As Groupon struggles, some of its brighter talent is walking out door
BY SANDRA GUY Business Reporter firstname.lastname@example.org September 25, 2012 6:54AM
Groupon headquarters building, 600 W. Chicago Avenue, Friday, August 31, 2012. l John H. White~Sun-Times
Updated: October 26, 2012 6:01AM
Former Groupon executives and salespeople say working at the Chicago-based daily deal site was a once-in-a-lifetime chance to learn at lightning speed at the country’s fastest-growing startup, and to earn big bucks and have a say in decision-making, to boot.
But that dream soured as these admittedly headstrong and ambitious twenty- and thirty-somethings faced what they considered deal-breaking obstacles, ranging from poor management to policy changes that cut their pay or reversed their ability to make their own decisions.
“During the early stages, it was a freight train going 300 mph,” said one former manager who joined the company early on. “You either liked it or you didn’t. It was a fun environment,” said the ex-worker who asked not to be named because he said he is under a gag order.
“Being a part of all that excitement and breaking the rules of business is a lot of fun and a lot of work,” said Peter Anthony Jackson, a Chicago native who left in late June as a divisional sales manager after three years at Groupon. “It was extremely motivational to know we were doing something no one had done before. You’re making things up as you go along. You help create that. There is no playbook or rulebook. You put your stamp on that.”
Now less than four years after its start, Chicago-based Groupon is a public company with a stock that has lost nearly 75 percent of its value since its issue less than a year ago.
While Groupon launches new initiatives and has recently hired seasoned executives such as Brian Stevens as chief accounting officer and Sanjay Gupta as global merchant marketing vice president, it also is losing key executives.
Recent departures include national sales head, Lee Brown, lured to Chicago from Yahoo, and Jayna Cooke, the salesperson who snagged its first national deals with Gap and Nordstrom. Mid- and lower-level sales people have left or are looking to bolt, according to recruiters, analysts and former employees. Even some previously entrenched IT staff are sending out feelers for jobs.
This kind of brain drain hurts companies because it saps morale, lowers productivity, creates internal upheaval and leaves a company bereft of key skills and experience, analysts and social-media experts say.
“The large number of salespeople leaving along with all this turmoil is a bad sign, since low-level salespeople are what drive the revenue and sales of the company,” said Edward Woo, senior research analyst at Ascendiant Capital Markets in Irvine, Calif., who has pegged Groupon’s stock at $3.50 a share and has a “sell” rating on it.
By itself, the fact that lower-level salespeople are leaving would not raise flags, but “taken in the context of high-level salespeople leaving as well [it’s] definitely a bad sign,” said Woo, who, as an analyst, watches staff turnover.
The loss of key executives leaves the company without important skills in management, creativity, capability and experience, said Greg Sterling, an Internet analyst in San Francisco.
“If employees start seeing well-liked executives or well-liked people leaving, it can contribute to a sense that this isn’t a place that will be around very long,” Sterling said. In Groupon’s case, it’s hard to know whether employees are rushing to the exits or being pushed out, he added.
While Groupon has cut staff, one Toronto software company says some 200 sales people have sought jobs there in the past three months.
“Groupon has a really killer sales team,” said Mike Silagadze, founder and CEO of Top Hat Monocle Inc., which sells university-classroom technology and is poised to double its sales force in the next three to four months. He said he has talked with Groupon’s No. 1 and No. 2 sales reps, as well as sales managers and people in “some senior positions,” about taking jobs at Top Hat.
Silagadze has hired 10 people from Groupon so far, enough people in Chicago to seriously consider opening an office here, he said.
Though some salespeople have been hurt by Groupon’s changes in its sales-commission structure and slicing up territories into smaller pieces, others aren’t leaving because of the money. Many still think well of Groupon, but they are looking for greater opportunities for promotions, Silagadze said.
Silagadze said Groupon’s top individual salesperson is making $300,000 a year. The base salary for salespeople, without counting commission, starts at $35,000 and goes up to $55,000 with the most senior reps. The average salesperson is making $80,000 to $120,000 a year in both salary and commission, he said.
Groupon declined to comment on the numbers.
“There was initially a sexiness about Groupon because the company was growing so fast,” said Michael Adler, managing partner of AC Lion, a New York digital media and emerging media search firm. He said he has been seeing 20 to 25 Groupon salespeople looking for new jobs in any given week. “Now that the growth is leveling off, a lot of people see that it is a challenging environment. People talk.”
Employee turnover is expected at startups, according to Sterling.
“Startups are about novelty,” Sterling said. “Once you get past the first phase of building the company and rapid growth, you get into a period of running the company. It’s like in politics — there’s campaigning and then there’s governing.”
When a startup goes public, there’s a tendency for people who love the excitement to want to leave when the company must perform for investors, manage costs more closely and endure investor and regulatory scrutiny, he said. Today’s fast-growing startups are operating on a “compressed life cycle” in which investors have high expectations and technology changes by the minute.
Groupon’s early-days fun, all-in, heady atmosphere changed shortly before the company went public on Nov. 4, 2011, insiders say.
About five months before Groupon went public, the company brought in a new layer of managers — people with MBAs and experience at white-shoe consulting firms such as Bain, BCG and McKinsey — who started analyzing sales results and telling sales managers what to do.
“Groupon has decided that sales is a factory process, that you can automate it in a way, when in reality, for the type of business it competes in, it needs to evolve,” Jackson said. “I wanted to run my team and I couldn’t do it, so I left.”
Jackson said he wants Groupon to succeed, because it’s a great home-grown success story and helps keep young, savvy, motivated tech workers in Chicago.
Groupon spokeswoman Julie Mossler responded that “sales management has the flexibility to direct their market as they see fit.”
She said as Groupon “continues to tighten business operations built on the knowledge of four years in the local e-commerce industry, it only makes sense that best practices would be enforced to protect our merchants and consumers.”
Another recent departure, Matt Phillips, a 29-year-old Winnetka native, was part of that new layer of management, and concedes that not all senior salespeople were happy with the changes.
He recalled jumping at the chance in August 2011 to become part of the new group of 15 MBAs and consultants called City CEOs who brought in oversight and new procedures to ensure that Groupon’s growing sales force hit profit targets. The City CEOs looked at sales data to figure out why, how and where certain deals worked so all of the sales teams could follow that lead.
Weekly sales meetings with Chris Muhr, head of sales, could last until midnight. Muhr is part of the new culture that imposed long hours, tough quotas and other strictures on Groupon’s sales force.
Phillips, who had worked for two years at Lehman Brothers and four years at UBS, saw “a casual, overly relaxed attitude in terms of professionalism” when he joined Groupon in Chicago.
“There were 22-year-olds making six-plus-figure wages, coming and leaving at their convenience,” he said. “In the press, I constantly hear former employees griping about how strict the environment is currently and how much it has changed. Well, it has changed a lot. I would have team meetings every morning at 8 a.m. and also at 5 p.m. These hours are common across most sales jobs. Tenured reps would hate these meetings, but some would eventually admit it helped them stay on track and be focused.”
Phillips left Groupon on Aug. 6 to get his MBA from Northwestern’s Kellogg School.
Others had more immediate and negative reactions.
A former outside deals executive in Boston left in June for a new job after working for Groupon for nine months. She asked to remain anonymous.
“When I was there, I felt like I was working in chaos,” the 33-year-old said. “My managers had no clue what they were doing. … There were too many chiefs and not enough Indians. … There were five layers of management above me.”
She said her first month’s sales goal of $90,000 was “completely unrealistic.” The goal rose to $120,000 in a three-month period.
“It was crazy,” she said. “There should be a ramp-up period, like making $25,000 your first month. The system didn’t make sense.”
Her commission plan changed three times, each time making it tougher to earn a living. She said one of her former colleagues who brings in $175,000 in deals in any given month makes $1,200 in commission on the total.
She has concluded that Groupon is a fad that won’t last longer than a couple more years.
“I felt it wasn’t a stable company any more,” she said. “People aren’t buying Groupons anymore. They get stale after a while. It’s the same companies doing the same Groupon over and over.”
Groupon responded that it’s hard to see how a job can be chaotic when the salespeople outside of Chicago work out of their own homes.
Two other former Boston salespeople who asked not to be named — one who left in December 2011 and the other in March — said they also felt devalued and without earlier promises of promotion.
They were bothered by what they perceived as Groupon’s lack of backing for its merchant partners.
“If our boss didn’t like the [profit] margin I got on a deal, my deal wouldn’t even run” on Groupon’s site as a featured deal, said the former outside sales rep who left in December. “You have to say, ‘No, Mr. Dentist, you are not getting featured but you will see another dentist featured tomorrow.”
The sales rep who left in March said he saw CEO Andrew Mason often in the early days, and felt that his ideas were welcomed.
As Groupon grew, it focused more on the bottom line starting around June 2011, he said. “You had to walk a tightrope because management wanted the most amazing deal but it might not be the best for your [merchant] client.”
He said many of the business owners couldn’t get their return on investment by using Groupon’s software management tools because it didn’t make sense monetarily or time-wise to train their mostly teenage workforces to deal with the tools.
Another former Groupon employee who left a year ago said he has seen a few Groupon software developers offer up their resumes for job openings when friends of friends tell them of an opportunity.
“I wouldn’t say we’ve had crazy interest from Groupon developers,” said Scott Washburn, 28, who left Groupon as a sales rep to start his own business with a friend.
Washburn enjoyed his Groupon experience, though it was admittedly hectic — he worked at 12 different desks in a year and a half — and “the growth was crazy.”
“At times it was stressful, but I learned more than anywhere else,” he said. “I made good money and I made good friends.”