Andrew Mason dropped out of school when an investor offered to fund a business based on his idea for online collective action and fundraising. He used the money to launch The Point, which failed to get traction.
So he pivoted and launched Groupon, which took his original idea for collection action and applied it to local deals. Two years later, the business blew past $100 million in sales.
This is the story of how it all happened.
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Here’s your program.
Andrew Warner: Hey everyone, it’s Warner Warner. I’m the founder of Mixergy.com, home of the ambitious upstart. You guys know what we do here. Every day I invite an different entrepreneur who built an interesting internet company to come on and talk about how he built the company or how he grew it. I love hearing those stories. They’re motivating. There’s a lot of motivation and ideas behind them. I also want to learn from them how they built their businesses so my audiences can go out there and create incredible companies and hopefully come back here and let me interview them.
Today’s guest is Andrew Mason founder of Groupon.com, the group buying site that launched in 2008, became profitable in 2009, reach a reported 1.35 billion dollars, that’s over a billion dollar valuation in 2010. Wow, I’ve been looking forward to this interview for a long time, Andrew. My goal for this interview is to hear the story of how he built that business, to get some advice from Andrew for other entrepreneurs, and to find out if it’s true that he really can bench 350 pounds the way he said earlier in the preinterview.
Let’s start off with the most important number. Three hundred fifty pounds, can you bench-press it or not?
Andrew Mason: Well, underwater.
Warner: Don’t lie to my audience, my friend. Is that tested or is that just a number that you’re tossing out there.
Mason: Underwater. Underwater. No question.
Warner: Underwater. All right. Okay.
Mason: Over water, it’s over 80 pounds.
Warner: All right. Somebody please add that to his crunch-based profile. He can underwater bench-press 350 pounds. How about this other number, is it true that you’re set this year to do over 100 million dollars in sales?
Mason: That’s not even that much. So, yes. I’ll say yes. We don’t talk about numbers, but that would . . . . Sure.
Warner: It’s considerably over that, is what you’re saying.
Warner: Okay. Wow. You don’t strike me as an entrepreneur. I went back and I looked at your old blog posts and your old videos. What they say about things online not dying is true. I saw a video of you for three and a half minutes doing a recap of Desperate Housewives from the night before, years ago. I saw you as a political activist trying to get people to support a cause.
Mason: Did you see my yoga video?
Warner: No. I didn’t click on that. I did see your second life video where somebody was standing and having a conversation with you and like a character on Second Life, you were walking around. What I’m trying to say is, were you always an entrepreneur? Where does this entrepreneurial thing come from?
Mason: I still don’t really consider myself an entrepreneur in the sense that I’ve never been driven to create a huge company and make a lot of money or run my own business. None of those things have been vocations of mine. I think I’ve always just been motivated to be working on interesting things. It turns out running a company gives you an opportunity to do many interesting things. It’s a fulfilling outlet for that desire.
Warner: For example, what have you been able to do since the company has done well that you couldn’t do before?
Mason: I hired somebody to walk around the perimeter of our office for five days, eight hours a day, wearing a tutu. Not talking to anyone or looking at anyone.
Warner: Can I see that person on camera?
Mason: They’re not here anymore. They were limping by the end.
Warner: I see. Seriously, what have you been able to do that you weren’t able to do before. What’s the best part of this?
Mason: I think the best part of it is the opportunity to build a company in the image of the way you always wanted. Every day you’re dealing with companies as a consumer and compiling a list of frustrations. ‘If only I was in charge.’ Even going back further than that to, like, dealing with your teachers when you’re a kid and saying, ‘Of only I was in charge this is what I would do.’ Now, having the opportunity to actually see if I can do any better. In many ways, I am quite proud of what we’ve done with Groupon in terms of the customer experience, in terms of the type of culture that we’re building here. We’re trying to prove the fact, we’re certainly not the only company that’s ever proved it, that you can have fun; you can have integrity; you can do things that are in the long term best interest for your company, your customers at the same time.
Warner: Can you give me an example, how have you been able to do that?
Mason: One example would be we have a completely open return policy. If anyone ever feels like Groupon let them down after having used a Groupon, we’ll give a refund no questions asked. Ultimately, the philosophy there is we try to treat our customers as if they’re adults instead of having policies that re designed to control the 0.1% of people who would actually take advantage of those things. Ultimately, the benefits of that kind of trust are greater than the costs that 0.1% is going to impose on your business. It’s worked really well for us. We find that people live up to the challenge when you give them freedom.
Warner: When you give a refund, does that come out of your wallet? Does that come out of your account? It does. Okay. All right. Let’s go back to how we got here, to this company where when I said, ‘Over $100 million dollars,’ you said, ‘Oh, yeah, that’s low.’ The first business that I think I saw you start was Policy Tree. Is that right?
Mason: Yeah. It wasn’t really a business at that point. I’m from Chicago. Where are you guys?
Warner: Actually, today I’m in Buenos Aires, but I live in California.
Mason: Oh, wow! Okay. In Chicago I think it’s a different type of culture for the most part from what you see in Silicon Valley. We’re not growing up for beginning the business. The entrepreneurial dream is alive but it’s not in the water like it is there. When I first started building websites, I didn’t know about the concept of venture path at all. I didn’t know about angel funding or the entire concept that somebody would give you money in exchange for equity on the promise that it would turn into a lot of money someday. It was completely foreign to me until it actually happened to me. I just built websites because I had ideas that I was compelled to fulfill. I got lucky that I started working as a developer for someone who went on to be my main investor and cofounder in Groupon. He just kind of said, ‘It seems like a good idea. Why don’t you drop out of school and turn it into a company.’
Warner: This is the founder of Inner Workings?
Warner: Okay. That’s the company that you worked for before you launched your site.
Mason: Right. Exactly.
Warner: What did you do there?
Warner: Okay. When you took your idea to, who was it at Inner Workings that you took it to?
Mason: His name’s Eric Lefkofsky. He also runs an investment company, an incubator kind of thing here in Chicago called Lightbank. I didn’t even actually take it to him. I got to know him through working there. I told someone else about it, they told him about it, and he called me up in between classes one day and asked me to pitch it to him. Then he kind of laid out, ‘Here’s how it works. You can keep going to school or you can work on this idea. We’ll fund it and you can be entrepreneurial.’ It was through no ambition of my own that any of this happened.
Warner: What was the idea that you talked to him about? What did it sound like back then?
Mason: The original idea turned into a website called The Point. It was a much broader version of what Groupon is today. It was a platform for groups of people to come together and say, ‘I’ll do something but only if enough other people do it with me.’ It could be used for raiding money. For political campaign. For some kind of charitable cause. It could be used for a collective action thing like organizing a boycott or organizing an event of some sort. Trying to solve the problems associated with getting a group of people, a problem that is too big for one person to solve alone, that requires the commitment of a group of people and everybody not being willing to take that step because they don’t think there’s enough other people along with them. One of the ways that it was being used was for collectively buying. Untimely when we decided it was time to figure out how to make money with this thing . . .
Warner: Actually, can we hold off on getting into the collective buying because I want to dig in deeper into what happened up until now. ThePoint.com was in 2006. I read in Tech Crunch that you got 2.5 million in angel funding. Was that accurate?
Mason: No. One million in angel funding.
Warner: It was one million. You just took this idea where you’re going to bring together this collection of people who won’t do anything until they all agree to do it, that’s what you took to Eric over at Inner Workings and that’s what he said; ‘I like this idea so much, I’m going to give you a million dollars. I’m going to invest a million dollars in this idea.’
Mason: Yeah. I think, I mean, we had a working relationship. It wasn’t like it was just me coming blind to him with an idea, an outline or a business plan. I think a lot of it was we’d worked together before.
Warner: You worked for years with him. How many years?
Mason: Up to that point maybe a year. I mean, now . . .
Warner: Oh, I see. Okay. From 2006 to 2006 is how long you’d worked with him.
Warner: A million dollars is a lot of money for an angel round. It’s a lot of money for just an idea. Why so much?
Mason: I wouldn’t do it that way if I knew what I was doing and I could do it again. So, let me not try to justify it.
Warner: Okay. Why do you think that he gave so much?
Mason: Because it’s good to have the, to some, you can make the argument that it’s good to have freedom to be able to work on things that you think are important and not be constrained by capital. You can also make the other argument, which actually became true in retrospect, which is that having too much money you don’t. It’s good to have some constraints. We spent $4500 on tarot cards. A deck of tarot cards explaining the pints that we distributed at the Netroots Nation conference. It was a stupid way to spend money.
Warner: How else did you spend money that if you had constraints you wouldn’t have? Or what kind of decisions did you make that you shouldn’t have made or wouldn’t have made if you’d had the constraints of lack of funding?
Mason: Time to market. That was the biggest one. We took between January and November of 2007 to get everything just right and make sure that it aligned with my complete vision of what I wanted this platform to be instead of just getting something started and letting the users tell us if it worked or not. That’s the biggest lesson that I learned as part of that project. The result of learning it is demonstrated through the creation of Groupon where we went from idea to actual launch product in about a month.
Warner: In a bout a month.
Mason: It was largely built on top of The Point. The first version was still not pretty.
Warner: You have some suits walking around behind you by the way.
Mason: I have no idea who those guys are.
Warner: Oh, okay. Interesting. I’m going to come back to what you launched in that month where you launched Groupon but let’s stay with this. He’s investing a million dollars in the business. You called him your partner, I think, or cofounder. What was the split at the time?
Mason: They took the majority of it. It was him and his partner Brad Keywell. For me the catalyst was more, I’ve never really been motivated by making a lot of money as I am just by working interesting projects and this was the opportunity to work on something interesting and do it in the right way. For me, things like split just didn’t make much of a difference. I think this is a way in which I am probably not a good example. Not anyone that somebody should try and take lessons from.
Warner: You know, to each their own from everywhere. Was it 30% Eric, 30% Brad, 30% you. Is that basically what we’re talking about? One-third, one-third, one-third?
Mason: It was something where they got the majority. I won’t go into specifics of how it was.
Warner: Okay. All right. Fair enough. The idea was just to cover, as you said, many different topics. I read when you launched, in a comment on somebody’s blog about your launch, you said, ‘We have an idea for revenue up our sleeves, but we’re not ready to reveal it.’ Essentially that’s what you said.
Mason: The Point?
Warner: Yes. When you launched The Point. Somebody said, ‘There’s no revenue model in this thing. They’re going to fail.’ You said, ‘Well, hang on a second. We have something up our sleeve. We’re not ready to talk about it. We’ll come out with it later.’ What’d you think the revenue model would be?
Mason: Well, Groupon was the revenue model.
Warner: So you knew it would be this.
Mason: No, I don’t want to, we had three ideas for a revenue model. One would be advertising. If somebody is running a campaign about a problem they’re having with a specific airline, it’s an advertising opportunity for other airlines that want to get their message out there. A second was to take a piece of fundraising.
Warner: I’m sorry. There’s a little noise in the background. Can you say it louder?
Mason: Sorry. It was taking a piece of the fundraising we were doing, 5% or 10% or something like that, the charitable fundraising. The third was collective buying, which we knew from the beginning there was a strong [interference] here but we didn’t now exactly how it would be executed. Therefore, the idea was to get it out there, get people using it, and then figure out the revenue model later.
Warner: Okay. It was letting people raise money for charitable organizations and you take 5% of it. It was advertising, which is traditional, most of us know what it is. Then the third one was some idea of crowd buying where people could all get together and buy but you didn’t have it fleshed out. Here’s what I saw on the website. Here are some of the campaigns I saw on the website. Trying to get one million people to commit to not clicking on CNNs dopey stories and if a million people commit to that then the million people will not be clicking on the dopey stories on CNN. Two hundred eleven people clicked on that.
Warner: I saw a jacket for Masonason’s friend Matt. Not enough people were willing to raise money for it. Basically, what I saw was many of the campaigns just didn’t get any traction. It was big goals and very little activity. What was going on inside the company when that happened?
Mason: I think it was thinking about focus and thinking about how do we take whatever community we have, how do we solve this chicken and egg problem. You have enough people looking at these things that these huge things can become successful. Ultimately, part of the design of Groupon was meant to solve that problem. There are two things that were going on exemplified in the campaigns that you mentioned. I mean many things. Another is just, when it’s completely user sourced your experience in terms of consistent quality is going to be inconsistent. If you’re looking at ten campaigns that people have put up there, some of them are just going to seem ridiculous for your experience. With Groupon, it was like let’s take the creation, let’s not just add a collective buying tab to The Point and allows people to source these collective buying campaigns on their own because there will be quality issues, people won’t be thinking about what’s necessary. Instead, let’s be in charge ourselves of curating and handpicking these campaigns. Have a different one but only one every day so our very small community will still be large enough so that if we channel it all into one thing we’ll be able to achieve the critical mass that we need in order to make a success.
Warner: I see.
Mason: So, focus. Groupon is all about super-focus.
Warner: I see. How did you get that? It wasn’t a huge community but it was enough of a community that if you focused it all on an offer it would be pretty powerful. How did you get that big community?
Mason: That’s’ part of why we went local. It became possible to go around to the people in our office building for starters. We kicked it off with just 500 people that we got signed up on our mailing list. I think an important thing, most of our business we do though our email list. I think it’s important to think about your marketing strategy as part of the actual model of your business and email as part of it from the very beginning. Driving people to this email list so it’s not something that they just show up one day, say that’s not for me, and then never come back. It’s better to get them to look at it five times; the chances will be much higher that they’re going to find something they like. Email makes it possible to do that when you’re actually pushing something out.
Warner: I see. Okay. It seems like even from the beginning the marketing was baked into the product. Even the Point. The idea was once you establish a campaign you have an incentive to tell your friends about it and if the campaign doesn’t get activated, unless a certain number of people hit, then you have an incentive to tell strangers about it and bring them into the campaign. So, whose idea was that? How did you come up with that? How did that idea come about?
Mason: That was my idea. It started with, actually, the first thing was getting a cell phone termination fee and feeling like, ‘Man, that’s not really fair.’
Warner: That’s what? I’m sorry.
Mason: It’s not very fair. I’ve been a customer for this company for five years and they’re hitting me with a $200 cancellation fee because it doesn’t fall on any one anniversary. Not only do I not think it’s fair but I’ve heard everybody that this has ever happened to bitch about this problem. There should be a way for us to all come together and say, ‘We refuse to pay this fee.’ Ultimately, your ability to enforce a rule is only as strong as your subject’s willingness to be subject to it. If you can organize the subjects then they basically have the power. That’s where the original use case was. Then it was just a process of saying, ‘Well, wait. We can use that same model.’ But the way, I had that idea then I went back to school for a couple more policy, there’s many classes in collective action and I realized this is a much more pervasive problem. These collective action problems where you have one person that feels like they can’t get something done, even though the collective preference would be for change. It seemed to make sense for an internet platform to exist to aggregate those preferences and help them across the bridge into actual action.
Warner: Beyond the issue of an inconsistent set of campaigns that people can join. Why else do you think the idea behind The Point didn’t work?
Mason: Well, I think The Point should have been a book and Groupon should have been the website. You know, The Point is much more of an idea. It’s so abstract. Even the way I described it is you can use I for this, you can use it for that, and you can use it for this. People need to be able to go to a website and in a second and a half understand exactly what it is. Even when you look at Groupon, the collectively buying element of it, we’ve worked to almost hide that so that people who are having their first experience. Something that’s progressively disclosed. Mostly only once you’ve made the purchase. When you go to Groupon it’s like, ‘There’s something I want and it’s for half off.’ That’s the primary message. Then we kind of work the rest of it in. I think the abstraction was a big problem as well.
Warner: I see. So there is an element of campaigning and protesting in there, there was an element of raising money for charities, there was an element of raising money for a pancake maker for the office in there, there was a kickstart idea in there where if you had a project that you needed money for you could raise it there. There were coupons. I see. It was too much. If you would have focused on maybe one and expanded that until it grew to its natural size then you could have added others and others on top of it.
Mason: Right. Exactly. That’s what Groupon was. Taking on very specific compilation of the ideas of The Point and doing it very well. What we found was we were working on Groupon, we had this big platform, that every campaign that somebody wanted to do, that was kind of one part of a different vertical, would have a different set of product needs. In order to really make this work you need to have a certain feature. We couldn’t really deliver an excellent experience for any individual application. What we ended up doing was delivering a mediocre experience for everyone. Kickstarter is actually a great example of a site that took the fundamental idea of The Point, I don’t know if they were inspired by it or not, I don’t really care, but they took the fundamental idea, which was raise money for a minimum and they took a very narrow application on it and did an excellent job executing it. The Point kind of is the idea from which Groupon and Kickstarter, or, this is the book and these are the websites.
Warner: I see, and if that’s the book and the big idea, somebody listening to us might be able to apply it towards other ideas too.
Mason: Yeah, I think there’s definitely still an opportunity and apply it towards activism in particular. Another problem is like take the Comcast example that inspired the whole project. A lot of the examples that got me most excited, like the idea of building a dome over the city of Chicago which is something that if you had a way to go to everyone in Chicago and say, what would it be worth to you to make the winters here obsolete, people would say like, I don’t know, $10,000. Everyone would. Before you know it, you would have billions and billions of dollars for this project. It’s not really activism. Whether it’s that or, somebody can do it if you can overcome the scale.
Warner: Interesting. I see many people copying Groupon almost exactly. I wonder if they’re missing a bigger opportunity to copy the original idea and take it in a different direction. I’ll get to the copycats soon, too. At the end if we have time. I mentioned the CNN, we won’t click on the crappy links on CNN. I saw a fundraiser for studio lease. I saw get $10 off $25 value concert tickets on the site. Lots of different things. Very few Groupon like activities on The Point. I think the original description of it when you launched Groupon was the public, the users are using The Point to share deals with each other and so we have to create this side project. But I don’t’ see that big a bubbling for it, that big a demand for it on The Point. Is that just the PR story? The way of explaining why Groupon came out of The Point? Or was there?
Mason: No, no. I don’t think it was something were we felt like, ‘Oh my God, there’s so much happening here. The Point community is no longer big enough to hold it.’ It was more like we saw examples of it. It seems like a compelling interesting way to take it. Therefore, we launched a side project. There are definitely examples on there of people trying to get a group discount on a bicycle or a magazine subscription. Ultimately, it’s not like we couldn’t have taken it in a different direction. It’s just the most interesting thing thus far.
Warner: I see. Okay. Why did you decide to launch it as a subdomain of The Point? It was Groupon.ThePopnt.com, I think, in the early press releases.
Mason: Because we didn’t have Groupon.com. We had to buy that later on. It’s actually a good story.
Warner: Tell me.
Mason: Sure. So, we launched, we had the idea, we got it going, the guy who actually writes all the content had the idea for the name and its like the perfect name. We emailed the people that own it and said, ‘Hey, are you interested in selling?’ They said, ‘No.’ We said, ‘Fine.’ At that point, we had no idea where it’s going. We went and worked on the project. We got some momentum. A couple months in we emailed again and said, ‘Hey, are you interested in selling?’ He said, ‘No, definitely not.’ We said, ‘Just curious, what are you planning on doing with it?’ He said, ‘Well, I live in England somewhere and I’m interested in at some point starting a group coupon service where somebody would be able to buy a coupon that if they bring four people into a restaurant all five of those people would get a discount. So, it’s like a slightly different take on the group buying, group coupon model.’ We said, ‘That’s interesting. We’re doing something somewhat similar to that in the United States, so, maybe we can work together on this. We can take this to Europe.’ He said, ‘No way.’ We said, ‘Okay. ‘We continued operating. Then we had a trademark for Groupon. That trademark extended to England. We contact him and say, ‘Hey, you can launch that thing, but you can’t use the name Groupon because we have a trademark on it.’ So then, he decided he wanted to sell. I think we bought it in May 2009 or something like that for maybe $250,000, which seemed like a lot at the time and now it seems cheap.
Warner: Wow. He had the domain first. He came up with the name first. However, because you trademarked it first you had, not a way of taking it from him but you had more leverage than you would have otherwise.
Mason: Yeah, I think so. I think he didn’t have anything going on it. There was nothing on the actual site. He just had an idea for something he could do someday.
Warner: I see. Okay.
Mason: He’s a good guy though.
Warner: He ended up making more money than if he would have launched the idea he had. Why launch a business when you don’t own the domain? Wasn’t that a risk?
Mason: We were using GetYourGroupon.com. Then we bought all the, like, GrouponChicago, GrouponBoston, we bought up all of those domains. Yeah, it was definitely a risk.
Mason: We just figured we had enough domains that we’d figure out how to do it without the domain. People do that all the time. ForceWear, I think did it. DropBox did it. Facebook did it.
Warner: That’s right. It was TheFacebook. It was GetDropbox.com. It’s risky, but you’re right, it’s done often. You mentioned earlier that it took just one month to launch Groupon. What was that first version like? What did it look like?
Mason: The campaigns that you could start on The Point all had little flash widgets that you could imbed in other websites. All we did was we took a WordPress Blog and we skimmed it to say Groupon and then every day we would do a new post with the points embedded. It was totally ghetto. We would sell t-shirts on the first version of Groupon. We’d say in the right up, ‘This t-shirt will come in the color red, size large. If you want a different color or size, email that to us.’ We didn’t have a form to add that stuff. We were just, it was so cobbled together. It was enough to prove the concept and show that it was something that people really liked. The actual coupon generation that we were doing was all FileMaker. We would run a script that would email the coupon PDF to people. It got to the point where we’d sell 500 sushi coupons in a day and we’d send 500 PDFs to people with Apple Mail at the same time. Really the first, until July of the first year was just a scrambling to grab the tiger by the tail. It was trying to catch up and reasonable piece together a product.
Warner: I see the influence, by the way, of Woo. I read in your podcast announcing Groupon that you’re influenced by Woo and I can see it in the way you guys write your descriptions of the products and that comes right down to the first product that you sold. You said you used Apple Mail to email people their coupons. Why did it take off like that? Why do you think it did so well?
Mason: We didn’t realize the extent to which it did what it did until we actually got assaulted.
Warner: You seem a little closer to the computer. There’s just so much noise behind you. I want to make sure to hear you clearly.
Warner: OR can you tell the whole office to, ‘Please quiet down the founder is talking! The head muckety muck people.’ Okay. Sorry. Go ahead.
Mason: Why does it work? We seem to have found a way to make ecommerce work for local businesses online. More than that, we seem to have found a way to deliver effective marketing results for brick and mortar businesses that’s completely unprecedented both online and offline.
Warner: But why in the beginning? What were you doing so well that it attracted customers? It’s harder to get customers to come in and sign up and pay then it is to get somebody to sign a petition against CNN. But they did come and they came in large numbers right from the beginning. Why?
Mason: I think with business owners critical especially in the beginning was finding a way to take all the risk out of being online. Typically, when a small business owner is doing marketing or advertising his business, he’ll write a $10,000 check to the newspaper company. They put an ad. You hope that turns into leads, which turns into customers. With Groupon, the feature is free. You’re only paying when the customer comes in the door for the discount. On top of that, you only have to participate if we reach the number of buyers that makes it worth your while. While we often blow through that minimum number at this point, it’s almost developing to the, in the beginning it was essential to getting people warmed up to the idea. Because of that we really seemed to attract great business minds from the very beginning and they’ve progressively got better, but in the beginning definitely things that people liked and wanted to use. By having an email list, again it comes back to fitting the marketing strategy into your product, but having that email list we were able to basically beat down on our customers every day. So even if we sucked one day, we could suck the next day, we could suck the fourth day, but on the fourth day we might deliver something awesome and then we’ve got the customer. It’s not like it was at The Point, somebody will check it out, if they don’t’ see something that they like they’re gone forever. We get a lot of trials.
Warner: On that original landing page, I would see the offer and if I didn’t like it, I’d walk away, right. How would you get my email address to present another offer to me the following day?
Mason: The first thing we try to do when we’re driving people to the site is to get them to sign up for our mailing list. The way we explain the value proposition to customers is, ‘Have an Email delivered to you every day with an awesome deal.’ That’s what Groupon is more than about the specific deal that you see that day.
Warner: So, even from the beginning, in order to see a deal, I’d have to sign up for the mailing list?
Mason: You can see the deal without signing up for the mailing list. The first thing we try to do, though, is to get people to sign up.
Warner: I see. Okay. All right. The deal was maybe an example of what’s to come by email and the service is introduced as an email service.
Warner: What about virality? What were the first things that you did to have the deal spread virally?
Mason: Having the minimum was useful for sure. Whenever a deal happens, it virality is higher. The kick to having stuff that people share socially is to have a contact that’s inherently social. Groupon is kind of sitting at the intersection of the E-commerce local and social. All the things, that’s why I think the term social commerce makes so much sense. The stuff that we’re featuring is inherently social. Its stuff you do with other people. Going out to restaurants. Going to see a movie. Going to the theatre. You can’t do it by yourself so you have to share it.
Warner: I see. Okay. Who called up the merchants at first and what was that experience like when you were calling them up?
Mason: It was so, we started off with a team of about seven people. We had a couple of business development guys as well as the guy that was actually doing the writing. Even I was doing it to some extent early on. We were all calling the businesses. It’s similar to how it is today. We’ve gotten more refined and efficient at doing it, but it’s still figuring out how to explain this new concept to people. The best way to describe it is, ‘If we can get a ton of new customers I your store, will you give us a great price?’ That basic idea is something that the small business owners can wrap their heads around.
Warner: Can you tell me a little bit more about why you started out by going local? If you would have gone for a national product like maybe steak by mail, or maybe software that’s available online that has high margins, that anyone around the country or around the world could use, you would have had a broader audience. However, you went specifically for Chicago at first. Why?
Mason: I think that I looked a lot at the way that group buying happens during the first dot com boom when I was thinking about how we wanted to approach.
Warner: Ah, Mercata. The site that was backed by Paul Allen.
Mason: Yeah, exactly. What it is, is it’s kind of like Amazon where you’re selling, you have a marketplace of consumer goods, cameras, televisions, computers, that sort of thing, only there’s group buying involved. So the more that people buy the lower the price goes. It failed for the best reasons in the world. Basically, the problem was that companies like Amazon and Walmart were already so big and already had so much leverage that they could still negotiate better process than Mercata could even when you have a thousand people signing up to buy a TV. With Groupon it’s like, ‘How do we avoid all those problems?’ Well, first of all let’s make it one deal a day so that instead of distributing our collective buying power across the entire marketplaces products, it’s all funneled into one. And second, instead of going after these consumer goods, these national products that you can buy anywhere and have already had all the margins squeezed out of them by these huge companies with a ton of leverage, let’s go find truly unique things from local businesses where maybe they’ve never done a discount before. Maybe they’ve done no marketing whatsoever before. The margins are larger as well. So, we can offer a deal that’s truly unique. It just seemed like the way to really help collective, to get collective buying power to work at a small scale. Again, it comes back to maybe the collective buying model works for consumer goods, but you would need to have a community as big, or larger, than Amazon’s in order to achieve something like that.
Warner: I see.
Mason: But local, you can make it happen while being smaller.
Warner: Do you have some examples of mistakes that you made at Groupon? It looks like it’s just hit, hit, hit, hit, hit. Everything seems to have worked out.
Mason: You know, I’m sure there are tons. I’m sure we’re making some right now, maybe in the background on the camera. It’s hard to tell because we’ve had so much success that I think the mistakes all seem small, but they may start to show themselves over time as the market matures. We now have everybody’s eyes on us. Everybody trying to figure out how to do these things. I think the opportunity to make mistakes and fail is more in front of us than behind us.
Warner: When you hire 200 people in a few months essentially, how do you keep the culture alive? How do you maintain the culture that you started with and keep one that you can grow with?
Mason: I think that you have to invest in it. The danger going through a company like ours is that everybody is just riding high on the success that we’re having and success is an anesthetic for problems that might be deep-seeded problems with culture. I hope that we don’t have any of those but there’s no way to really know because everybody is stoked up. I think we’re just trying to overinvest in the culture. We’re instituting good training programs and making sure before people walk in the door, they understand what it’s about. They’re completely submerged in it. Out values are a constant part of the decision making process.
Warner: I’ve written down here in my notes, email, over and over. You send out a daily email every weekday. How do you keep from burning out the list?
Mason: By having awesome content.
Warner: Try a little closer. It looks like it’s getting a little louder behind you.
Mason: Sure. Sorry about that.
Warner: Yeah, I think it’s by having awesome content. We have a team of about 65 writers who are producing the equivalent of a 200-page book every day. For every one of those write-ups there are six different people who touch it before the production sees it. These take in a lot of time, it’s been painful and terrible to make sure that we maintain our standards there. It’s really easy to just say ‘Okay. Stop. It’s interesting.’ I think it’s critical to keep people engaged so that people with be interested and enjoy reading about the business that they have no interest in actually buying.
Warner: I see. What about the turn? What’s the turn on the mailing list?
Mason: It’s relatively low. Not to go into specifics.
Warner: What about the size of the list?
Mason: It’s about 10 million people.
Warner: Ten million unique people around the world are signed up to Groupon in their local cities.
Warner: Do you have a national or an international version in the way that DailyCandy does?
Mason: We don’t.
Warner: No. It’s all local.
Warner: I read recently that when you launch in some cities you have offers that aren’t really valid yet. Basically, it sounds like a minimum viable product, right? Can you talk about that?
Mason: Offers that aren’t valid yet? What are you talking about?
Warner: What were you going to address? We’ll go with that.
Mason: I was going to talk about this Tech Crunch article.
Warner: Yeah, that’s what I got emailed to me. The one with the new CEO of the company talking about when you launch in foreign cities . . . Actually, why don’t you take it. I don’t want to get it wrong and I’d much rather have you get it right.
Mason: The new CEO of the company? Are you talking about our president, or our COO?
Warner: The COO. Excuse me. The COO. Right. Sorry.
Mason: That’s actually a great example of a mistake. That’s the first bad press that I feel like we certainly deserved.
Warner: That you did deserve you say.
Mason: Yeah, we totally deserved it. What happened is in, there’s a company that we acquired in Brazil, where they were posting deals that were example deals basically. Some fictitious companies in cities where they had launched as a way, I mean, I don’t even know what the intent was exactly. It was just a bad decision by somebody at the company that we didn’t know was happening. I think that now those kind of gave us a chance to make sure that we understand those things better. People thought it was a publicity thing; they’re totally right. The only thing you can do is learn from your mistake and make sure is something that it is something that (________).
Warner: You’re saying they’re totally right?
Mason: Yes, it was totally shady.
Warner: All right, fair enough. So, I didn’t have the details right, but I get your point. It seemed to me like it was someone testing a minimal viable product. Putting up a bunch of offers, seeing if we’ll get enough uptake on them, and if we do then we’ll launch wherever we get the uptake.
Mason: No. You’re giving it way too much credit.
Warner: I am?
Warner: Yes. It was just fake businesses. I mean, no one could buy them so it really doesn’t do anyone any damage, but it’s still totally misleading. It makes it seem like there’s all kinds of activity going on when, in fact, we hadn’t even launched in that city. So anyone just giving it a casual glance would be mislead. We’re kind of growing and learning very fast in the spotlight. I think we have to be very careful that speed doesn’t come at the expense of quality. In that case it did.
Warner: How involved are you in the day-to-day operations?
Mason: Pretty involved. Yes. I mean, that’s what I do. There’s more stuff like this that I’m dealing with.
Warner: When I interviewed SeatGeek, their whole idea behind the business was they were going to help you figure out when is the perfect time to buy a seat to a concert or to a sporting event. They had these charts that they were going to present to users. It was terrific. It was accurate. It was powerful. However, nobody understood it. Therefore, even though it was their main reason for being, they kept minimizing, minimizing, minimizing it, and just highlighting the fact that you can get cheap ticket seats. They didn’t have any tickets to vent. It seems like the same thing happened here. Can you explain how you deemphasize the collecting/buying power and how you understood that you needed to deemphasize it?
Mason: I think we understood it just by knowing intuitively, especially after our experience with The Point, that any level of complexity, trying to take too many steps at once in terms of exposing people to new ideas, is predestined to fail. It’s one thing to say, ‘This is the way it should be, people should be able to figure this out. People should invest in it.’ It’s just not realistic. It’s always been a mantra of ours to keep things as simple as possible,
Warner: A viewer in Akron is saying, ‘Why did Groupon buy a fake company?’ I’m not excited about the way he phrased that, but what kind of screening do you do before you buy companies to make sure that they’re legitimate, to make sure that the numbers that they’re giving you are. You’re buying many companies quickly here.
Mason: Not lots. We’ve really bought . . .
Warner: How many?
Mason: In terms of for international expansion, there have been three, one of which hasn’t really launched yet. It starts with meeting the people and being sure that there’s a cultural fit and the people are the types of people that with be able to lead the company to growth. Then there’s also looking at the numbers and making sure that they align with our numbers that we’re seeing. That we think that they’re doing a good job. Then we also talk to the customers who have been using the service and we talk to the merchants. In every case all that stuff is checked out. There’s nothing about it that’s a fake company. They’re posting fake deals in cities where they haven’t launched. That’s, like I said, not good, but it doesn’t actually impact the people. In the cities where they actually are launched, we’re having great experiences.
Warner: Daniel Licht in the audience is asking, ‘Why doesn’t Groupon have an ‘internet’ city, so that users can enjoy a product that is shipped to them versus a local product?’
Mason: There are people that do that really well already.
Mason: So, we’re focused on local.
Warner: What do you think of the competitors that are out there? What are they doing right? What are they doing wrong?
Mason: I don’t really talk about competitors too much. We really focus on trying to make our product awesome for consumers rather than worrying about what other people are doing.
Warner: What about the search engines that are aggregating sites including Groupon. Like the one that Matt Coffin is backing.
Mason: We think that, people need to understand, one thing about these competitors is a lot of them are people who are beginning to see an opportunity to get money and then three months drop out. His aggregate is pulling together all these sites of different levels of credibility. I think, kind of, buyer beware. If you’re going to start buying from all these other sites just be aware that most of them won’t be here in six months. Beyond that I think stay tuned for some things that we have coming out.
Warner: What do you mean? More product per city or . . .
Mason: No. Stay tuned.
Warner: Okay. All right. What do you think about the issue that there are many products for women? I see nail salons and spas.
Mason: That’s true. I think our product mix has just evolved to reflect the people that are using the site and we run with what tends to do well. We also have paintball, sporting events, and things for guys. We’re thinking about what we can do so that people don’t have completely strange experiences where a guy gets a deal to learn how to pole dance and he goes and actually learns it.
Warner: How do you prevent fraud?
Mason: What kind of fraud?
Warner: Coupon fraud. People saying I didn’t get a copy of this coupon, I didn’t get this coupon can somebody give me a copy of it, can I fake the coupon somehow?
Mason: They all have unique numbers on them and the business has a list of names to check off. We don’t see that type of fraud. It’s not an issue for us.
Warner: Oh, wow. What kind of advertising are you doing?
Mason: We do a lot Facebook advertising, a lot of Google advertising. It’s helped us amplify our growth.
Warner: To do what? To fire up?
Mason: Amplify our rate of growth. We rely on it heavily when we’re going into a new market people don’t know about Groupon, we want to get the list built. Then over the coming months, the majority of our customer acquisition becomes referral.
Warner: I saw that here in Buenos Aires. I’ve been seeing many ads for Groupon in Buenos Aires. I said, ‘I didn’t even realize they’re here.’ I click over, the first thing that I saw was, ‘Enter your email address.’ I hesitated for a minute and then I said, ‘I know Groupon. I’m about to interview the guy. I’ll give my email address.’ I still haven’t gotten any emails but I do check the site from time to time to see if there’s anything local that I can go explore. Did you guys build that from scratch or is that an acquisition?
Mason: That’s an acquisition.
Warner: I’ve got a question here from someone that says, ‘Allow him to talk about GBucks. The new Groupon loyalty program.’ That’s from Willie F. I saw that on your blog recently. How does that work? What are you finding so far?
Mason: What we were trying to do is create almost like a local rewards program. A local version of airline miles. People can learns points, or what we call Gs, for everything they do on Groupon from checking the deal each day to buying a deal or sharing a deal. Then you can take these and redeem them on a local marketplace of gift certificates to businesses that become cheaper as you earn more Gs. What we thought would be cool was to have a rewards program, almost like the American Express rewards program, but instead of being able to spend your money on consumer electronic like you have at the American Express store, you can spend it on local experiences.
Warner: Let’s see what else I’ve got here. Advertising, borrow, big mistake, we’ve talked about that. All right. When you raise money, did you get to cash out? Did you get to take some money off the table personally?
Warner: How’s that impacted your life?
Mason: I kind of, you know, the day after I drove home and I was like, ‘What should I spend money on?’ I was, like, ‘Where can I turn left or turn right and go buy something?’ Then I couldn’t think of anything. Then life went on. It hasn’t really.
Warner: It hasn’t changed your life at all. Did you really look around and say, ‘All right. Now I finally have the ability to go and buy something outrageous or have the ability to go and buy something to realize that this is real.’
Mason: Yeah, and I couldn’t think of anything. Not at all. I bought a piano.
Warner: You did?
Mason: Yeah. However, other than that, money’s much more, I think, about freedom. Almost just mental knowing that you can do whatever you want. It really helps. I think it’s good for the business in the sense that it allows me not to think about, ‘How do I get money out of this thing?’ That’s kind of behind me. I can focus on what’s in the long-term best interest for Groupon, our employees, our customers, and our merge customers.
Warner: Have you been able to, as you’re spending so much time on work and there’s so much going on with Groupon, to get political? Everything that I’ve seen before Groupon seems to show that you want to take a stand. That you have pinions. That you want to help other people express their activism.
Mason: No. Groupon is pretty much all consuming. I think there will be opportunities for those things further down. Interestingly, while at The Point, for example, we started largely inspired by achieving those kinds of outcomes. The really neat thing we’ve found about Groupon is it’s done a better job and doing good than The Point ever achieved. We’re finding that people are using it to get out of the house, get off the computers, and live life. People are getting closer to their husbands and their wives. I mean, we get crazy emails that feel like they’re written by a PR company or something, from our customer about how their marriage was at its end and then Groupon came along and they started going out more, and now they’re happier than every. We’re affecting people’s lives in real ways. We find that quite fulfilling. So it’s not that I feel I need to go off and get involved in politics.
Warner: Let’s take one more question from the audience from Ben Fremer and then one from me and that’s it. Ben is asking about patents. Do you have any patents on the Groupon system that’s going to allow you to prevent copycats?
Mason: We have a patent pending on it, but that’s all at this point.
Warner: Okay. What about any advice for guys like Ben that are out there building new businesses?
Mason: The only thing I can figure out that I’ve done right is just always focus on doing things that are interesting. I think the best lesson that I’ve learned, people always talk about the importance of failure, and I think there’s truth to that. Largely, what I think it is, I for me I consider my failure what happened with The Point. It just went a year trying to moderate that. It’s knowing that failure is a possibility. I think many young entrepreneurs are people who have had success after success after success and they assume that whatever they build will turn out well. That’s certainly the way that I was. It was an ‘if you build it they will come’ sort of attitude. When we started Groupon from the beginning, I had this paranoia. Since then I’ve kept a list that I look at every week of what are the biggest problems for the business. What are the ways it could fail? It sounds almost fatalistic but it really frames my way of thinking. I’ve found it to be useful and it’s helped us focus on the right things and anticipate problems instead of getting to have them. Knowing that no matter how great you are, you, too, can fail.
Warner: All right. Well, let’s leave it there. Knowing how great we are, we, too, can fail and we did actually. We ran into trouble here in the beginning setting up the Skype call. I’m glad we stuck it out. Andrew, great to meet you. Thanks for doing this interview.
Mason: Likewise. I hope it was useful.
Warner: Cool. It absolutely was. Guys, thanks for watching, I’m Warnerarner, I’ll see you on the website.
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