Five Reasons Why: What Groupon’s Board Is Evaluating About Andrew Mason’s Performance

Andrew Mason is getting a crash course in what it means to run a publicly held company.

Kara Swisher reported yesterday that several Groupon board members have been considering replacing Mason with a new CEO.

Today, in an appearance at Business Insider’s Ignition conference, Mason admitted to the audience that his performance was under review.

“The stock is down 80 percent since the IPO a year ago, so it would be weird if they weren’t discussing if I was the right guy,” he said. “That’s their chief responsibility, and they have discussed it in the past.”

At a regularly scheduled meeting tomorrow, the company’s directors, who do have that fiduciary responsibility to Groupon’s shareholders, will be asking the tough question as to whether Mason should continue running the daily deals company, or if it makes sense to bring on someone more experienced.

If it were up to Mason, he’d stay: “If I ever thought I wasn’t the right guy, I’d be the first one to fire myself.”

While at the helm over the past four years, the co-founder has accomplished some pretty awesome milestones — Groupon became the fastest-growing company ever, and had the largest IPO since Google went public. In that time, the thirtysomething Mason has transformed from the office comedian and prankster with uncombed locks to someone who more gracefully conducts himself on conference calls and wears suits to public appearances. While onstage today, he said that the CEO needs to be someone who can attract a strong team, choose a winning strategy and then execute against that strategy.

“I’m flattered that people think that removing me would flatten these bumps,” he added.

Still, as many companies and boards realize, it takes a different skill set to grow a company than it does to run one at enormous scale, and whether the founder is the right fit to guide an organization through its next phase is not always clear. Does Groupon need an Eric Schmidt, the former Google CEO, who can be brought in to work closely with the company’s founders, or is Mason a visionary, like Mark Zuckerberg, who can remain successful if surrounded by a few heavy-duty lieutenants?

There is no denying that, over the past year, there have been some major management missteps, which Mason will ultimately have to take responsibility for as the chief executive.

Here are five of them that the board will likely be looking at tomorrow as part of its evaluation as to whether Mason should stay or go:

  1. Accounting: Never Groupon’s strong suit; the daily deals company has struggled with its books since before it went public. Prior to its IPO, it was forced to restate revenue and also had to dump a controversial accounting metric that made the company look more profitable than it was. After it went public, the problems continued. Following its first quarterly report, Groupon had to restate its earnings to take into account higher-than-expected returns last year during the holidays.
  2. Management turmoil: Earlier this month, the company finally appointed a COO after the seat sat vacant for more than a year. The company picked Kal Raman, who was promoted from SVP of global sales and operations, a job he was essentially doing anyway. This is the third attempt at having an operations guru, after burning through two others in 2011. Neither Margo Georgiadis, who came from Google, or Rob Solomon, who came from Yahoo, lasted long.
  3. Maintaining margins: This one is a big deal. Groupon was deemed the fast-growing company because of its tremendous top-line growth, but the real reason the company was considered so valuable was because of its high margins. Local restaurants and merchants were willing to pay big dollars to get new customers in the door. But as sales have started to plateau, the company has started to augment its original business with the sale of physical goods, which has inherently thinner margins. The business is also entering extremely competitive waters where well-established players like Walmart and Amazon operate.
  4. European troubles: Part of the company’s promise when it went public was world domination. Groupon was on track to become a household name across the globe by replicating its popular U.S. business model everywhere. But Europe has underperformed. Mason has admitted that Groupon was too focused on capturing market share in those markets and subsequently let innovation and customer and merchant satisfaction slide. As a result, Groupon’s gross bookings revenue have been severely affected.
  5. Continued growth: All of the previous issues are well known, but the big challenge going forward will be for Groupon to keep evolving and finding ways for both merchants and customers to continue coming back. Groupon has identified a two-part approach. One includes the sale of Groupon Goods. The other bet is to build more tools and services to make local merchants happy. So far, those tools have included online scheduling software, mobile payments and point-of-sale hardware. As designed, these services are not expected to generate huge amounts of revenue, but rather to continue merchant interest in buying daily deals.

It is a clearly troubled record, and a tough road for a novice CEO to handle. But perhaps the most damning sign is the stock price. While it has risen recently, after Tiger Global Management bought a big stake — and went up almost 5 percent since news of Mason’s possible ouster was reported here yesterday — shares are still off more than 84 percent since Groupon’s IPO a year ago.

In other words, for Mason, it’s a long way down.

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