Andrew Masen, Eric Lefkofsky and the Start Up History of Groupon
Today, Groupon.com is the biggest deal of the day site in the world. Its name comes from the words “group” and “coupon” and it is a place where you can buy stuff at really big discounts, reaching 90% for some offers. When the company went public on the 4th of November 2011, it was valued at nearly 13 billion dollars. That made the event the biggest IPO (Initial Public Offering), since Google‘s. Having in mind that at that time Groupon was a relatively new company (only 3 years old) and it had never made even a penny of profits, this was really a huge success! And here is how everything happened…
Andrew Masen was born in 1980 in Pittsburgh, Pennsylvania. When he was just 15 he started a morning delivery service called ‘Bagel Express’. After finishing high school, he went to study at the Northwestern University, where he got a bachelor’s degree in music. He in that time he worked as a web designer for InnerWorkings, a company founded by Eric Lefkofsky. They created a platform called ThePoint, which was not going well. So, they decided to change the business model.
How the site was founded
Groupon actually derived from the site – ThePoint.com, where you can start a campaign asking people to give money or do something as a group. In November that same year, Groupon was founded. Andrew shared the idea with his ex-boss Eric Lefkofsky, who liked it and agreed to provide $1 000 000 starting capital for its development. This was how the company went operational. The first discount deal was a pizza offer, for the restaurant on the first floor of the building in Chicago, where Groupon’s office was. Who could have imagined, that this site offering pizza for a couple of bucks would become the market leader in the “sale of the day” business… Soon, the number of offers started increasing really fast, the same happened with the sales. The number of employees grew from a dozen to more than 350 in less than a year and a half. At that time the estimated value of the company was around $1 billion. In 2010, the management started a strategy for conquering the international markets. This was achieved by several acquisitions of similar sites around the world: mycitydeal.com – in Europe, in May 2010; ClanDescuento.com based in South America, in June 2010; Qpod.jp based in Japan; The Russian Darberry.ru and Beeconomic.com, based in Singapore. The company was turning into a big international empire. This didn’t stay unnoticed by some of the dominating online corporations. In October 2010, a rumor spread around that Yahoo offered $3 billion of dollars to acquire Groupon, but a deal was not achieved. Only a month later in the same year, the search giant Google Inc. offered the amazing $6 billion for the company, but Andrew rejected the deal again. And rejecting these billions turned out to be the wiser decision. Why? Because the site was about to bring much more billions…
On the 4th of November 2011, the IPO of Groupon’s shares was launched. The company offered 30 million shares at $20 each, but the number was increased due to the high demand to 35 million. This way the leader in “deals of the day” business managed to raise $700 million for just a day and the company was valued at nearly $13 billion by the market.
The Business Model Of The ‘Deal Of The Day’ Site
How does Groupon make money? Well, in fact, the company has never registered any profits, but this is the interesting thing in its business model… On the site are listed discount offers from retailers, which has to be bought by a certain number of people to be activated. If the “critical mass” of buys is achieved, every buyer gets the product or the service. Otherwise, the offer simply expires. This is a kind of an insurance for the retailers, that at least a certain level of buyers will be achieved. This way they usually sell at a loss, but they take advantage of the marketing effect coming from the thousands of people viewing their products and services. The main principle here is that if the client is happy, she/he will come back… Groupon takes half of the listing price of the offer.
Today, the company operates in more than 45 different countries and this number is growing. Its employees are more than 10 000 and the registered customers are around 40 million worldwide. Groupon’s main office is still located in Chicago, but it has regional offices in Europe, Canada, Asia, Latin America and some other places around the world. Some of the major and most popular sites are: