Gini Dietrich

The Communication Crisis Groupon Created for Itself

By: Gini Dietrich | April 11, 2012 | 
66

Oh Groupon. What are we going to do with you?

Remember when Google offered them $6B and they walked away?

Then they went public, in the hopes they would make more than $6B (they were valued at $17B, but raised only $700 million), and now Crain’s Chicago Business is calling for adult supervision, based on the accounting irregularities they provided to Wall Street.

On March 30, they disclosed a “material weakness in internal controls” and restated 2011 Q4 earnings, turning a $15 million operating profit into a $65 million operating loss. Yes. A sixty-five million dollar loss.

But it gets worse (can it get worse than losing that much money?).

When interviewed by the Financial Times about the gross miscalculations, they responded by saying they’re still a new company and don’t know what they’re doing.

People forget we’re a new company. It’s one of those things where, OK, we’re still growing up as a company. Now that we figured that out, there’s no reason to think it’s going to happen again.

Put THAT in your pipe and smoke it, as my mom would say.

As it turns out, however, you can use that excuse when you’re private and the only stockholder is you (or a handful of your friends and family). But when you go public and your stockholders are, well, the public, it’s not an excuse you can use.

Plus, it’s the Financial Times, whose readers are business leaders and the investment community. A message you don’t want to drive home to that audience: Hey guys! Invest in us. We’ll figure it out…eventually. In the meantime, we’re going to lose a bunch of money for you. But don’t worry. You’ll get it back. We promise!

They have a huge corporate communication crisis on their hands, which started last August when they violated their IPO quiet period causing their vice president of global communications to get fed up and quit.

They went six months without any communication leadership when Paul Taaffe, the former chairman and CEO of Hill & Knowlton, was hired. While he’s been there for only two months, he’s experienced enough to quickly get their act together.

Which leads me to believe Andrew Mason, the founder of Groupon, and the investment dynamos, Eric Lefkofsky and Brad Keywell, are calling all the shots.

ALL. The. Shots.

Groupon no longer is a new company. They’ve been publicly listed for six months. They can’t make such big accounting mistakes and then shrug it off by saying they don’t have their collective shit together yet.

It’s time to grow up…both as a company and as a communication team.

About Gini Dietrich


Gini Dietrich is the founder and CEO of Arment Dietrich, an integrated marketing communications firm. She is the author of Spin Sucks, co-author of Marketing in the Round, and co-host of Inside PR. She also is the lead blogger at Spin Sucks and is the founder of Spin Sucks Pro.

  • It’s funny, this was one of the topics of conversation in my class last night with my students. I even asked them how many of them ever tried Groupon, and what their experiences were like. Some of them were pretty sad/funny. I’m wondering how much longer they’ll be around. I know that most of the businesses around that have dealt with them once have said they will never do it again. I haven’t heard a single positive story from any local businesses. 
     
     

    •  @KenMueller I think I know at least one biz owner was pleased w/ the results, but somehow those stories never see the light of day. All the while biz owners who underestimated response and allowed too many deals to be sold get to demonize whatever daily deal site sold them on the marketing. So someone’s asleep at the wheel 1) not getting the proper perspective on the backlash stories and 2) more importantly, getting the positive examples out there.

    • ginidietrich

       @KenMueller I’ve never heard a positive story, either. They created a niche, but the barrier to entry was too low and they couldn’t figure out who their customer was – the merchant or the consumer.

      •  @ginidietrich so true. I was thinking about that earlier. They have two different constituents, and they haven’t figured out how to please both.

  • Wow, Gini. Don’t hold back! Seriously, don’t hold back. Love it. I was chatting with my wife recently about daily deal businesses.  Yes, I bore her with marketing talk ALL THE TIME!  As Ken commented, I also haven’t heard many positive reviews from businesses on using daily deals mainly because the businesses took a financial loss. The thing is I blame the businesses for not having a sound marketing plan that leveraged the increased business/traffic from the deal.  This could be as simple as compelling people to sign up for an enewsletter, follow a social presence, etc. A problem is businesses expect to drive revenue and increase profits from the deal, which mathematically is really hard to do.  So, when it doesn’t work out, they opt to never use the deal site again.  And that’s where I blame the daily deal sites.  To survive, I believe they need to up their game on teaching businesses how best to leverage daily deals. 

    • ginidietrich

       @JoelFortner I think you’re right, Joel. Just like we educate our clients on what we do, it’s the job of other vendors or partners to do the same. The reason we outsource is because we don’t have the expertise internally.

  • Ike

    I agree with everything you said, but then I stepped back and thought, “Would ANY communicator in that position to a better job?”The answer is No. When your leadership is tone-deaf and business-dumb, you’re still left with a rotting core. No amount of shine fixes that, unless the communicator offers sound legal and accounting advice. 

    • ginidietrich

       @Ike That’s why I ended with they’re clearly not taking the advice of the pros they’ve hired. Their previous comms guy was really good. This new guy is really good. I don’t think it’s the fault of either of them.

  • CraigKessler

    I remember the CEO saying the same thing on the 60 Minutes segment and I was calling BS.  Take the 6B and don’t look back.  There is too much competition, too many small business realized it does more damage than make profits, and it’s losing its allure.  Groupon is a great concept, but is fading fast.

    • ginidietrich

       @CraigKessler And they’ll never look $6B in the face again.

  • JHTScherck

    I for one, am waiting for the daily deals bubble to burst. In my opinion, On top of all of their internal issues, it’s just not an economically sound business model. Instead of creating a loyal following for an individual business, Groupon has amassed a following of people who only buy in for the bargain. As offensive as it may be gselevator said it best, “Groupon… Food stamps for the middle class.” When people buy into Groupon they are buying into the deals, not the chance to experience a new local business. I give them two years before they go the way of Friendster.

    • ginidietrich

       @JHTScherck  I’ll bet they don’t even last two years. Meanwhile…they walked away from six billion dollars.

  • Are we really surprised, though? The model was crap to start with (as is most of the daily deal sites), and when a business has a crap model without a targeted audience, you’re going to have issues.
     
     

    •  @DannyBrown Surprised, no. Disappointed, yes. But then again didn’t shit like this happen in the bubble period?

    • ginidietrich

       @DannyBrown Totally not surprised. I called this in 2010. I didn’t want to write about them again…but I just couldn’t believe what they told the Financial Times. It’s truly moronic of epic proportions.

  • Maybe they should rename the company PoopedOn

    •  @DannyBrown That implies they’re the victim. Should be PoopOn. 

  • lfredsouthwick

    Isn’t so much a PR problem as one with their business model. The disparity between how much profit they count and how much profit they actually have comes from their rebate policy. Those rebates are growing as Groupon gets into areas where more people will requests rebates (plane tickets, more exclusionary programs, etc). They need to fix their profit projections.
     
    Best explanation I found was here: http://blogs.reuters.com/felix-salmon/2012/04/03/how-groupon-accounts-for-its-deals/

    • ginidietrich

       @lfredsouthwick I agree they have a serious business model flaw. But this is a PR blog…therefore we dissect the good, the bad, and the ugly with communication. And telling the Financial Times you are a new company and you’ll figure it out just isn’t acceptable.

  • I cringe to watch this. If there was ever a case of a company that should have sold out, Groupon was it. With the press they were getting about how the model was flawed, and cost some companies more than they made from the deals, it just seemed like the smart thing to do would have been to let Google absorb them.  (Lots of the companies on Groupon weren’t making a profit, even if you factor in publicity etc – even most business people don’t get how rapid growth can kill a company unless it happens to them)This would have been one of the rare cases where the company being bought and then changed would likely have helped much more than it harmed. I think you’re right – you can’t go around stating that you’re a new comer and a new company after you go public – the first thing you should be doing with your money is getting in management that knows what its doing if that’s the case. This is sad. This story could have turned out so much differently.

    • ginidietrich

       @Tinu Lots of national media are calling for them to bring in adult supervision. Andrew Mason owns 58% of the stock. We may very well see him pushed out of the company.

  • John_Trader1

    Gini, you said “shit” in your post. This must be serious.
     
    The only additional point I can throw in here that your community hasn’t already pointed out is the obvious collective stupidity that Groupon feels about the public. My guess is that their strategy was, “Hey, let’s act dumb like we made an honest mistake, people will forgive us and move on.”  The problem with this mentality (and we see it with businesses across the board) is that assuming public ignorance on a topic like this is still the safe way out. I would imagine that most people who are using Groupon didn’t hear about this debacle or worse yet, don’t care to let it affect their perception of the company, at least not enough to stop doing business with them. Don’t worry though, as we trudge closer and closer to full transparency in business and the public starts paying more attention to these stories so they can intelligently decide whether the company is sincere or not, we will start seeing a world better shaped by conscious consumer purchasing decisions and not so much ignorance.
     
    I predict that should be happening sometime around the year 2032.

    •  @John_Trader1 I saw your comment, and I thought, “SHE DID NOT!” 
      she did. you’re right. 

    • ginidietrich

       @John_Trader1 I couldn’t figure out another word to get my point across!
       
      The reason they’re in this debacle is because they didn’t figure all the returns they’d get from unhappy customers. To the tune of $50 or more million. So, even if the mass public never hears about this, Wall Street will make their stock price go so low, they won’t have any money to sustain a $65MM loss. Telling the Financial Times you don’t know what you doing is sending the very wrong message.

  • I think the groupon example is important because it is an allegory for everything that can (and often does) go wrong in social media.
     
    When this company was the hottest thing, it was very hot.  I can’t tell you how many seminars, breakfasts, and other events came through email where sincere people gave “presentations” on how critical it was to be on board this critical trend.  I did not attend a single one of them because all of my small business clients, to a person, knew it was nonsense.  Not a single one was interested in the offerings or even the “coupon model” in general.
     
    But in certain circles people were only listening to people like themselves – consumers and supposed “experts” out to make a name for themselves as they pushed the latest trend.  The disconnect was stunning.
     
    The problem with groupon, from the start, was that they have apparently always believed their own bullshit – and clearly still do.  This has been reinforced by a community that is woefully disconnected from reality and extraordinarily self-centered.  Their inability to run a company is only a symptom of a much larger problem that runs very deep in social media itself. 
     
    You have to ask how many good people and good ideas never make it in this “star machine” of nonsense and irrelevance while the promoters who talk the jargon successfully push themselves.   Far too much money is going to people who actively don’t care about what they are doing.  It’s disgusting, immoral – and doomed to failure.  
     
    Groupon appears to be one of the worst examples, yes.  But it is far from alone and this disaster was made by many more selfish people pushing their views on the world despite utterly lacking clue #1 as to what the Hell they were talking about.  If we’re really going to change the world we ALL have to insist on much better – otherwise this really is nothing but a bunch of time wasting games.
     
    [ side note – today is Barataria’s 5th birthday, join the party!  http://erikhare.wordpress.com/  Thanks! ]

    • ginidietrich

       @wabbitoid This is why it’s not about the tools and all about strategy. The companies that have a Pinterest strategy or a Groupon strategy are doomed.
       
      Happy Birthday to your blog!

  • This made me laugh out loud. I just can’t get past… wouldn’t sitting on the beach in Tahiti be way more fun than what they’re going through now? But that’s me. I’m different, I guess. 

    • ginidietrich

       @Lisa Gerber You and me both, darlin. You and me both.

  • Ego has wrecked many a blog and or business. If they would have set theirs aside they wouldn’t be in this position.

    • ginidietrich

       @TheJackB We talked about that very thing in a presentation I gave yesterday. It was all arrogance and greed.

  • Well, many internet companies seems to be run by guys just gone out of college, sometimes primary school. Or girls.Probably their coach or guru (everyone successful in business has a coach right?) hasn’t been enough clear. “Sorry but we didn’t know what we were doing”? That’s amazing. And this kind of people are able to raise that amount of money? Even more amazing.
     
    I thought that investors were wiser than during the dot com tsunami.
     
    Great post, very funny, especially because I haven’t invested in those guys. This is not Monopoli right? These are real dollars.
     
    But the fact that Google wasn’t able to buy them is positive, I mean no one wants Google to be the biggest player on the net right? We already have enough problems as it is now that it’s more worried about FaceBook than telling surfers how to live their online life.
     
    I think Groupon doesn’t need a communication team or a PR team, it needs to know the basic of business, Pr comes later when you know what you’re doing. Correct? 🙂

    • ginidietrich

       @Andrea H. | The Hypnotism Weekly It’s amazing to me they keep hiring really smart, really effective PR pros…and then don’t listen to them. Amazing.

  • Wait @ginidietrich you are saying that “whoopsies” won’t cut it for stakeholders? 

    • ginidietrich

       @jeffespo  Well, no. I just don’t think so.

  • Lewis502

    ginidietrich Easy fix… just give all stock-holders a Groupon that offers its stock at 50% off. Done and done 🙂 
     

    • ginidietrich

       @Lewis502 HAHAHAHAH! LOL!

  • It seems GroupOn (and daily deals in general) has also lost its shine with marketers as well. According to Social Media Examiner’s 2012 SM Marketing Industry Report, more than 72% of marketers have NO plans to use daily deals. As others are predicting in the comments, they’re not likely to be around much longer.

    • ginidietrich

       @Shelley Pringle It’s amazing to me we didn’t learn our lesson in 1999-2000 with the dot com bubble. We’re going to see a lot of companies go out of business. This is just the beginning.

  • That’s rough! Why don’t spokespeople think before they speak? I got the same impression — “Hey, don’t worry about it, we’ll figure it out eventually!”
     
    Not exactly reassuring, Groupon. They should have taken Google’s 6 billion and then run for the hills…

    • ginidietrich

       @Jill Tooley Right? Six. Billion. Dollars.

  • First of all…I don’t think I’ve ever read a post where you wrote out the word shit and I love it. Second, ummm it sounds to me like they also need a finance department that works with the communication department and is trained to respond insightfully to their shareholders and the community (especially the finance sector)!
     
    But I suppose if the founder isn’t going to listen to them anyway then he’ll just be wasting more of Groupon’s money…which he seems to be pretty good at anyways.
     
    Greed and arrogance always catches up to you..and I see this ending badly for Groupon. Hopefully someone else learns from Groupon’s carelessly cocky mistakes.

    • ginidietrich

       @rachaelseda LOL! I couldn’t think of another word to prove my point. 
       
      A lot of the articles I’m reading in the investment circle say it’s really scary (and telling) they’re sticking by their CFO. In cases like this, only 17% of CFOs keep their jobs. 

  • M_Koehler

    Are you doin the see I told you so dance? You should be. I know I am. Whenever someone offers you money in the BILLIONS take it. Take it and run.

    • ginidietrich

       @M_Koehler I would totally do the dance if it made me happy to be right in this case. I just don’t get it. It makes me sad.

  • mylefttom

    Paul Taaffe must be a bigger masochist than most if he had any clue what their backoffice was doing before taking the job. While running PR for a great company with masterful leadership is a job that does itself, a flagging company with clueless financial & ops is a nightmare.

    • ginidietrich

       @mylefttom Maybe he didn’t know. Or maybe he thought he could change things. I don’t know…but it sure seems like they’re not listening to him.

  • “The trouble with the world is that the stupid are cocksure and the intelligent are full of doubt.”
    – Bertrand Russell 
     
    I just want to emphasize the basic underlying problem that shows no signs of going away – unless we really learn from the groupon disaster.
     
    Mason, et al, are indeed stupid.  They are not stupid only for turning away $6B, nor for ignoring a tremendous amount of good advice along the way.  They are deliberately stupid along the lines the great Bertrand Russel decried some 150 years ago.
     
    The problem is that we live in a time that favors “cocksure” action and an aura of power.  That’s how these guys got the kind of attention and money thrown at them in the first place – and not at all because their idea was a good one at all.  It was a terrible idea that was doomed to failure, but everyone looked into their dreamy eyes and saw nothing but great things ahead.  This was sold on personality, not intelligence.
     
    It’s important because this has been going on for far too long – and is one of the roots of the current Depression that is still running through our economy.  As long as stupid people and stupid ideas get a lot of money there is a tremendous opportunity cost to actual good ideas and hard working people who are capable of actually changing the world for the better.  I said this in a post 4.5 years ago, and I stand by it:  Stupid money drives out smart – it’s a new version of Gresham’s Law.
     
    http://erikhare.wordpress.com/2007/08/13/stupid-money/
     
    Note that this was posted a full year before the 2008 meltdown, an event that was starting to look rather inevitable long before it happened.  Note that financial institutions like Goldman Sachs (remember talking about their PR problem here?) were already floundering and the Federal Reserve was already trying to save Lehman, WaPo, and AIG.  
     
    This is a problem for all of us, because as Gini has noted there is about $2 Trillion idly on deposit in the Federal Reserve right now.  The people who “own” it cannot find investments they consider worthy out here in the real world where people work hard, think intelligently, and dream of better things.  How is it that they can’t find opportunities?  Because companies like groupon get all the attention and have already wasted huge wads of cash.
     
    Stupid money drives out smart.  This problem is far bigger than groupon, and it’s affecting everyone.

  • None of Groupon’s failures have surprised me. Long ago, Mason’s tweets demonstrated he was moron. So what that he pulled funding together to fuel a novel business model. That does make you a genius, a leader, or an entrepreneur. 
     
    Wabbitoid is dead on so I don’t have to repeat the lesson – a lesson that will not be learned until all the flimsy houses of cards have collapsed.
     
    The problem is that the Great Depression has not bottomed until the dust has settled from the coming bubble pop. And the longer it takes to pop, the deeper that bottom will go.
     
    Recently on my blog: He Hit Me (And It Felt Like A Kiss) http://wp.me/pbg0R-IT

    • ginidietrich

       @Faryna I’m with you – I think there is a big bubble burst coming. I mean, we have this, $1B paid for Instagram, Twitter valued at $900MM. It’s coming.

  • I’m glad you included “Created for Itself” in the title. Every time we turn around for the past year or so, there’s always some kind of foolishness going on over there . . . and it always seems to point to the same few people. 

    • ginidietrich

       @NateStPierre Yeah…unfortunately those same few people are leading the company.

      • rustyspeidel

         @ginidietrich Three words: We Called It.

  • It’s easy to say they’re morons for walking away from a sure $6 billion – I know I would have. But then look, opinion had them ‘valued’ at almost 3 times that; they gambled the markets would agree – and lost. IMO the stock market = gambling, period.
     
    The other thing is attitude: “Our bad.. but excuse, excuse, wait and see.” See also @wabbitoid and @TheJackB . This is just like the SuperBowl ad bruhaha; they made ‘edgy’ ads that offended people and instead of apologizing, TPTB essentially blamed viewers for being too dumb to get them. 
     
    Then there’s the business model itself which face it, others big and small, are finding ways to do – and better. I’ve bought a Groupon, Living Social and Google deal all in the last few weeks. But the one that’s impressed me most – the DIY version a local store sent me; betcha they’ll attract new – and repeat – business w/ these, and make money too. FWIW. 

    • Oops, meant to write ‘I know I would have.. taken the money, run.’ 

    • ginidietrich

       @3HatsComm  I’m not a gambler…nor am I greedy. If someone offered me $6B for my company, I would say, “Where would you like me to sign and what color do you want the ink?” 

      •  @ginidietrich Right after I fainted. 😉

  • Small correction to my comment:
     
    So what that [Mason] pulled funding together to fuel a novel business model. That <i>doesn’t</i> make him a genius, a leader, or an entrepreneur. 
     

     
    It may be a good thing that Groupon didn’t take Google’s 6B. Potentially, that’s dollars that didn’t go out of circulation and up in smoke. [grin]
     
    Regarding Mason’s communication strategy, this really goes to show the disconnection between the tech, startup, sand ilicon-valley party AND reality.
     
    Mason’s novel approach to “honesty” is nothing more than infantile self deception and mauvaise foi (bad faith) a la the existential philosopher Jean-Paul Sartre. In other words, Groupon’s communication strategy has been to consistently disown responsibility for their decisions and actions. Honestly, however, must demonstrate certain conscience and a clear commitment to doing the right thing. None of which is evident by Groupon’s present PR. 
     
     

  • Small correction to my comment:
     
    So what that [Mason] pulled funding together to fuel a novel business model. That doesn’t make him a genius, a leader, or an entrepreneur. 
     
    BUT it may be a good thing that Groupon didn’t take Google’s 6B. Potentially, that’s dollars that didn’t go out of circulation and up in smoke. [grin]
     
    Regarding Mason’s communication strategy, this really goes to show the disconnection between the tech, startup, and silicon-valley party AND reality.
     
    Mason’s novel approach to “honesty” is nothing more than infantile self deception and mauvaise foi (bad faith) a la the existential philosopher Jean-Paul Sartre. In other words, Groupon’s communication strategy has been to consistently disown responsibility for their decisions and actions. Honestly, however, must demonstrate certain conscience and a clear commitment to doing the right thing. None of which is evident by Groupon’s present PR. 
     

    •  @Faryna I really appreciate whipping out Sartre here.  We can gripe all we want about what’s wrong here and there, but it comes down to a complete lack of grounding – intellectual, moral, cultural, and ultimately realistic grounding any way you want to look at it.
       
      To get this back to Gini’s topic, Groupon is a real PR nightmare by any measure.  But good PR has to start with giving a damn what other people think.  I don’t think these guys have the “bottom” to even start down the road of being a genuine corporation in the public realm, let alone be able to formulate good PR.  And while they are an excellent poster child at the extreme, they are far from alone.  
       
      More Sartre will do us good.  If people with this much money to throw around aren’t remotely serious about it, we’re all doomed.

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