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The rise of the “successful” unsustainable company

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Re: The rise of the “successful” unsustainable company

#71

Post by ahi »

pg wrote: post #63
api wrote: post #2

This is diplomatic and charitable. When I see a repeat pattern of GroupOn and Zynga type companies I see someone who knows how to pump and dump. It's not quite fraud but it's getting close, given how loose these sorts of people typically play the truth.

Calling Zynga and Groupon pump-and-dump schemes is a mark of one's one's understanding of business in much the same way that believing vaccines cause autism is a mark of one's understanding of science. Mark Pincus and Andrew Mason are both still running these companies. Running a public company that's doing badly is extraordinarily painful. No one would bring that on himself.

Pincus and Mason may still be running them, but they both already cashed out big time.

Re: The rise of the “successful” unsustainable company

#72

Post by tatsuke95 »

pg wrote: post #63
api wrote: post #2

This is diplomatic and charitable. When I see a repeat pattern of GroupOn and Zynga type companies I see someone who knows how to pump and dump. It's not quite fraud but it's getting close, given how loose these sorts of people typically play the truth.

Calling Zynga and Groupon pump-and-dump schemes is a mark of one's one's understanding of business in much the same way that believing vaccines cause autism is a mark of one's understanding of science. Mark Pincus and Andrew Mason are both still running these companies. Running a public company that's doing badly is extraordinarily painful. No one would bring that on himself.

>"Mark Pincus and Andrew Mason are both still running these companies."

Because, at least in Pincus' case, he can't be removed. It would be pretty hard to argue that he wouldn't have been canned under different circumstances.

"Pump and dump" may be a bit much. But I'm glad that it's coming to light that business shadiness doesn't start and stop with the financial industry; it occurs everywhere there are substantial amounts of money changing hands. The Valley has some pretty serious scum-baggery going on. I hope we hold the people who promoted this stuff accountable in the court of public opinion.

Re: The rise of the “successful” unsustainable company

#73

Post by cellis »

enraged_camel wrote: post #34
danso wrote: post #7

Earlier quoted context omitted.

I have to strongly disagree with comparing Groupon to any of the OP's failed examples. Groupon may well run into the ground, but consider that: a) It was the first big success in its space b) at its peak, hired dozens (hundreds?) of actual employees, even copywriters from journalistic institutions. c) Had a huge, huge base of customers Groupon's leaders should be faulted for the various strategies and actions that ha…

>>It was the first big success in its space Success that is not sustainable is not success. >>and a lot if its downfall comes from how easy it is to copycat it. No, I don't think so. The real (and perhaps the only) reason Groupon is not sustainable is because the fundamental assumption that the business model rests on turned out to be false. Let me explain. The original idea was that Groupon would team up with a busi…

"Success that is not sustainable is not success"

I guess you think everything ever invented is a failure then?

Re: The rise of the “successful” unsustainable company

#74

Post by jonnathanson »

pron wrote: post #65
api wrote: post #2

This is diplomatic and charitable. When I see a repeat pattern of GroupOn and Zynga type companies I see someone who knows how to pump and dump. It's not quite fraud but it's getting close, given how loose these sorts of people typically play the truth.

I don't think it's fraud, or anything like it. After all, there is something so-far sustainable here, and it's not the companies; it's the pattern (which is not quite new), and fraud is never sustainable. I have a theory about why we see this pattern, and it starts with how those companies are financed. VCs fund many promising startups, often flooding them with money that can support the company for a long time, whil…

"So, who loses? I'm not sure anyone is."

Well, if you factor in the opportunity costs of the capital and talent allocated to unsustainable companies, then there's a good argument that the US economy loses. Every dollar invested in Zynga or Color is a dollar that could have been invested in something productive over the long haul. Every talented programmer that goes to work at a flash-in-the-pan, overhyped startup creates opportunity costs and economic inefficiencies by not working at more productive enterprises, creating real value. The wage and equity inflation created in the job market by overhyped startups leads to similar inflation across the industry, raising operating costs for everyone in the business.

All that hype-based investing does is swap money around between a relatively tiny cohort of people. It doesn't create real value over the long run, and all the real value that is foregone is opportunity cost.

Re: The rise of the “successful” unsustainable company

#75

Post by staunch »

ahi wrote: post #71
pg wrote: post #63

Earlier quoted context omitted.

Calling Zynga and Groupon pump-and-dump schemes is a mark of one's one's understanding of business in much the same way that believing vaccines cause autism is a mark of one's understanding of science. Mark Pincus and Andrew Mason are both still running these companies. Running a public company that's doing badly is extraordinarily painful. No one would bring that on himself.

Pincus and Mason may still be running them, but they both already cashed out big time.

Don't you see how that defies the notion that it was a pump and dump? Why would they (with tens of millions of dollars) stick around?

No one can force them to stay. They're already obscenely rich. Think about what their motivations must be.

Re: The rise of the “successful” unsustainable company

#76

Post by tptacek »

pg wrote: post #63
api wrote: post #2

This is diplomatic and charitable. When I see a repeat pattern of GroupOn and Zynga type companies I see someone who knows how to pump and dump. It's not quite fraud but it's getting close, given how loose these sorts of people typically play the truth.

Calling Zynga and Groupon pump-and-dump schemes is a mark of one's one's understanding of business in much the same way that believing vaccines cause autism is a mark of one's understanding of science. Mark Pincus and Andrew Mason are both still running these companies. Running a public company that's doing badly is extraordinarily painful. No one would bring that on himself.

I am with you on how misplaced the enmity towards --- well, at least Groupon. But there have been well-known public companies that did badly that were essentially scams, such as during the channel stuffing scandals of the late 1990's. So while I sympathize with your irritation at the "Groupon is a Ponzi scheme" meme, the last sentence of your comment is simply wrong; it's wrong directly (a counterexample would be Sanjay Kumar) and it's wrong in what it implies.

Re: The rise of the “successful” unsustainable company

#77

Post by webwright »

enraged_camel wrote: post #34
danso wrote: post #7

Earlier quoted context omitted.

I have to strongly disagree with comparing Groupon to any of the OP's failed examples. Groupon may well run into the ground, but consider that: a) It was the first big success in its space b) at its peak, hired dozens (hundreds?) of actual employees, even copywriters from journalistic institutions. c) Had a huge, huge base of customers Groupon's leaders should be faulted for the various strategies and actions that ha…

>>It was the first big success in its space Success that is not sustainable is not success. >>and a lot if its downfall comes from how easy it is to copycat it. No, I don't think so. The real (and perhaps the only) reason Groupon is not sustainable is because the fundamental assumption that the business model rests on turned out to be false. Let me explain. The original idea was that Groupon would team up with a busi…

"Because of this, most Groupon clients (the businesses) end up losing money, and never offer a second or third discount via GroupOn."

That's false.

in Q3/2011, 33% of Groupons merchants were people who were doing it for a second time. That number was up to 56% in Q1 of this year.

The deals are getting less lopsided-- $12 for $24 at a restaurant where it's challenging to eat for anything less than $50 is a pretty good buy for a restauranteur. With most of their costs tied up in fixed costs (real estate, etc), they aren't losing much (if any) on this a deal of this size.

You're also somewhat wrong when you say, "The original idea was that Groupon would team up with a business and provide deep discounts to consumers to encourage them to try out that business."

That was part of the original idea, but there are a few other benefits. 1) Filling empty seats for businesses whose costs are largely already incurred 2) It's an effective cash advance for the business- they recognize the revenue quickly (it's like a Kickstarter campaign).

Re: The rise of the “successful” unsustainable company

#78

Post by drumdance »

tatsuke95 wrote: post #72
pg wrote: post #63

Earlier quoted context omitted.

Calling Zynga and Groupon pump-and-dump schemes is a mark of one's one's understanding of business in much the same way that believing vaccines cause autism is a mark of one's understanding of science. Mark Pincus and Andrew Mason are both still running these companies. Running a public company that's doing badly is extraordinarily painful. No one would bring that on himself.

> "Mark Pincus and Andrew Mason are both still running these companies." Because, at least in Pincus' case, he can't be removed . It would be pretty hard to argue that he wouldn't have been canned under different circumstances. "Pump and dump" may be a bit much. But I'm glad that it's coming to light that business shadiness doesn't start and stop with the financial industry; it occurs everywhere there are substantial…

Yes, but he can cash in and quit. Why hasn't he? I've never run a public company but I know some who did during the first dot-com crash and it was not pleasant.

Re: The rise of the “successful” unsustainable company

#79

Post by pron »

jonnathanson wrote: post #74
pron wrote: post #65

Earlier quoted context omitted.

I don't think it's fraud, or anything like it. After all, there is something so-far sustainable here, and it's not the companies; it's the pattern (which is not quite new), and fraud is never sustainable. I have a theory about why we see this pattern, and it starts with how those companies are financed. VCs fund many promising startups, often flooding them with money that can support the company for a long time, whil…

"So, who loses? I'm not sure anyone is." Well, if you factor in the opportunity costs of the capital and talent allocated to unsustainable companies, then there's a good argument that the US economy loses. Every dollar invested in Zynga or Color is a dollar that could have been invested in something productive over the long haul. Every talented programmer that goes to work at a flash-in-the-pan, overhyped startup cre…

Well, I don't know. Suppose all those engineers were working for a company like IBM or Google, doing research. Much of their work would go to waste, too, as most research does not turn into successful products.

I think this is an interesting cultural change rather than a loss. Engineers are willing to sacrifice job security for a small chance for a big payoff. The winner-takes-all approach has long been part of the American ethos, only now its working its way down from the capitalists to the workers. I just think it's interesting.

You could say, though, and I think I've written it before, that its the workers (i.e., startup employees) that lose. If the theory is correct, then Big Tech is exploiting the workers' naive preference for promises of big rewards over regular, secure, pay. But, again, I don't know if that desire is naive; most startup folks understand the chances well, and still choose as they do. Maybe the excitement and perceived freedom are worth more than money to them. They sure are to me.

Re: The rise of the “successful” unsustainable company

#80

Post by drumdance »

roc wrote: post #36
drumdance wrote: post #33

Earlier quoted context omitted.

I think Groupon was/is overvalued, but I also think they can deliver value beyond leads. I believe they already offer a booking service, and they should be offering opt-in email, social management services, and other services that SMBs have already shown they will pay for. They may have grown too fast to do it under the Wall St microscope though.

That's like saying Pets.com could have worked out -- given how readily people took to buying pet meds, food and accessories over the internet -- if only they hadn't grown so fast. Growing so fast is not only a problem of expectation, it's a problem of massive overhead that competitors don't have. That's going to harm their competitiveness in anything they do.

The reason I said they grew too fast is I experienced this myself in the late 90s. I was with a public company that did email marketing services. That sector has turned out to be a massively profitable business. ExactTarget just went public about 6 months ago, and I know a lot of other private players who are doing very well.

The company I was with failed because they bought into the "get big fast" meme that was driving consumer Internet companies. So they went on a acquisition spree, tried launching too many products when they should've just focused on their core, opened several international offices etc.

AND they were already public, so they had to deal with all the BS that comes with that.

The did all of this inside of two years. It was senseless. A company culture rarely scales that well.

And it turns out that in most B2B markets (except for commodities like bandwidth), you don't need to grow that fast. You need to grow in a way that makes your customers happy, yes, but you don't have to worry about everyone suddenly adopting a new competitor (i.e. switching from Yahoo to Google).

But when you have investors throwing money at you, it's easy to think that every decision you make is genius and that you can solve problems simply by throwing money at them.

So to my original point. I think Groupon has multiple strategic options, but it may take them 3-4 years to see them through and in the meantime they have to justify their valuation to angry investors every 90 days. This would not be necessary if they hadn't bought into the "get big fast" mantra.

However, I believe they do have lots of cash in the bank so they may still have time to turn it around. It will be painful and take years.

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