life. We’re super lucky to have them. We couldn’t have done it without their help.
So you have 10,000 employees now. How many of them are outside of the United States?
About 7,000.
I have to give you lots of credit for being such a young, successful founder, and thanks for your candor during this interview.