Groupon Axes Mason

As you have heard by now Groupon fired Founder and CEO Andrew Mason last week. I was discussing this with the Founder and CEO of a start-up in San Francisco who is approaching Series A financing and the formation of a Board of Directors to whom he will be reporting to. The question that came up is "What happened to Mason?" 

For a founder its never good to hear someone as successful as Andrew Mason suddenly gets the axe. It happens more often than people think, and not just at start-ups. Companies get funded under the condition that professional management is put in place. Many a deal has fallen apart due to this one condition, sometimes rightly so. But the case of Groupon is even more alarming because of how involved Mason was from inception to IPO.

Its hard for an outsider to accurately say what happened at Groupon. I read the initial announcement when the news broke but I'm sure many folks have written about the reason why Mason was replaced. The simple explanation is the results were disappointing and a change was needed. It doesn't take a genius to figure that out. But what other entrepreneurs want to know is what lessons can be learnt.

Here is my read which I shared with my good friend:

- Groupon was Mason's brainchild and after years of pitching it and finding investors, it took off really fast

- growth was tremendous and this causes all kinds of management challenges

- they handled it well for a 12 month period until they ran into a couple of challenges:

1) they had major competition from Living Social and other regional players, as well as the likes of Amazon;

2) they expanded too fast internationally - 52 countries - and had no clue how to manage this, especially at CEO level. International markets is a different ball game and Groupon has totally got this wrong;

3) they struggled keeping up with new exciting pipeline of deals in all regions (no problem in major metros like NYC, but B cities struggled to come up with new exciting deals). I lived in Pittsburgh and Las Vegas the past few years and the deals are repetitive and boring;

4) they IPO'd and under estimated the investor pressure from Wall Street. The best thing about an IPO is the cash injection. Then its 13 weeks of operating very differently than pre-IPO to ensure you meet quarterly expectations. Everything changes, especially if you were a fast growing start-up just 2 years earlier, and that means you have to adapt culture, metrics, controls etc. Groupon clearly didn't get this piece right;

5) they failed to innovate their model and this must have impacted numbers. I'm a big believer in the Groupon concept but the last time I bought something was first quarter of 2012. I shut off the bombardment of e-mails when I noticed the deals were always the same, just recycled...

When you get so big so fast you need to adjust in all the right places. Somehow they didn't find the support team at the top to let Mason be Mason while the ship was managed by others. You need a CFO, COO, head of Sales, Customer Service and especially someone to think about Innovation, and these people have to support the visionary behind the company. Look at all the examples out there, from Facebook to Microsoft. Mason's firing is the failure of the entire management team at Groupon, and I don't believe the board members stepping will resolve anything.

At some point you have to hold the CEO accountable for disappointing results but what Groupon needs is a complete overhaul while staying true to their original value proposition. Entrepreneurs shouldn't worry about ending up like Mason. Surround yourself by great advisors, mentors and employees. You'll be fine.