Groupon's Flawed Business Model Leads to a Leadership Rift

Agenda-Setting Financial Insight.
Nov. 30 2012 3:01 PM

Groupon's Flawed Business Model Leads to a Leadership Rift

137592254
MUNICH, GERMANY - JANUARY 23: Andrew Mason (L), CEO of Groupon, and David Kirkpatrick, CEO of Techonomy Media speak during the Digital Life Design conference (DLD) at HVB Forum on January 23, 2012 in Munich, Germany. Groupon faces both financial and leadership crises.

Photo by Johannes Simon/Getty Images

Groupon’s melodrama is discounting dual-class share structures. Chief Executive Andrew Mason and Chairman Eric Lefkofsky appear locked in a dysfunctional battle over how to run the flailing company. The board is keeping Mason at the helm, but the fighting probably isn’t over. Super-voting shares like the ones both men own are meant to give founders flexibility. But Groupon is a reminder of just how dangerous the arrangement can be.

Any company would be in disarray with this kind of performance. Groupon shares are down about 80 percent since they debuted on the market a year ago. Rivals are struggling, too. Last month, for example, Amazon wrote down nearly its entire investment in LivingSocial. Groupon’s coupon revenue is falling sharply and the company is devoting more space in daily emails to offering goods directly. The strategy looks shaky: margins on good sales are about a third of coupons.

Advertisement

It’s not obvious leadership is so much the problem at Groupon as the business model. Even so, the chairman’s camp has raised the possibility of getting rid of Mason. Instead of helping steer the ship in a better direction, it could make it sink faster. Mason will now spend months addressing questions about his job security and whether the strategy will suddenly change.

There isn’t exactly great confidence in the other co-founder either. Lefkofsky has had several contentious business failures in the past, sold equity before the IPO and made statements about Groupon’s eventual profitability that the company had to publicly disavow. Ousting the chairman might be a more logical first step, but isn’t a realistic option.

Lefkofsky and his longtime ally Bradley Keywell have an iron grip on Groupon. With Mason, the trio has about 35 percent of the votes with just 1 percent of the economic interest. All told, they control the company. In theory, the super-voting stock pervasive among technology and media companies is supposed to enable visionaries to pursue their long-term visions without the short-term pressures often imposed by other investors. In practice, though, it can leave minority shareholders stuck with little recourse. Groupon owners are learning the lesson the hard way.

Robert Cyran moved from the London office to New York, where he covers global technology, pharmaceuticals and special situations. Rob began his career at Forbes magazine, where he assisted in the start-up of the international version of the magazine.

TODAY IN SLATE

Doublex

Crying Rape

False rape accusations exist, and they are a serious problem.

Scotland Is Just the Beginning. Expect More Political Earthquakes in Europe.

I Bought the Huge iPhone. I’m Already Thinking of Returning It.

The Music Industry Is Ignoring Some of the Best Black Women Singing R&B

How Will You Carry Around Your Huge New iPhone? Apple Pants!

Medical Examiner

The Most Terrifying Thing About Ebola 

The disease threatens humanity by preying on humanity.

Television

The Other Huxtable Effect

Thirty years ago, The Cosby Show gave us one of TV’s great feminists.

Lifetime Didn’t Find the Steubenville Rape Case Dramatic Enough. So They Added a Little Self-Immolation.

No, New York Times, Shonda Rhimes Is Not an “Angry Black Woman” 

Brow Beat
Sept. 19 2014 1:39 PM Shonda Rhimes Is Not an “Angry Black Woman,” New York Times. Neither Are Her Characters.
Behold
Sept. 19 2014 1:11 PM An Up-Close Look at the U.S.–Mexico Border
  News & Politics
Weigel
Sept. 19 2014 9:15 PM Chris Christie, Better Than Ever
  Business
Moneybox
Sept. 19 2014 6:35 PM Pabst Blue Ribbon is Being Sold to the Russians, Was So Over Anyway
  Life
Inside Higher Ed
Sept. 19 2014 1:34 PM Empty Seats, Fewer Donors? College football isn’t attracting the audience it used to.
  Double X
The XX Factor
Sept. 19 2014 4:58 PM Steubenville Gets the Lifetime Treatment (And a Cheerleader Erupts Into Flames)
  Slate Plus
Slate Picks
Sept. 19 2014 12:00 PM What Happened at Slate This Week? The Slatest editor tells us to read well-informed skepticism, media criticism, and more.
  Arts
Brow Beat
Sept. 19 2014 4:48 PM You Should Be Listening to Sbtrkt
  Technology
Future Tense
Sept. 19 2014 6:31 PM The One Big Problem With the Enormous New iPhone
  Health & Science
Medical Examiner
Sept. 19 2014 5:09 PM Did America Get Fat by Drinking Diet Soda?   A high-profile study points the finger at artificial sweeteners.
  Sports
Sports Nut
Sept. 18 2014 11:42 AM Grandmaster Clash One of the most amazing feats in chess history just happened, and no one noticed.