Business

Groupon VP Quits Unexpectedly — Sign of Trouble?

Struggling Start Up Suffers Executive Walkout

Groupon CEO Andrew Mason

After having served for only two months as the vice president of global communications at Groupon, Bradford Williams has decided to vacate the position. His exit from the company is indicative of the overall struggle Groupon has experienced in what may be an ill-fated attempt to go public.

According to Business Insider, Williams abandoned the company because of “the way that [it] has responded to its critics during the ‘quiet period’ ahead of its initial public offering.” However, several other elements may have attributed to his hasty departure.

Williams declined to comment other than to say, “We mutually decided it wasn’t a fit.” A representative of Groupon reiterated his sentiments by saying that they “mutually agreed to part ways.”

Since first filing their papers with the SEC, publicly outlining their financials, and announcing their intention to go public, Groupon has become something of a whipping boy in the press.

First, critics complained about Groupon’s unorthodox accounting metrics (which seem to count marketing spending as a capital cost) and have accused Groupon of operating “like a Ponzi scheme” (an operation that pays returns to separate investors, not from any actual profit earned by the organization, but from their own money or money paid by subsequent investors).

The Ponzi accusation is given credence because of three factors: a) Groupon has publicly disclosed that it is losing approximately $100 million per quarter, b) they have a net negative balance of $230 million, and c) they are using later investors’ money to pay off earlier investors.

Second, Groupon has caught a great deal of criticism because, aside from appearing to operate like a Ponzi scheme, it has disclosed what would appear to be a paucity of capital. However, it is not completely broke. Presumably, it can raise capital in the private markets if its IPO is further delayed but its “cash cushion” relative to its liabilities is miniscule—and the gap between the two is quickly growing.

According to Business Insider, as of June 30, Groupon had $680 million in current liabilities–bills the company has to pay. Meanwhile, Groupon only had $376 million of current assets with which to pay them (composed mainly of cash and receivables).

Third, Groupon’s Superbowl ad did it no favors and became a PR nightmare that involved weeks of retractions.

Fourth, and last, some of the negative attention Groupon has received is because of a memo released by the company’s CEO and cofounder Andrew Mason that, surprise, surprise, found its way to the internet.

Among the things stated in the memo are, “Revenue is growing like gangbusters,” and “NO, dammit, Groupon is not running out of cash.”

According to the memo, Mason claims that Groupon’s marketing should be counted as a capital expense because it gets people to sign up for Groupon emails and then they can be “harvested”: it is a onetime expense instead of a continuous expense like most marketing.

The memo continued: “At some point, Groupon is going to stop spending so damn much on marketing,” “All of Groupon’s rivals suck,” “Groupon’s new businesses are crushing it,” and “Groupon’s team is awesome.”

This leaked memo may have violated SEC’s “quiet period” rules, which are intended to prevent scams.

Furthermore, according to a source familiar with one view of the situation, the CEO’s decision to write and send this memo is indicative of the kind of decision-making at Groupon that led Williams to walk away.

Says that source: “Andrew and [Williams] didn’t agree on a lot—[they had] different views on lots of things.”

“Do the math. [Williams] walked out of there last Wednesday. The first thing [Mason] did was send out that memo—which [Williams] would have advised strenuously against.”

Whatever the reason for William’s swift exit from the company (whether it was the questionable accounting, their fledgling finances, their unconventional management style, etc.), one thing is clear: public criticisms and investor’s concerns must be addressed if Groupon has any desire to be a major player in the public market.

Comments (15)

  • johna650
    Posted on September 1, 2011 at 5:06pm

    As a consumer I like Groupon. It works for me and others who have bought their coupons. I think it works for the merchant if they have a good product or service. Not sure if I would invest. I think they are a little pretentious and need to reorganize. How can they possibly count marketing experience as a capital investment? Sounds to me like that is not proper accounting and their CEO says is applicable to many businesses who develop customer relationships over a period of time. with their debt structure they need to sit down with their creditors, convert this debt to equity and then go back to the market.

    Report Post »  
  • Hemingway in Cuba
    Posted on September 1, 2011 at 10:47am

    Guess they should have taken Google’s $6 billion offer?

    Are they kidding about the “offensive” ads in the Superbowl? Those were hilarious! They were only offensive because the poke fun at liberal golden cows.

    Report Post » Hemingway in Cuba  
  • eBrand
    Posted on September 1, 2011 at 4:56am

    How can anyone think that Groupon can solve your business problems? Lets do the math: So you offer a product for 50% off Retail. Then of that 50% to a marketing company? SO your left with 25 cents on a DOLLAR are you kidding me?

    Who is stupid enough to take that deal?

    If you do then you really should not be in business its almost as bad as what is going on with the printing press in Washington. I say that let the chips fall where they fall. GET OUT OF BUSINESS NOW and save your money, family and sanity.

    Then where your ready to start acting like a business learn how to eBrand your business and guess what I will teach you for FREE…that is right FREE !!!

    Get out of the OLD and into the BOLD (Bottom Organized Linear Distribution)learn how to fish again WAKE UP AMERICA and lets all get together to Bring Back America! TODAY !!

    We are all in it to WIN it !!!

    Report Post » eBrand  
  • ohiowordguy
    Posted on August 31, 2011 at 11:18pm

    I think Groupon is destined for a crash and burn. Just my gut. But I, too live in a rather rural area, and have to laugh at the Groupon deals that supposedly exist in my town. Makes me think that many of their offers are vaporware.

    P.S. From the photo here it looks like their CEO could use a good haircut. I mean, *wow* is it 1975?

    Report Post »  
  • TomFerrari
    Posted on August 31, 2011 at 10:23pm

    Dot-com bubble 11.0?

    Report Post » TomFerrari  
  • shabe
    Posted on August 31, 2011 at 7:45pm

    I am a business owner who has ran a deal with Groupon and actually it works like this: You have a product or service that costs $100. Groupon wants you to offer it to the public for at least 50% off. Your $100 of service is now $50 to the consumer and Groupon gets 1/2 of that, leaving the merchant with $25, or 25% of what he/she normally gets for their service or product. You really need a sizable profit margin to be able to work with this type of marketing. What we got that is definitely worth a lot in terms of marketing was ‘exposure’. The deal I ran was a new part of my business with it’s own website. The website went live the day before our deal was emailed. We had over 800 hits on our site the very first day. It is not a bad deal for all concerned for certain types of businesses but I do not think it is for all businesses. High profit margin – has potential. Low profit margin – be careful. Definitely not a bad deal for the consumer.

    Report Post »  
    • carkrueger
      Posted on August 31, 2011 at 8:02pm

      We do business with Groupon and it works a little differently. The consumer purchases a $25 Groupon with a value of $75. We split the $25 with Groupon. It is important to mention that a certain amount of people must purchase the Groupon in order to activate. The problem for us, is that the customer never wants to buy retail from you. In other words, it’s one shot with little to no residual value. And Groupon can get in your grill. They scour the internet for post on how our company is performing with the threat of taking away your ability to use their service if customers are not satisfied. It’s hard to make Groupon a long term marketing strategy if you plan to stay in business.

      Report Post »  
  • Midwest Blonde
    Posted on August 31, 2011 at 6:52pm

    they collect and sell email addresses. No way in hell am I signing up for them – not to mention I live in a very rural area and the nearest city listed in their coupon group is over 150 miles away. Why bother? What the heck am I gonna do with coupons that I have to drive 300+ round trip? Sounds like NO SAVINGS to me.

    I’m sure Groupon makes MOST of their money selling email addresses – that’s a lucrative business.

    Report Post » Midwest Blonde  
  • Cynic-clinic
    Posted on August 31, 2011 at 6:41pm

    STOUPON !!!

    Enough said.

    Report Post »  
  • just slap me
    Posted on August 31, 2011 at 5:14pm

    according to obama, THERE IS NO PROBLEM

    Report Post »  
  • Gonzo
    Posted on August 31, 2011 at 4:16pm

    “Groupon had $680 million in current liabilities. Meanwhile, Groupon only had $376 million of current assets with which to pay them”
    Obama says that’s not a problem, they should spend more, yea…that’s the ticket!

    Report Post » Gonzo  
  • TumbleBumble
    Posted on August 31, 2011 at 3:58pm

    I don’t understand how a company could make money selling discount coupons. In any case, I hope they stay afloat since I am a regular Groupon user. And a happy one at that.

    Report Post » TumbleBumble  
    • darkrage000
      Posted on August 31, 2011 at 5:18pm

      It’s simple.
      This is the way that Groupon works.

      you have a service that costs $100
      Groupon REQUIRES a minimum 25% discount.
      Groupon then REQUIRES 25% for themselves.
      you now sell $100 roduct for $50 (50%)

      what i don’t understand is how they could have money issues if all they do is run a website mailing list (basically) and sell email addresses.

      How could they have a 600million dollar bill? whats there to buy beyond the servers and the support staff and some advertising!

      Report Post »  

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