14th August 2012
But the market reaction was very much half empty. The shares were slaughtered by sellers, asking where growth will come from and fearing a further fall in European sales.
It could now be time for the Groupon executive floor to take a few lessons from Charlie Parker, Miles Davis and other giants of jazz – all experts in adapting fluid and free forms to produce crowd pleasers.
The Groupon equity quote collapsed 18 per cent to $7.25 – little more than a quarter of its IPO price last November while the widely based Nasdaq index has risen 12 per cent. To make matters worse, the Groupon falls come on rising trading volumes and a growing short interest position – neither signs of much hope. The firm is now valued at some $4.8bn – below the rejected $6bn Google was prepared to pay for Groupon before the IPO.
It's much the same story as at a clutch of IPOs including Facebook and Zynga which have both lost substantial percentages for day one purchasers – only Linkedin seems to have escaped the curse.
The question for investors is why the after market hit-rate for social media IPOs is so low, leading to many investors shunning the flotation and waiting to see whether the share price finds a natural floor.
Over hyped and oversold
One reason might be that the IPO was over-hyped leading to an overvaluation at the start of the share graph. Once share price support mechanisms from underwriting banks go, then there is little to hold the price.
Or it might be more fundamental. Investors have to price the future not the past so where the company is going is vital. Where it has come from is of little consequence.
While the approaches of these companies differ, they all share certain characteristics. They all start as great ideas from a very small base. They then take off, growing exponentially until they attract the attention of the financial world. Then they increase further and become IPO-ready, amid growing excitement. And then the shares are sold to investors on ratings that demand years of above trend growth.
That is too often the high spot. For because investors are forward looking, they need to know where the company is heading. And all too often, those with the original great idea are still in charge but that is no guarantee they will have the right concepts on moving forward.
At fund managers Henderson, technology specialist Stuart O'Gorman said:
"In terms of Groupon and Zynga, it's really more a case of price. These aren't particularly good businesses and they are priced at a rather big premium compared to what we believe their long-term growth trends may be. The general strategy of the fund, which has really done us a great service over the years, is avoiding the hype and value traps."
The key question from here is: "Can Groupon management manage to break out of their original vision and into the seemingly perpetual growth investors demand to justify the rating?"
Perhaps, they could take a management lesson from the jazz greats. Here's a Take Five of tips – and how Groupon and other under pressure social sites could learn.
1. Improvise through the chaos.
When a singer forgets the words, the best course is to make them up to the music. Companies need free form thinking – explaining to investors that the current rigidity leads nowhere. Firms need to change – they can be in finance one day and farming the next providing investors – the audience – see forward movement.
2. Embrace errors as a source of learning.
Jazz trumpet legend Miles Davis said: "If you're not making a mistake, it's a mistake." Learn to stand above the market with its quarterly reporting. Empower everyone in the organisation to talk openly about what is wrong rather than self-congratulate. That way problems are more likely to be fixed. Groupon executives need to concentrate on areas of investor concern such as accounting methods for Groupon Goods.
3. Perform and experiment at the same time.
Jazz musicians need to play their most-admired repertoire – it's the basis of their appeal although it is not progress. So at the same time, they need to try out new ideas. A company such as Groupon started off with a new concept – it has to be open about innovation, experimenting with combinations, knowing that many will fail.
4. Rely on minimal structure and maximum autonomy.
Jazz bassist and composer Charles Mingus once famously said, "You can't improvise on nothing. You gotta improvise on something." Management structures stifle independence and innovation. Encouraging all employees to put themselves in the position of managers can work. Relying on the top producing the solution will not work.
5. Jam and hang out.
Companies need premises that encourage everyone to talk to each other. Edison collaborated with 10 to 15 engineers at a time, to produce the electric light bulb and other inventions. More recently, Apple's late founder Steve Jobs designed the office building to facilitate random encounters and collaboration.
Don't copy all those jazz moves
There are, of course, some aspects of jazz life that may not reproduce in the management suite. And many find the comparisons far-fetched – after all, jazz remains a minority interest music, overtaken in popular esteem decades ago by rock and pop.
But the author of all this – management academic Frank J Barrett who recently wrote Yes to thet Mess: Surprising Leadership Lessons from Jazz is unapologetic. He believes that managers, like jazz musicians, need to "interpret, vague cues, face unstructured tasks, process incomplete knowledge and take action anyway."
As he writes, "Musicians prepare themselves to be spontaneous. Managers and executives can do the same." In fact, they must to thrive – better than surviving as yet another fallen to earth social media site.
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