the company hopes that by adding to its board Daniel Henry, the chief financial officer of American Express, and Robert Bass, vice chairman of Deloitte, it will help to repair its relationship with investors and the Securities and Exchange Commission.
It’s easy to take potshots at Groupon. I won’t, because they went from start up to publicly listed company in five years. They went from a valuation of $2M to a minimum of $6B, where Google ($GOOG) wanted to buy them. I might wonder how they will sustain their business, but the market is giving them validation.
They are not a company like Pets.com. They actually have a business. They employ people. Whether you should buy or sell the stock I don’t know, and this post isn’t designed to talk about that.
Strategically, this is a good move. Howard Schultz from Starbucks stepped down. Kevin Efrusy won’t seek re-election. They should not be “fall guys” for Groupon’s missteps. Board members are put on boards for a variety of reasons. Adding some accounting heft will be good for Groupon. Efrusy was a holdover from previous rounds of financing. Schultz gave them cache, and credibility for the markets. Once they blew that with shoddy accounting, the case for him being on the board went out the window.
However, this brings up a huge chance to discuss Boards of Directors. Fred Wilson recently did a whole series on it and I think it was good. BOD are a critical part of the start up. Many times, they can make or break them. Ellen Carnahan recently lead a group of angel investors through the board process here in Chicago. She offered some excellent insight into the roles and responsibilities of the board member, and some tips on how to pick a board for a start up.
Start up boards need to be mentors, advisors, need to be connectors, and sometimes (but this should be rare) take a more active role in the ongoing management of the firm. One good idea I have heard is you should put someone on the board that can take over as interim CEO if the current CEO can’t execute. That’s for a more mature start up.
Boards can wreak havoc for a start up. Initial members of the board that are looking out for the interests of initial investors sometimes have conflict with board members that are looking out for the interests of later stage investors. Board members have to put their personal investments aside and look out for what’s the best path for the company, and that’s not always possible.
Start up boards are no laughing matter. They are hard work. Sitting on a Fortune 500 company board is a lot easier. Management teams and companies are mature. Headaches are much different and might deal more with the correct way to support the management team rather than a hands on guide. It’s relatively easy to find talent for a mature firm. Not so much for a start up.
It is good to remember that Groupon is five years old. Typically, start ups at age five are at the point where they will be acquired, or they are growing rapidly. The board that they started with might not fit them particularly well going forward. Groupon can’t be viewed as the typical start up, and will have some unique growing pains because of its stage and business.
Generally, a start up will have a 3-5 member board at outset. It’s a founder, an independent board member that can add value to the company in some way, and investor reps. Boards at this stage are very different from the boards of a publicly held company.
Groupon has not made the cultural transition from start up to staid publicly held company. Someday it will. It’s still trying to aggressively grow and create new streams of revenue. That requires a board with a different mindset. When you look at a start up financial projection, you see a path to profitability, but in the short run much of the profit is plowed back into the company for growth. Groupon might be like that, but on a whale scale.
Groupon should continually change its board as the company changes. It’s new board will have the CEO Andrew Mason, two initial money providers to the firm Brad Keywell and Eric Lekofsky, Peter Barris, Mellody Hobson, Ted Leonsis, and the accountants mentioned above. I don’t think it’s a sign of weakness to change board members. Unfortunately, many interpret change that way, and so does the market.
Given where you think the company is going strategically, and the support its management team will need to achieve those goals, who would you put on their board? Who would you get rid of to put them there? That’s the kind of questions you should ask as their board changes.