GROUPON'S BILLION-DOLLAR PIVOT: The Incredible Story Of How Utter Failure Morphed Into Fortunes


Photo: Dan Frommer, Business Insider

Like this article? Show it on Reddit >>Groupon is one of the fastest growing companies. Ever.

How did the pioneering daily deals site reach astronomical success in just two years? Well, it wasn’t easy. In fact, Groupon almost failed before it ever existed.

Groupon stemmed from a different site, The Point. Founder Andrew Mason and his investors soon realised The Point was headed toward failure, and fast.

The coupon/daily deal idea was a final attempt to save a company so far gone, it was in the process of handing money back to investors.

Magically, the desperate attempt worked, and it spawned the fastest-growing billion-dollar company in history.

In 2006, Andrew Mason founded the would-become-Groupon company, The Point

Andrew Mason was in the midst of completing a public policy degree at the University of Chicago when he received a $1 million investment offer from Eric Lefkofsky.

Mason left school to start the company that would later spawn Groupon, The Point.

The Point's mission was to improve the online fundraising experience. People were hesitant to contribute money to causes if they didn't think their money would make a difference. They were also sceptical if they felt they were sole contributors.

To resolve these concerns, Mason and his colleagues created the 'tipping point.'

The 'tipping point,' set by the fundraiser, was a certain amount of money or signatures needed for the plan to actually go into action. Fundraisers could then see how many other people were donating money, and they could be certain their donations were being put to good use. Credit cards wouldn't be charged until the goal was met, removing all of the donor's risk.

This feature should sound familiar -- it's the whole premise behind Groupon today.

Sadly, The Point wasn't a focused enough idea, and people weren't buying into it. Mason found himself in the red.

The problem with The Point is that it didn't have enough focus.

Mason told the Wall Street Journal, 'It's this huge, abstract idea. You can use this platform to do anything from boycotting a multinational company to getting 20% off a subscription to the Economist...That's the big problem with it.'

The Point was drowning. There wasn't enough site traffic or participants.

Mason's business partner even tried buying popular search phrases on Google like 'make weed legal' to boost traffic, but nothing worked.

The only traffic The Point received was 'bad traffic.' Specifically, fans of a band called Insane Clown Posse infiltrated the site, and the failed idea forced Mason to lay-off his partner.

Although The Point was a miserable failure, one aspect of it seemed to be working: group deals

The most effective campaigns that occurred on The Point were those that gave a group of consumers buying power. This is where Groupon got its start.

With encouragement from desperate investors, Mason started blogging various deals from different businesses he gathered each day.

He called this, 'Get Your'

Mason flew with this new found hope and he and his team of seven others called hundreds of vendors each day to create daily deals. This is where the tipping point came in.

To get vendors to agree to the deals, Mason and his team set tipping points. The deal would only go through if a certain amount of people bought the Groupon. If they reached this tipping point, Groupon took some of the profits. If not, Groupon took nothing.

Groupon's first deal was in October of 2008: buy two pizzas for the price of one in the shop on the first floor of its Chicago headquarters. 20 people bought the deal.

The key here: Groupon was not only satisfying customers with great deals, it was also satisfying the vendors. All each vendor got from putting a deal on Groupon was new business; they didn't have to pay one cent.

The concept was a win-win situation for vendors, customers buying the coupons, and for Groupon.

Mason's goal was to grow Groupon's email subscriber list as fast as possible, since more subscribers meant more purchases.

Mason set up Groupon so people could see the deal before adding their name to the mailing list, but they couldn't purchase anything until they signed up. Think of it as window shopping.

And the plan worked. Groupon went from a 5,000-person mailing list in Chicago to opening in three more cities (Boston, New York, and Washington, D.C.) in just six months.

Groupon went from calling hundreds of venues each day to now only accepting one in eight venues that want to be on the site.

Groupon found it was attracting a young, educated, single, female crowd with cash to spend. The demographic was not easy to reach and it was an advertiser gold mine.

Source: Grouponworks

Since The Point's failure, its spin-off, Groupon, has accomplished a lot:

  • There are 30,150,000+ Groupon subscribers in North America alone
  • It's available in 160+ US cities
  • And in 35 countries
  • 31,150,000+ coupons have been bought in North America alone
  • People have saved $1,325,000,000 with Groupon discounts
  • About 10 million people are signed up for the mailing list

Source: GrouponWorks

In December, Groupon turned down a $6 billion buyout offer from Google

In December of 2010, Google offered to buyout Groupon for a whopping $6 billion. Groupon's answer? 'No thanks.'

It wasn't about the money, Groupon said. It was about an anti-trust issue.

In 2006, Andrew Mason founded the would-become-Groupon company, The Point

  • There is always something to be learned from failure. Failure can lead to something you never would have discovered otherwise.
  • Without customers, there is no company. 'The only problem I'm ever trying to solve is revenue,' Groupon's Eric Lefkofsky has said. 'How do I get more customers? Every other problem can be easily solved.' Focus on creating an excellent customer experience and your product (and revenue) with drastically improve.
  • Pay attention to what's working and focus efforts on it. A large part of creating a successful business is being observant, listening to customers, optimising what's working, and shutting down what's not.
  • Move fast and break things. Once Mason realised group buying was working, he aggressively expanded the business to all major cities. This enabled him to grow email subscribers and thus, revenue.
  • Create win-win situations. Groupon is successful because everyone wins: businesses get new customers, customers get discounts, and Groupon makes money. The more value customers see in a company, the more likely will be to use it.
  • Don't be afraid to change directions. Most successful companies end up growing beyond their original mission, or morphing into another business idea entirely. If you cling to your original plan, especially one that isn't working, you could be missing out on a greater opportunity.

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