Crash & burn: A story of overzealous growth & what NOT to do
It’s a tale of two companies. The first, a major flash sales company that scaled at an unprecedented rate, only to find itself in the trenches within a year of its IPO. The second, a company that organically grew from the ground up with staying power to become one of the leading grocery store chains in the entire country.
While the two companies are in unrelated fields, the stories are still relevant to one another in showing how growth based on wild overvaluations and non-sustainable projections can cause turmoil for some of the biggest companies in the world.
Just two years ago, Groupon was on the forefront of a revolutionary new industry, which it dubbed daily deals. The original idea was actually quite simple: if a certain number of people sprung for a daily deal, then the deal would be on, and each person would get a massive discount at a salon, restaurant or other type of company. In exchange for a successful deal, the company would pay the merchant up front for the revenue it generated from the deal, sans the cut from Groupon, which brokered the deal.
Groupon experienced unprecedented growth, becoming one of the fastest-growing companies in the history of tech. Investors talked about how daily deals were going to be the next big thing, and insistent that it was urgent that the company scale in order to help dominate the industry.
Flash forward two years later, and Groupon is struggling. Merchants who took Groupon’s offer for cash up front in advance of customer visitation feel shorted by their deals. Purchasers notice the diminished quality of Groupon-afflicted restaurants they once loved. While CEO Andrew Mason attributes the company’s record low stock level to losses overseas, the staunch reality is that investors overvalued the company’s worth. Much like the real estate bubble or any other industry in which the market has failed to correct itself, the bubble burst (and in Groupon’s case, the bubble burst with a particularly loud and painful pop).
Contrast that a grocery store chain that started as a small market, dedicated to providing the freshest produce, cheeses and organic foods to people within its community. Whole Foods is now a leader in providing healthy options, fresh foods and high-quality lifestyle goods. Years ago, Whole Foods founders John Mackey and Renee Lawson Hardy were evicted from their apartment for using it for storage for their natural foods store. They borrowed $45,000 from friends and family to keep their company afloat. In their third year, they merged their natural goods store with another local grocery, resulting in the Whole Foods concept.
Whole Foods was later able to successfully grow its business by purchasing other natural goods stores, resulting in rapid expansion over the next several years. The company continues to prosper by offering superior goods and products at reasonable prices, while also offering food demonstrations, donating money to other local natural food non-profits, and remaining dedicated to it’s core mission of improving the lives of its customers.
In spelling out the two stories, the team at our Florida marketing agency notice a markedly different strategy for growth. While one company put everything on the line to make a few bucks in the short term, ultimately hurting its entire business model, the other company gradually became a leader in its industry, fostering a sustainable business model to become a Fortune 500 Company.
If you’re looking to grow your business, strive to take it to the next level by effectively scaling, rather than gambling on a risk that doesn’t pan out. Otherwise, you might find your company in the trenches as you struggle to make ends meet.
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