THE GROUPON EFFECT – “Throw yourself into the fire”

Throw Yourself into the FireVERBATIM – Transcribed recording from Bill Blaire – as told to John Jonelis

This is Bill Blaire reporting on the keynote event at the Second Annual “entrepreneur @ nu” Conference.  Why they call it that, I dunno.  No capital letters.  So how come everybody complains about the way I talk?  You figure it out.

I’m here with John but he told me I should cover the big interview myself.  Pretty good, huh?   Well we’re gonna give it a shot.  Hope this gizmo’s recording my voice, ‘cause I ain’t gonna memorize this stuff.  That’s fer sure.

They open a wall and make the room bigger but the place is still packed.  I’m sitting with a crowd from the Levy entrepreneur group, so I gotta keep my voice down.  If I get any of this wrong, just write a comment and let me know about it.

The setup seems kinda strange.  It’s Andrew Mason from Groupon interviewed by his own VC, Peter Barris of NEA, who’s also on his board.  Kinda chummy to my way o’ thinking.  Barris is a smooth talker.  Makes me wonder which one of ‘ems really the boss.  He sez there’s gonna be two sets of questions.  Puffball and deeply embarrassing.  We’ll see.

Groupon

Turns out Andrew Mason starts college in engineering then transfers to music. Barris points out, “The best and most creative programmers were music majors.  I haven’t yet figured that out.”  Me neither but I heard it in other places too.  In college, Mason holds fake auditions for a fake play.  Then he stages a fake annual university event called ‘Mattress Day,’ where everybody brings their own mattress and they create the tallest stack.  He quotes Ben Franklin as saying he sees mattresses all the way from Chicago—as if there were a Chicago back then.  (Hey—check out that subjunctive verb.  Yeah, I can do that.)  The school shut Mattress Day down good ‘n hard, but he had a great time.  I guess the point is you gotta be playful and ready to take risks to succeed at this startup game.

Mason goes through a long trail of failed startups but keeps trying.  He loves music and he’s a computer geek—started building websites in high school.  It’s not till he graduates from Northwestern and he’s recording music and working as a freelance developer at the same time when he discovers that the Internet is a more wide-open creative space than music.  Not so congested with talent.

According to Mason, “I always assumed that people who developed companies were vastly smarter than me but I found out that’s just not true.”  So does he mean he’s smart or the other guys are dumb?  I give him the benefit of the doubt and call him an egalitarian.  (Hey—I can spout three-dollar words with the rest of ‘em.)

He gets, an idea for a website called Policy Tree and gets a scholarship to the University of Chicago to learn public policy.  Then in after few months o’ school he gets this idea for a different website and drops out to start a company called THE POINT.  Turns out a cell phone company wants to charge him 150 bucks to cancel their service.  That after being a loyal customer for five years. He figures a lot of people must be having the same problem.  “I wanted to make it possible for people to come together to accomplish something that no one of them could accomplish alone.  Because people’s ideas aren’t coordinated, they can’t cross the finish line.  I needed a way to coordinate a lot of people with the same problem.”  So that one idea grows from an irritation to an actual company, kinda like a tumor, I guess.

Barris’ boss hates THE POINT.  Sez it’s the worst idea he heard in 35 years in the VC business.  But he likes Mason’s enthusiasm so he invests in it anyway.  Sounds like another example of a jockey who’s more important than the horse.  That make any sense to you?   We can argue it out later.

The problem with THE POINT is it’s too abstract—too hard to explain to people.  As he put it, “How do you convince people that the idea matters to them personally?  It turns out that the best ideas are just a baby step away from something that already exists.”  Another problem—if the idea isn’t tangible, it’s hard to find other backers.  He wasn’t gonna be able to fund every good idea he planned.  Does he quit?  No, he picks the best element—the one that’s easiest to explain—and starts Groupon.  Barris made a good call after all.

Mason: “Groupon snuck up on us.  So many companies wanted it that I knew I must be solving a problem.”  He finds out that local businesses don’t have a good way to reach their local customers and that’s the pain point he works on.  Merchants have TV, radio, newspaper—traditional stuff—all expensive, all paid up-front whether it works or not.  So this solves a consumer problem and a merchant problem, too.

GROWING PAINS
Groupon takes off big time like everybody and his mother knows.  Forbes calls it “The fastest growing company in history.”  Meanwhile, Mason faces his biggest challenge.  He never managed people before.  Now he’s got 12,000 employees.  He used to write code, design stuff, and personally answer customer calls.  That just don’t scale.  Now he’s gotta delegate, build teams, set goals to keep those teams aligned—it’s a big role change.  Think about it.  Amazon is in 9 or 10 countries in 15 years.  Groupon is in 43 or so in just a few months.  According to Mason:  “Going public has been a stress test.  It forced us to get stronger.”

Mason calls Groupon an operating system for commerce.  Their biggest problem?  “When it works too well it’s like concentrated detergent—when you put too much in…  Merchants get too many customers—a completely new problem that they’ve never had to deal with and we’ve had to adjust our operations to solve it.”  Hey, that’s the kinda suffering I can get comfortable with.

New ideas?  Lots of ‘em.  Now 30% of their sales are mobile.  They’re test marketing a pull strategy where you say, hey, I’m hungry.  Where can I get a good rack o’ ribs?  And you go on the mobile Internet and find a deal.  That’s different from their email push strategy.

This year, I been hearing a lotta startups say they’re gonna be better than Groupon because of this or that dingus they offer.  Turns out it’s harder than people figure and Groupon’s not done inventing itself either.  These people are very smart.  And as Mason tells it, it’s a very intense business that needs a lotta operational excellence.  As he puts it, “We built our moat inside the castle walls.  People get up to the walls and say, ‘Sweet.’  But once they get inside they find out there’s a big scary moat and all the gold’s on the other side.”  That’s brings up a great picture in my mind and tells me all I need to know about the barriers to entry.

Groupon
COMPANY CULTURE

People read stories like them hiring a guy dressed in ballerina outfit to walk around the grounds for a week without talking to anybody.  Then when Mayor Bloomberg comes, they got a pony in the office.  Mason doesn’t think about culture that way.  “Culture as the element that helps get work done.  And that has to get stronger as we grow.”  So they hire entrepreneurs.  They give ‘em goals but also the freedom to pursue those goals the way they want.  That approach has launched a bunch of new business segments.  Hard to compete with a big and fast-growing company that acts like that.  Reminds me of Google.  Anybody agree with me?

Has Groupon contributed to the growth of entrepreneurship in Chicago?  Mason doesn’t feel comfortable with the question but when Barris asks the audience, everybody shouts out “Yes.”  Myself, I think Groupon is the biggest morale-booster this city ever saw.  Entrepreneurship is exploding here because of one spectacular success.  Finally Mason answers the question. “We couldn’t have built Groupon in Silicon Valley.  Hundreds of our customer service people have come out of the Second City improv tradition.   We solve problems using people—not always technology and self-service which is the bias in Silicon Valley.  In Palo Alto you get a lot of mission driven people who are good at the one thing they do.  And the cost of an engineer has tripled.  Chicago has just as much talent.”  Amen to that, brother.

The universities in Chicago are teaching entrepreneurship big time these days.  Three important messages:

1.) It’s okay to fail. 
2.) Be persistent.
3.) Surround yourself with other talented people. 

Mason wishes there was more entrepreneurship training when he went to school.  “I learned more in an internship on music technology—actually doing things—than I ever learned in class.  Throw yourself into the fire.  Go to a company and offer yourself cheap or for free so you get a lot of latitude to fail.”

Q&A

How will they stay ahead?  He wants to be the operating system of ecommerce and talks about how all their new ideas support each other.

Is there a social media bubble?  Not compared to the 90’s.

Does Groupon do social good like THE POINT meant to do?  They’re making things possible for millions of people.  Companies have grown because of it.  That’s business enabling business—a nice slant on the do-gooders.

How do you isolate Groupon employees from media criticism?   “The employees know what’s really going on in the company so they have thick skin and stay focused on long term while this new industry is being built.”

AFTERWARDS
John takes me for a walk around campus.  Beautiful place. No wonder he went to school here.  But they’re tearing down parking lots to make more buildings.  Digging up others to make green space.  Those numbers don’t add up.  I dunno if I believe this but John claims he avoids campus events any more.  After a long drive he gets a rhino boot on his car. This time they sell a parking pass online, so he shows up.

We stop at the Allen Center and run into the Wildcat Angels just starting a meeting.  I like that group.  After grabbing some refreshments, we go down the halls.  Funny thing:  The gift shop is open and John buys one o’ them silver cases holds business cards.  Real class, too—sez ‘Kellogg’ on it.  Never had one before.  But he can’t wrangle a Kellogg nametag lanyard.  Go figure.

Find Northwestern’s entrepreneur program at http://entrepreneur.northwestern.edu/
.

GO TO – SIX REASONS WHY TECH BELONGS TO THE YOUNG

.

Find Chicago Venture Magazine at
www.ChicagoVentureMagazine.com
Comments and re-posts are welcomed and encouraged. This is not investment advice – do your own due diligence. I cannot guarantee accuracy but I give you my best.

Copyright © 2012 John Jonelis – All Rights Reserved.

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46 Comments

Filed under Chicago Venture Magazine, Chicago Ventures, Kellogg, Northwestern

46 responses to “THE GROUPON EFFECT – “Throw yourself into the fire”

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