Discount lovers and bargain hunters across South Africa probably received a bit of a surprise on Friday the 4th November when they checked in on their favourite “deal of the day” website to discover that Groupon is closing its (SA) doors.
An announcement on the Groupon site informs customers: “We will stop offering deals on our website from tonight (4 November). All current vouchers bought will remain valid until the date stated on the voucher.”
South Africa is not the first country that Groupon has exited. In fact, the discount deals company exited from Morocco, Panama, the Philippines, Puerto Rico, Taiwan, Thailand, Uruguay, as well as European markets Greece, Turkey, Ukraine, Portugal, Switzerland and Austria. The large-scale closing of operations in various countries has been attributed to the company’s evolving strategy.
“We believe that in order for our geographic footprint to be an even bigger advantage, we need to focus our energy and dollars on fewer countries,” says Rich Williams in a blog post earlier this year.”
“Just as our business has evolved from a largely hand-managed daily deal site to a true ecommerce technology platform, our operational model has to evolve,” Williams explains.
“Evolution is hard, but it’s a necessary part of our journey. It’s also part of our DNA as a company and is one of the things that will help us realise our vision of creating the daily habit in local commerce.”
What went wrong?
Rapidly growing from offices in Korea with 300 employees pretty much straight off the bat, Groupon was valued at approximately $16.6bn shortly after it went public. But the warning bells may have been ringing from the get go. Some of the start-up mistakes Groupon had made may have been coming home to roost.
1. Rapid expansion
In the early days of opening an office in Korea, the company was hiring employees’ right off the street. “When people walked by, we’d bring them up to the office,” explains Eric Lefkofsky, the company’s co-founder and chief executive in.
As most start-ups experience in the early days when there is sudden interest in your product or services, systems and processes are either implemented on the fly, or not at all, as your business scrambles to fulfil demand.
“At the time, there was a sense of urgency,” says Lefkofsky. “It felt like we were in a land grab. It felt like, if we didn’t get set up and [have] people calling merchants, then someone else would.”
By the time that Groupon had established its offices in Korea, a mere 2 and a half years from launching, it had also established a presence in in more than 40 countries.
2. Systems and processes
By February 2013, amid concerns around increasing costs and inadequate accounting measures, “visionary” co-founder Andrew Mason was ousted. With Lefkofsky at the helm Groupon reclaimed ground once again, and although growth remained positive it was nowhere the previous levels of growth. But Lefkofsky believes that this is no more than growing pains and Groupon still remains a robust business.
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3. Re-assessing the current business strategy
It appears (although somewhat in hindsight), the leadership at Groupon are finally considering whether the business really did grow too quickly, without having the right business strategy in place.
“We’ve taken a close, honest look at where we do business,” says William. “We saw that the investment required to bring our technology, tools and marketplace to every one of our 40+ countries isn’t commensurate with the return at this point.
We believe that in order for our geographic footprint to be an even bigger advantage, we need to focus our energy and dollars on fewer countries. So, we decided to exit a number of countries where the required investment and market potential don’t align.”