How Groupon Got Its Start: a Lesson for Entrepreneurs

Groupon, according to Forbes, is the fastest growing web company in history. Which, given the competition of Netscape, eBay, Yahoo, Google and Facebook, is nothing short of astounding. The company launched less than three years ago and its headcount has grown from seven employees to 3,000 around the world.

The idea man -- 30-year old Andrew Mason -- dropped out of grad school at the University of Chicago to tackle the project. But it's original intent had nothing to do with group buying. And therein lies the lesson.

While [working weekends as a programmer], he developed PolicyTree.org, a site that sought to simplify political debate about the Iraq war by presenting various policy perspectives in flow-chart form. This earned him a scholarship to the University of Chicago's Harris School of Public Policy in 2006. A mere three months later, though, he dropped out when Mr. Lefkofsky offered him $1 million in angel capital to keep working on the site.

After struggling to cancel a cell phone contract later that year, Mr. Mason became interested in collective action. In an early interview with a tech blog, he attributes the basic Groupon concept to “an overactive sense of vengeance,” wondering, “What if we just got everyone on the web who had this problem to refuse to abide by (cell phone companies') terms and just basically stop paying their bill?”

Thus began ThePoint.com, a group-powered site whose goal was “solving all the world's unsolvable ideas.” In an oft-invoked story that demonstrates Mr. Mason's quirky personality, he initiated a campaign on the Point to raise $10 billion to enclose Chicago in a dome that would shield the city from cold weather. (The plan raised $250,000 in pledges, but because it fell short of it goal—or didn't “tip,” in Groupon parlance—no one actually ponied up.)

But Mr. Lefkofsky eventually began pressuring the Point to make money, and Mr. Mason noted that people were using the site to organize discounted group purchases. Groupon launched in November 2008...

This is a common theme for many successful companies.

Forced to execute a strategic shift midstream because of changing market conditions, they evaluate the current state of their laboratory. That evaluation asks a fundamental question: what do people like best about my current offering -- what do they use most, and why are they using it?

The laboratory approach -- if a company is in the right place at the right time -- allows multiple ideas to incubate, one of which could address an unmet need. Filling that need quickly requires excellent decision-making and execution, to be sure. In other words, good old fashioned management discipline.

But the germ of the idea is something that can only be validated in the lab environment, something that no amount of accounting and finance expertise can predict.