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The title of the entry put me off to the overall premise, which, I think, even the author may have missed. Basically, the article should've been titled "It All

The title of the entry put me off to the overall premise, which, I think, even the author may have missed. Basically, the article should've been titled "It All Changes When The Startup Is Making A Lot Of Cash". Supposedly Groupon is making nearly $2 billion a year in revenue. The decision to turn down an acquisition has more to do with "we're a real company making a TON of cash and we don't need to sell" than the founder thinking about their legacy. What's the point of an exit? Mostly it's to get a gigantic payday. If your startup-turned-cash-machine is already making a ton of cash every month, the founders are already getting a payday... all the time. If you're already making FU money from the revenues of your business and someone offers you more of it, the benefit of the FU money is you can say FU to the offer.

patio11 16y ago
One of my surprisingly life lessons from 2010: "revenue makes money less attractive" is true at numbers much, much smaller than 6 billion, too.
vaksel 16y ago
yeah if you have a real a business, making real revenue, then selling really isn't a huge priority, and you can work on making something really huge. However, I do think that Groupon is an exception to this. You can't build a long lasting business, when your business model relies on tricking people into throwing a ton of money down the drain. Once the whole hype ends, and all business owners realize what a bad business proposition Groupon is, they'll lose their market...and will regret not taking the offer.
- klbarry 16y ago
  If you've studied the rise of the department store, John Wanamaker and Macies, I think you'll find Groupon is following a pretty great and old formula of style and group buying dynamics. The idea it's based on, people getting excited about good deals that are trendy, is solid.
  - vaksel 16y ago
    the problem is that Walmart doesn't put it's suppliers out of business. They have low margins, but the volume more than makes up for them, while Groupon requires their suppliers to operate at a loss, because they've been tricked into thinking they are getting something with high LTV.
    - chc 16y ago
      Actually, Wal-Mart does sometimes force suppliers to sell at a loss. There were a lot of articles on the topic a few years ago when hating on Wal-Mart was cool. And if Groupon isn't beneficial to some customers, they shouldn't buy. I know businesses around here that run regular Groupon offers. They clearly aren't unhappy. What you're talking about is poor decisions on a business owner's part, not Groupon scamming people. There are real scams aimed at business owners, but Groupon is not one.
    - netcan 16y ago
      Wal Mart has put suppliers out of business too. http://www.fastcompany.com/magazine/77/walmart.html http://www.fastcompany.com/magazine/77/walmart.html It's also made many suppliers rich. I wouldn't be all that confident about suppliers being tricked. I'm sure it works better for some than others. I'm sure there are ways of making it work better. The businesses that did well with Groupon will resign and the others won't. I would want to see some evidence the Groupon are having a hard time selling before assuming what you seem to be pretty confident of.
- binarybits 16y ago
  Um, you realize that newspapers generated billions of dollars in profits over more than a century by "tricking people" into using coupons, right? Coupons are about helping businesses attract customers they wouldn't have gotten otherwise. The specifics are a little different in the Internet age, but there's no reason to think Groupon is any more a flash in the pan than the advertising supplements in newspapers were.
scootklein 16y ago
I disagree - the title is spot on. Groupon's monthly revenue isn't directly related to the personal finances of the founders. The point of the post is to show that a founder's bank going from 5m to 500m doesn't have as much of an effect as it does from 10k to 5m (or 500m). 5m to 500m is actually so inconsequential that they willingly turned down a lucrative acquisition in order to go it alone and make their impact as they see fit.
- JabavuAdams 16y ago
  > 5m to 500m is actually so inconsequential It's only inconsequential if you lack imagination. Would you rather be the guy who started another discount chain, or the guy who made space travel practical?
  - mkramlich 16y ago
    Agreed. With $5m in the bank you basically never have to work again. Retire early. However you don't really have enough to be a philanthropist or start capital-intensive startups. Could become|continue a serial software startup guy, since no risk to your retirement. You have a nice house and nice car and lots of savings. With $500m in the bank, you get the above plus you can be a philanthropist and personally fund many sorts of capital-intensive startups. You have a mansion on an island, and a yacht and a helicopter and many exotic cars. The difference between any two orders of magnitude is never inconsequential, I'd argue. There's always so much more you could do at higher levels. And not necessarily talking about self-ish pleasure-seeking things but world-changing, humanity-improving sorts of things.
Julianhearn 16y ago
$2bn in revenue does not mean you are "making a TON of money" they could be losing money. I don't know what their yearly profit is but it will take them many years to make $6bn in profit, therefore it was a very good offer from google and they should have taken the money.
- mkramlich 16y ago
  The most recent profit number I heard was $50m. Not sure if that was for 2009 or per some recent quarter, or for 2010.
tntr 16y ago
> Supposedly Groupon is making nearly $2 billion a year in revenue. Of which somewhere between $1 and $1.5 billion are pass-through, going to local merchants. Assuming actual revenue is the more widely-reported $500m, I'm not sure how far that goes when you have 3000 employees. Recall that MySpace was putting up similar revenue numbers but with only a single profitable quarter, making something like $10m. Revenue alone is meaningless. I can increase my revenue at any time by selling things at a loss. What's the profit? I assume GroupOn must have real profits in order to turn down that much cash. We've seen just as often though that companies are deluded, like PointCast or Digg. It would be easy to settle this point by looking at profits. Curious how companies jealously guard that information but loudly trumpet "Revenues!" That alone should be enough to convince anyone how meaningless revenues are.
- steve19 16y ago
  I remember seeing the words "profit is fallacy, cashflow is king" on a poster in an accountants office. Profit is an accounting construct. Positive cashflow is real and can sustain a business for a long time. (Note: cashflow != revenue)
  - tntr 16y ago
    That's because accrual accounting is just another way to cook the books. http://www.toolkit.com/small_business_guide/sbg.aspx?nid=P06_1340 http://www.toolkit.com/small_business_guide/sbg.aspx?nid=P06... People might object to that characterization because it's so "standard". That's how you get these notions that cash flow is "better" than profit -- the language gets tortured so that profit doesn't mean profit any more because the ledger is a fantasy. In cash method accounting, profit is profit. In accrual accounting, profit is whatever number you pencil in. To be clear, I'm talking about money in your hands, not someone else's.
    - rdl 16y ago
      Cash accounting in my experience is a much "better" way to cook the books than accrual accounting. You can easily and unintentionally screw yourself if you're collecting cash up front for a product which involves future costs. The only system I have found to work is accrual combined with customer prepayment (to eliminate credit risk; or just be very good at receivables management, which not everyone is) and aggressive cashflow management. The biggest problems with accrual go away if you don't have to worry about customer payment risk or accidentally running out of cash in the short term. You can lie to yourself (and others) with numbers with either kind of accounting, but it's harder to accidentally kill yourself with a conservative system.

patio11 16y ago

One of my surprisingly life lessons from 2010: "revenue makes money less attractive" is true at numbers much, much smaller than 6 billion, too.

vaksel 16y ago

yeah if you have a real a business, making real revenue, then selling really isn't a huge priority, and you can work on making something really huge. However, I do think that Groupon is an exception to this. You can't build a long lasting business, when your business model relies on tricking people into throwing a ton of money down the drain. Once the whole hype ends, and all business owners realize what a bad business proposition Groupon is, they'll lose their market...and will regret not taking the offer.

klbarry 16y ago
If you've studied the rise of the department store, John Wanamaker and Macies, I think you'll find Groupon is following a pretty great and old formula of style and group buying dynamics. The idea it's based on, people getting excited about good deals that are trendy, is solid.
- vaksel 16y ago
  the problem is that Walmart doesn't put it's suppliers out of business. They have low margins, but the volume more than makes up for them, while Groupon requires their suppliers to operate at a loss, because they've been tricked into thinking they are getting something with high LTV.
  - chc 16y ago
    Actually, Wal-Mart does sometimes force suppliers to sell at a loss. There were a lot of articles on the topic a few years ago when hating on Wal-Mart was cool. And if Groupon isn't beneficial to some customers, they shouldn't buy. I know businesses around here that run regular Groupon offers. They clearly aren't unhappy. What you're talking about is poor decisions on a business owner's part, not Groupon scamming people. There are real scams aimed at business owners, but Groupon is not one.
  - netcan 16y ago
    Wal Mart has put suppliers out of business too. http://www.fastcompany.com/magazine/77/walmart.html http://www.fastcompany.com/magazine/77/walmart.html It's also made many suppliers rich. I wouldn't be all that confident about suppliers being tricked. I'm sure it works better for some than others. I'm sure there are ways of making it work better. The businesses that did well with Groupon will resign and the others won't. I would want to see some evidence the Groupon are having a hard time selling before assuming what you seem to be pretty confident of.
binarybits 16y ago
Um, you realize that newspapers generated billions of dollars in profits over more than a century by "tricking people" into using coupons, right? Coupons are about helping businesses attract customers they wouldn't have gotten otherwise. The specifics are a little different in the Internet age, but there's no reason to think Groupon is any more a flash in the pan than the advertising supplements in newspapers were.

scootklein 16y ago

I disagree - the title is spot on. Groupon's monthly revenue isn't directly related to the personal finances of the founders. The point of the post is to show that a founder's bank going from 5m to 500m doesn't have as much of an effect as it does from 10k to 5m (or 500m). 5m to 500m is actually so inconsequential that they willingly turned down a lucrative acquisition in order to go it alone and make their impact as they see fit.

JabavuAdams 16y ago
> 5m to 500m is actually so inconsequential It's only inconsequential if you lack imagination. Would you rather be the guy who started another discount chain, or the guy who made space travel practical?
- mkramlich 16y ago
  Agreed. With $5m in the bank you basically never have to work again. Retire early. However you don't really have enough to be a philanthropist or start capital-intensive startups. Could become|continue a serial software startup guy, since no risk to your retirement. You have a nice house and nice car and lots of savings. With $500m in the bank, you get the above plus you can be a philanthropist and personally fund many sorts of capital-intensive startups. You have a mansion on an island, and a yacht and a helicopter and many exotic cars. The difference between any two orders of magnitude is never inconsequential, I'd argue. There's always so much more you could do at higher levels. And not necessarily talking about self-ish pleasure-seeking things but world-changing, humanity-improving sorts of things.

Julianhearn 16y ago

$2bn in revenue does not mean you are "making a TON of money" they could be losing money. I don't know what their yearly profit is but it will take them many years to make $6bn in profit, therefore it was a very good offer from google and they should have taken the money.

mkramlich 16y ago
The most recent profit number I heard was $50m. Not sure if that was for 2009 or per some recent quarter, or for 2010.

tntr 16y ago

> Supposedly Groupon is making nearly $2 billion a year in revenue. Of which somewhere between $1 and $1.5 billion are pass-through, going to local merchants. Assuming actual revenue is the more widely-reported $500m, I'm not sure how far that goes when you have 3000 employees. Recall that MySpace was putting up similar revenue numbers but with only a single profitable quarter, making something like $10m. Revenue alone is meaningless. I can increase my revenue at any time by selling things at a loss. What's the profit? I assume GroupOn must have real profits in order to turn down that much cash. We've seen just as often though that companies are deluded, like PointCast or Digg. It would be easy to settle this point by looking at profits. Curious how companies jealously guard that information but loudly trumpet "Revenues!" That alone should be enough to convince anyone how meaningless revenues are.

steve19 16y ago
I remember seeing the words "profit is fallacy, cashflow is king" on a poster in an accountants office. Profit is an accounting construct. Positive cashflow is real and can sustain a business for a long time. (Note: cashflow != revenue)
- tntr 16y ago
  That's because accrual accounting is just another way to cook the books. http://www.toolkit.com/small_business_guide/sbg.aspx?nid=P06_1340 http://www.toolkit.com/small_business_guide/sbg.aspx?nid=P06... People might object to that characterization because it's so "standard". That's how you get these notions that cash flow is "better" than profit -- the language gets tortured so that profit doesn't mean profit any more because the ledger is a fantasy. In cash method accounting, profit is profit. In accrual accounting, profit is whatever number you pencil in. To be clear, I'm talking about money in your hands, not someone else's.
  - rdl 16y ago
    Cash accounting in my experience is a much "better" way to cook the books than accrual accounting. You can easily and unintentionally screw yourself if you're collecting cash up front for a product which involves future costs. The only system I have found to work is accrual combined with customer prepayment (to eliminate credit risk; or just be very good at receivables management, which not everyone is) and aggressive cashflow management. The biggest problems with accrual go away if you don't have to worry about customer payment risk or accidentally running out of cash in the short term. You can lie to yourself (and others) with numbers with either kind of accounting, but it's harder to accidentally kill yourself with a conservative system.