Dealing With The Basics

Since Groupon famously turned down a $6B bid from Google, a lot has happened in the ‘daily deals’ space.

Groupon’s growth surpassed nearly every Internet start-up in history.  Their impressive achievements 36 months after their founding:  operations in 500 markets in 48 countries, over 11,000 staff, 180 million users, over 1000 deal promotions a day, revenues of $1.6 billion, and an IPO that raised $800 million (just short of Google).  With good reason, Forbes described them as the “fastest growing company ever”.

Yet that amazing growth is yesterday’s news. Many people now question Groupon’s long-term sustainability.  The markets have rendered their opinion by sending the company’s stock price down sharply. What happened?

There is no denying that Groupon has capitalized on some powerful business drivers: consumers love a great deal, all businesses (especially smaller ones) struggle to get new customers and the Internet provides ready access to a massive subscriber base. Yet some business fundamentals clearly got lost over the course of those first heady 36 months.

The most basic rule of business is to understand who is ultimately paying for your service because that’s who needs to keep getting value from it.  From there you can create guiding business principles to refine your offering and improve how you deliver it. This shared understanding helps everyone stay focused when the code starts flying, the deals are struck, employees get hired and important decisions are made.

In Groupon’s case, amidst the media frenzy about consumer adoption, they lost sight of the fact that it’s the merchant that pays (dearly) for their service, both directly and through discounted revenues.  The consumer is just along for the ride (and the deals).  Groupon’s emphasis on short-term growth metrics trumped designing a compelling merchant service for the long haul.

Refocusing on providing value to those neighborhood restaurants, beauty salons, and auto garages, will enable Groupon to move beyond just delivering hordes of bargain hunters to a revolving set of merchants that never return.  Fortunately, the company still has excellent fundamentals to build on.

To achieve sustainable growth in your business, stay focused on the basics:  whom are you serving, who pays and what incredible value are you bringing to them?  Because to keep growing your business you need to keep selling to the customers you have, as well as acquiring new ones.  And that’s some free advice courtesy of the folks at Groupon!

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Rene van Diepen (VP & Practice Lead, Consulting Services)
 

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