Lessons from Groupon
Since its astronomical valuation, substantial funding rounds and its IPO anouncement Groupon has found itself a in the headlines of both popular and technology news publications. However, there is little use for us at Startups London to enter into the debate of whether or not Groupon will succeed. Rather there are lessons to be learnt irrespective of whether Groupon goes on to become a substantial success or whether its IPO failure will signal the beginning of the end.
It is clear from Groupon’s SEC filing that even in its core markets, customer attrition is a major problem and if the many negative comments from businesses are to believed it is likely to be a widespread issue. Groupon’s popularity and substantial email database make it appeal to new customers who are in search of a big publicity event and considerable sales traffic. It is indeed possible for many small businesses to gain substantially from GroupOn, if used correctly. The likely surge of new customers, the word of mouth publicity and the potential repeat business make a Groupon campaign a feasible marketing tactic.
Groupon has seen record levels of revenue growth since its launch in 2008 and this has fueled investor appetite. These investments however were made with knowledge that future profitability was not guaranteed for Groupon - it is only now that people have begun to doubt the long-term feasibility of the firm. Despite the substantial revenue growth and clear success in gaining new customers, Groupon’s weakness lays in the lack of willingness for these customers to use the service more than once. This creates a problem as the supply of new customers is constantly declining.
A second issue for Groupon has been a fall in the participation of its email database. Many people interviewed have suggested that whilst they receive Groupon emails they very rarely open them let alone buy the deal. As this continues, the value of Groupon’s database of subscribers will be reduced and the ability to attract new customers will decline further. If these symptoms continue and Groupon does not adapt it is likely that its value will fall dramatically.
The lessons here are not new. A service is only as good as how it is perceived. While Groupon was able to find companies willing to participate and individuals willing to buy early on in its existence for a relatively low cost this landscape has significantly changed as new entrants have entered the market and users have become largely immune to and expectant of daily deals. Startups must learn that despite early successes, planning for the future is essential if long-term profitability is to be assured. With planning for the future we do not mean simply planning for scale but rather planning for change; both the positive and negative kind.
The second valuable lesson is that of customer service. While gaining new business requires an aggressive and passionate approach to selling your idea or solution it can often lose sight of the bigger picture and that of customer retention. Startups must not neglect the long for the short, the steady for the quick and yes for the maybe. It is often two different people responsible for acquisition and retention of customers yet your product relies upon the acquisition of customers who are likely to be retained - a distinction that is vital if long-term profitability is to be acheived. It is more often the case that a small number of customers with a high lifetime value does significantly more for a startup that a larger number of customers with a low lifetime value and this is something that must be clearly understood.
We are not suggesting that Groupon is doomed for failure. Its current business model most definitely is yet with the reach and breadth of its operations a successful pivot into a new and lucrative direction is not unlikely. Many big name investors have jumped aboard in recent weeks and months and not all are planning a quick exit - surely some are there for the long haul? The key lesson from this is surely yet to be seen as the race for Groupon’s survival is surely about to begin.
