Too Big to Fail or Too Big to Succeed Part 2
Last week we found ourselves comparing two unlikely companies, Yahoo and Groupon, not so much for any inherent similarities, so much as timing brought them together in the news. Yahoo fired it’s chief executive and finds itself potentially up for sale, while Groupon’s CEO is under pressure, and their IPO is now in doubt. Yahoo at least still makes money almost despite itself while Groupon generates significant revenues but has little cash left to show for it. Of the two, it looked almost certain that Groupon would have taken over the mantle of internet high flier to become for this generation of internet companies what Yahoo represented more than a decade ago. It even seemed possible that Groupon might go public and then buy out Yahoo. What a great investment that could make – guaranteed deliverability to some of the best consumers online.
Yahoo still earns more money than Groupon even it has had no growth. It has weathered booms and busts. Converting internet years into typical years, Yahoo is the New York Times of digital media. And what of Groupon? Today it feels as though we cannot put any scenario aside. As we wrote last week, while it would seem unlikely, would it be impossible to imagine Groupon going completely out of business? What would it take for that to happen? They have a business model but not enough cash. Are they like Webvan in that regard? i.e., too early for their time only to see their business recreated slightly differently by either those with industry experience like Whole Foods – or local upstarts with a better grasp on costs like Max Delivery? With its thousands of employees Webvan, like Groupon today, probably looked too big to fail.
Too big to fail is always an interesting concept. Live long enough, and you will likely see every company hit a rough patch. Some seem to pull through. IBM went from virtually invincible to one giant mediocrity back to an upper echelon institution. General Motors went from world number one to bankruptcy to a leaner, maybe meaner but at least still fighting machine. Today’s darling Apple did the same. All of these companies achieved the absolute pinnacle only to fall almost into a black hole and in real jeopardy of not just visiting but staying at the real Hotel California – oblivion. While those who return from the brink ,or even having visited the other side, rarely climb their way back to the top or surpass their previous level of prominence, ala Apple, they each have something in common. They made it first. This is the potential issue with Groupon.
Groupon has had success and light speed growth, but they haven’t made it. They haven’t truly stood on their own two feet. They have been the college student or fresh graduate showing immense promise but still living off the doll. In this case the doll just happened to include almost a billion dollars in funding, not nearly all of which went into operations. What they did with their “parents” money is exactly what they have done with our money. They have transferred bad habits to businesses and consumers. Discounting isn’t new, but it’s a privilege not a right. We don’t deserve to get everything for so cheap. We should have to earn it. That type of business, though, one that rewards good behavior and turns customers into repeat customers just doesn’t make as much money as one that picks up the seniors and drops them off at the doorsteps of the casino for the weekend.
The other problem with being on the doll is that it didn’t teach proper discipline. They learned to continue spending without really having to worry about the impact of that spending. That they needed to hire up in order to reach sales goals and penetrate new markets faster than anyone else makes sense. At what point, though, do you do so sustainably as opposed to simply razing the land? The company has a customer acquisition machine, but they got a little complacent with the ingredients of their recipe. They would go out and buy names almost indeterminate of the true quality just to have enough names in a given market. Had they done so efficiently, it might have required 1/3 of the names. Had they done so in a more “green” manner, they might see more brand awareness, loyalty, and long-term quality for their end customers. The problem is that they didn’t need to do so, and now they find themselves in a fight unlike any other. The aren’t the entitled kid with unlimited funds any more. Their trust fund is about to go dry. They should have the skills they need, but it will take some real cleansing for them to not only stand on their own two feet but a large dose of humility to work their way back up on their own merits.
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