Skip to main content

Groupon : How Good Of A Deal It Is For Investors?

Must read for everybody. Entrepreneurs, investors and some of you may start with a pinch of salt but to most people that are aware of how most of these hyped VC darlings and highly ‘valued’ companies work, should be just a reminder of the hard reality and what to focus on.

There was a lot of discussion on ‘Custom’ metrics that Groupon came up with to show to the world that it is actually doing great and making profits. But it turned out, they are all ‘gimmicks’ to hide costs and show profitable when it is actually loosing money.

"Alright, you caught us. We're actually not making any money. In fact, we are really losing a lot of money."

This is the essence of Groupon's declaration last week that it will remove the controversial accounting metric called Adjusted Consolidated Segment Operating Income (ACSOI) from its financial statements. ACSOI essentially measures Groupon's profits before subtracting its subscriber-acquisition costs and stock option-based compensation. The metric was an attempt to put a thin veneer of respectability on what are extremely disconcerting profitability numbers for the company. In the first quarter of 2011, Groupon posted a net loss of $113.9 million. Yet, the company reported ASCOI of positive $80.1 million. In most recent quarter, Groupon's losses continued to mount as it begrudgingly abandoned the ACSOI metric amidst criticism and incredulity from the SEC.

Source: Groupon Doomed by Too Much of a Good Thing, Harvard Business Review

Text highlighted by me. Some more key excerpts that are kinda shocking to most unaware readers but totally in line with most ‘valued’ startups of the day.

Groupon's fundamental problem is that it has not yet discovered a viable business model.The company asserts that it will be profitable once it reaches scale but there is little reason to believe this.

The real cause of Groupon's problem is that it had too much of a good thing. With over $1 billion of venture capital money to invest in growth, what manager has time to worry about profitability? Groupon's "bad money" — investments that were patient for profit but impatient for growth — did not instill the discipline needed to enable the company to emerge as a successful standalone venture.

The story would be much different if Groupon did not have nearly unlimited access to funding so early in its corporate life

Popular posts from this blog

You Are What You Think People Think About You

“There are about 6.7 Billion people in this world that we know of.  Whether you believe in ‘Creation’ or ‘Evolution’, this human race started with a tiny number. It is quite amazing to see how fast it multiplies. What is more amazing is that every single individual in that 6 billion crowd is born ‘unique’.  Quite literally, you are born to be one in a billion, whether you believe it or not. “ This was the Introduction to my latest and last speech in Toast Masters club, ‘One in a Billion’ as part of International Speech contest. 
As much as I believe that each one of us can be that 'one in a billion' personality, I admit the reality as I perceive it and some times feel alone in that belief.
A famous quote says 'You are what you think'. It is also true that 'you are what you think people think about you'. If you think people think you are smart, then you act smart and become smart. If you think people think you are dumb, you will become dumb even if you are not, a…

Cooking looks like an unforgiving art

When you are writing software, you always get a second chance. In fact, lots of chances to get it correct. You have compiler warnings, failed test cases and some times crashes alert you that something is not right and will give you a chance to correct. And you get literally unlimited chances to apply those corrections. 
Well, cooking looks to be totally unforgiving in this respect and on any given day, you may get just one chance to get it right. If you fail, you fail. Try again right away if you have patience of starting it all over. Or start over some time later or next day. But not much of a second chance to correct a mistake. 
More ruthless, when it comes to salt. If you put just a little more, even a tiny little more, it never hesitate to show what it got. Totally ruthless. End result will be a failed dish that no one will be able (and/or happy) to eat. And most dishes, you may not be able to add something little more to offset it.

Little trick I learned the hard way, start on …

Just For Fun : India’s Super Computer

This is a T-shirt I bought almost 10 years ago that depicts the Lord Ganesha as India’s super computer. It was so much fun wearing it then as it used to grab everybody’s attention. And in my recent trip, I recovered it and wore again yesterday. It grabbed everybody’s attention as usual.Look at the mighty RAM he got. 256MB RAM.  Well it was quite a bit of RAM 10 years back. Thanks to Harish for taking a quick snap and sharing it. The iPhone he used got lot more power and memory than one the best computers of that time. That says it all.I guess, I should pull out all my T’s with messages and post it. May be myself and those around me that time could relive some of those wonderful moments.