Groupon

Groupon

Turning coupons into cash

Founders: Eric Lefkofsky, Andrew Mason and Brad Keywell (shown, left to right)

Age of founders: 42, 30 and 42


Background: Serial entrepreneurs and law students (Brad and Eric) and entrepreneur and public policy student (Andrew)


Founded in: 2008, USA


Headquarters: Chicago, USA


Business type: E-commerce Chicago, USA


Business type: E-commerce




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ouchers and coupons have been around since the late 1800s, when Coca-Cola began sending out free Coke offers. More than 100 years later, a new company would put an internet spin on coupons – and create one of the fastest-growing companies ever seen. Sales exploded from $5,000 (£2,700) in 2008 to top $1 billion (£647 million) in 2011.



Groupon offered a new marketing avenue for small merchants: the online daily deal. The wild popularity of Groupon's deals attracted over $1 billion (£647 million) in venture capital, spawned legions of competitors, and led to an IPO that valued the start-up at a staggering $12.7 billion. The most improbable thing about Groupon's success, though, is that the shopping- deals site was launched as an afterthought, by founders whose initialgoal was to make the world a better place.


Start up early and often


Eric Lefkofsky started his first business while studying law at the University of Michigan. Apex Industries sold carpets to incoming students and grew to $100,000 (£66,000) in annual sales. Next came a t-shirt company, Mascot Sportswear, which he built and sold off.


Eric then teamed up with law school pal Brad Keywell to buy clothing firm Brandon Apparel Group. The two borrowed heavily to grow the company to $20 million (£13.2 million) in sales. But then fashion trends changed, sales crashed, and Brandon went out of business. In the aftermath, the pair faced multiple lawsuits.

On his blog, Eric called Brandon 'a huge failure. We over-leveraged the company and it eventually crumbled under the weight of that debt when the industry began to consolidate against us.'


While the Brandon legal mess dragged on, Brad and Eric started their first e-commerce venture in 1999. Starbelly.com sold corporate promotional items. At the height of the dot-com boom, Starbelly raised $9.5 million (£5.88 million) in venture capital, and quickly sold to retail chain Ha-Lo Industries for $240 million (£148 million). When Ha-Lo failed shortly afterwards, shareholders filed class-action and civil lawsuits against Eric and Brad. Discouraged, Brad took a job with famed US business magnate Sam Zell.


Eric pressed on, though. 'I never thought of stopping', he wrote in his blog. 'I just put my head down and kept moving forward, kept working toward success.'


Eric's next company, InnerWorkings, developed proprietary software to enable printing companies to bid for jobs online. A key funder for InnerWorkings was found when Eric went to a university reunion, where a friend introduced him to venture investor Peter Barris of New Enterprise Associates (NEA). Eric would later also meet NEA investor Harry Weller, and NEA invested in the company. InnerWorkings went public in 2006 and today is a $400 million (£259 million) business.


In 2005 Eric teamed with Brad again, spinning out the supply chain and logistics division of InnerWorkings to found Echo Global Logistics. The following year, they co-founded MediaBank, a technology-enabled media- buying software company. In 2012 MediaBank announced a merger with competitor Donovan Data Systems to create a $1 billion (£647 million) company, MediaOcean.


For its part, Echo grew rapidly, receiving over $17 million (£10.9 million) in funding from NEA, and went public in 2009. But perhaps Echo's most notable achievement was hiring a certain idealistic young web developer: Andrew Mason.


Raised in Pennsylvania, Andrew also had the entrepreneurial itch. At 15, he started a food delivery service, Bagel Express. After high school, he moved to Chicago to attend Northwestern University, where he studied music. He played in punk bands and had a wacky side – for a long time, one of his social media profiles featured a shot of him in his underwear. But his true passion was social justice, and Andrew planned to get a master's degree in public policy.


Getting to The Point


To earn extra money while studying, Andrew placed a Craigslist ad for web development work, and was hired by Echo. He caught Eric's eye by pulling a round-the-clock work stint.


'He took it on himself to rewrite a program in six or eight weeks', Eric remembers. 'He was pretty young and he was sleeping at the office. I just thought he was super-talented.'


Soon after, Andrew left to return to university. Several months later, though, Andrew reconnected with Eric. Andrew had an idea for a website that would help people come together to work on social action projects. He called it The Point.


On the site, individuals could start campaigns – to raise money for a new park, for instance, or to pressure a corporation to recycle. People would pledge to help by taking action or donating. When a critical mass of people signed on, a 'tipping point' was reached whereby the campaign moved forward.


Intrigued, Eric offered Andrew a $1 million (£500,000) investment if he would quit studying and begin work on The Point immediately. So in January 2007, Andrew left campus life behind and started building the site.


In the original business plan, three potential revenue models were identified for The Point: advertising; taking a percentage of the money raised in fundraising campaigns; or charging a fee for helping groups of people buy items in bulk at a discount. But the initial goal was simply to build the site, draw big traffic and focus on the social change mission. Monetisation would come later. In the meantime, Andrew kept his burn rate low by hiring just a few developers to work on The Point's launch.


'We had the ability to iterate and experiment without spending a lot of money', Andrew says.


He paid rent for a small area in Echo's vast offices inside a remodelled former warehouse in Chicago. In November 2007, The Point went live, and over the next year drew only a small following. This made it unlikely that either advertising or fundraising commissions would generate substantial revenue.


The initial goal was simply to build the site, draw big traffic and focus on the social change mission. Monetisation would come later.