Andrew Mason’s legacy
Yesterday, Groupon announced lacklustre earnings, which caused the stock price to tumble by nearly 25%. This evening, the company announced that Andrew Mason is being replaced as CEO. Within minutes, Mason posted a memo admitting that he was fired, which people have described as honest, charming, humble and “a good standard in how to leave“.
People have short memories. Throughout 2010 and 2011, Groupon raised $1,098.2m from investors. More than 86% of that money ($946.8m) was distributed to the founders or earlier investors in the form of share buybacks. Andrew Mason personally received nearly $28m. (For full details, see my post from September 2011.)
It later emerged that, at the time the founders and early investors were taking money out of the company, Groupon’s liabilities exceeded its current assets (i.e. it owed more money to merchants than it had in the bank). If Groupon’s growth had slowed during 2011, it could well have gone bust. Mason and Lefkosky’s judgement in opting to enrich themselves instead of bolstering the company’s financial position was questionable, to say the least.
Fortunately, they were able to IPO the company before that happened, at $20 per share. That share price is a distant memory. As of the time of writing, Groupon stock is priced at $4.72 in after-hours trading (ironically, it’s up by more than 4% since news of Mason’s departure broke).
There’s no doubt that Mason is a charismatic fellow. He motivated Groupon’s sales force, seduced investors and, even after presiding over a 77% decline in stock price since the IPO, people still describe him as honest, charming and humble.
However, charisma without conscience can be dangerous. As Harvard Business Review put it, “former Enron CEO Jeff Skilling radiated so much charisma that he induced blind obedience in his followers” and we all know how Enron turned out. Mason may have founded one of the fastest-growing companies in history but he was also responsible for the destruction of $10bn in shareholder value.
He should have calmed investor excitement and sought to to exploit Groupon’s position as the market leader to transition to a new, more sustainable business model, before competition and slowing growth in the daily deals market took its toll. If he had done that, Groupon’s valuation might not have grown as quickly but he would have built value for the long-term and the company would be worth more than it is today. Instead, he stoked the hype, extracted tens of millions before the bubble burst and now sails off into the sunset, having enriched himself at the expense of the company’s investors. I’m certain that Groupon will become a cautionary case study for future business school students; an example of a complete failure on the part of a company to recognise and react to the impending collapse of its market.
I’ll admit to a certain amount of schadenfreude. I’ve been bearish on Groupon for a long time. When the IPO valuation was announced, I ridiculed the idea that Groupon was worth more than the Campbell Soup Company. (Regrettably, nobody took me up on my bet, which is a pity because it would have been the easiest $1,000 I’d have ever made).
I think Bill Gurley of Benchmark Capital phrased it well : “Asking any retailer to not only give you a discount, but also to pay you? That’s egregious! Like, how could that be sustainable?”
Of course, Mason’s not the first founder to enrich themselves at the expense of others and, given the reaction to his departure memo, he clearly won’t be the last.