Is the ability to recognize opportunities a characteristic from birth, or a teachable skill?
Most of us miss out on most opportunities, by definition. Otherwise we all would have sold our houses in 2008, invested the proceeds in Cost Plus stock, then bought the houses back this fall for pennies on the dollar. You didn’t, which is why you’re still reading personal finance articles and trying to make sense of the world.
Are you familiar with Groupon? Not a ridiculous question – we asked a fairly with-it 24-year old woman about it the other day. She’d never heard of it. The company’s clever name gives you a hint as to how it works. You enter your location at Groupon.com. Every day, in every city Groupon serves, the company pairs with a local retailer to offer a limited-time deal. This isn’t 10¢ off a jar of lemon curd, either. Current Groupon deals include $49 for a 1-hour facial, $10 off a ticket to a Stanford University basketball game, $50 of food at the Pewter Rose Bistro in Charlotte, NC for $25, etc. The catch is that a certain number of people have to sign on or the deal won’t go into effect. (That number is posted for each deal, along with the number of remaining people needed to activate the deal.)
The mutual benefit here is obvious. Customers save money if enough of them exist to activate the coupon, but lose nothing if there aren’t (membership is free for both customers and businesses.) Meanwhile, the merchant gets guaranteed customers who went out of their way to show an interest in buying the product. If too few people sign up to activate the deal, the merchant loses nothing (and gains information – either “we need to offer a sweeter deal” or “what we’re selling is so bad that no one’s interested.”) Groupon keeps half the coupon revenue.
Like Twitter and eBay, Groupon is the kind of enterprise that makes a rational person kick himself for not thinking of the idea first. The website is sleek, informative, and easily navigable, particularly on a phone. Even the descriptions of the deals are entertaining to read – a staff of moonlighting comedy writers and stand-up comics creates them. Groupon started a little over 2 years ago in Chicago, offering discounted pizzas at one particular joint. Today, the company has 35 million members in 250 cities on 4 continents. It employs 3,000 people, most of them in sales. When the venture capitalists came calling, Groupon management stood at attention. Liberal estimates say the company will take in $350 million this year. It’s hard to imagine that Groupon’s expenses are more than a tiny fraction of that. Back in April – 1/3 of Groupon’s life ago – the company was making $1 million weekly. Groupon founder Andrew Mason has lofty ideas – he claims that he wants to do for local businesses what Amazon did for online retail.
Mason might be a visionary, but his business acumen is curious. A few weeks ago, Google offered $5.3 billion (excluding incentives) for Groupon. That’s about what Sirius XM is worth, but Groupon makes money. Whether the Google offer was in cash or Google’s resilient stock, Mason and his partners could have gotten ultra-rich faster than just about anyone in the history of commerce.
Mason turned Google down, because he’s insane.
Groupon is a great idea, and one that’s easy to copy – just ask LivingSocial, CrowdSavings, Tippr or one of Groupon’s hundreds of other new competitors. LivingSocial already has almost as many visitors as Groupon, with a website that’s hard to distinguish from Groupon’s at times. Groupon didn’t just get big quickly: it reached its perihelion shortly thereafter. Sure, there are millions of non-members to convert, but why should they patronize Groupon when its competitors are offering the same thing free? The competitors are increasing exponentially while the potential customer base grows arithmetically. It’s a Malthusian problem for a different century, only this one doesn’t involve cannibalism and starving orphans. Besides, how many discounted spa treatments can the world handle? (Groupon’s clientele is overwhelmingly 30ish and female.)
Mason’s strategy, at least as he tells it, is to do an initial public offering and turn his company over to ordinary investors by 2014. By which time we’ll have discount-searching polycarbonate chips implanted in our heads. Seriously, at the rate the number of his competitors is growing, Mason could have 2000 Groupon knockoffs to contend with by then. The greater the dilution, the less interest Google or anyone else will have in Groupon’s targeted customer information. Groupon management let a winning lottery ticket expire in the name of future aspirations. The iron is almost cool to the touch as this point, and Mason still isn’t striking it. Check back in a few months when another potential suitor makes a low-9-digit offer for Groupon. If that.
And if someone offers you what seems like a ridiculously high price for something, don’t double down on your own good fortune. Take the freaking money.