Summary:

  • Most planning systems only focus on improving the existing business
  • Most value comes from identifying new market opportunities, and filling them
  • Extremely high growth can happen in any company that focuses on market needs, rather than business model optimization
  • Groupon has grown from $0 to $500M in 2 years, yet is not a technology company
  • Groupon is value at $3B to $6B in just 2 years
  • Google could continue to expand the explosive growth at Groupon
  • Any company has this opportunity, if it focuses on market needs

“You can’t get there from here.”  That’s the punch line of an old joke about a city slicker that gets lost in the country.  He sees a farmer and says “I want to get to the St. James ranch.”  The farmer thinks about the washed out road #20, the destroyed bridge on Old Ferry Road, the blocked road on Westchester due to a property dispute – and given all his known ways to get to the St. James Ranch he conludes there’s no way to make it happen.  He gives up, and recommends the traveler do the same.

And this is the conclusion far too often of most planning systems.  When I ask the executive team “how will you grow revenue by 100% next year?” (or even 15% many times) the answer is “can’t happen.  We only grew 2% last year, our product lines are becoming aged and the overall market is only growing at 5%.  We can only, maximally, hope to grow 3-5%.”  In other words, “can’t get there from here.”

But of course there’s a way.

Groupon was started in 2008 (“Groupon at $3 Billion Soars Like Silicon Valley from ChicagoBloomberg).  Now it has about $500M annual revenue, and 2,500 employees.  While Sara Lee, Kraft, Motorola and other Chicago stalwarts are contracting – unable to find a growth path – Groupon has exploded.  Most companies are complaining about the “great recession,” and its impact on customers and sales, saying they see no way to create triple digit growth.  Yet Groupon didn’t invent any new technology, didn’t file any patents, didn’t open a “scale” manufacturing plant, didn’t buy an existing business, or raise a huge amount of money.  Groupon is now dominant in local-market advertising – without the Foursquare technology play, or a partnership with Facebook.  And it keeps adding new local markets every week.  Piling up new revenues, and profits.

What Groupon did was offer the market something it highly valued – a local-based coupon service that was easy to use.  Building on digital technology rapidly being accepted by everyone.  While most companies are trying to focus on their “core capabilities” and bemoaning a dearth of growth, Groupon’s leaders looked into the marketplace to identify an unmet need and an application of developing technology.  As good as Google AdWords is, it is expensive and not terribly good at local marketing.  Newspaper coupons are expensive to print, and simply ignored by most modern consumers.  There was a hole in what people needed, so the entrepreneurs set out to fill it.  And by meeting a need, they’ve created an explosively growing company.  As mentioned earlier, while unemployment overall in Chicago is going up, Groupon has hired 900 people over the last 2 years.

That’s what most businesspeople are loath to do these days.  After years of being trained to focus on the supply chain, and that innovation is mostly about how to cut costs in the existing business, very few are thinking about market needs.  The vast majority (almost all?) of planning is devoted to cutting costs and optimizing an existing business.  Or trying to develop an adjacent opportunity to the existing business that has limited, if any growth prospects.  And trying to find ways to take money out of the business, rather than invest. In that planning system, if you ask “how do you plan to create a half billion dollar new business in the next two years” the answer is “you can’t get there from here.” 

Google May Acquire Groupon for $6 Billion, and It Would Be Worth Every Penny” headlines Mashable.com. Not bad for the guys who started up this distinctly non-techie company in the non-techie midwest.  Whether they sell out or not, the next fundraising is guaranteed to make them extremely wealthy folks.  There are still a lot of markets yet to be developed, and a lot more deals to be made in the existing markets, as buyers seek out discounts for products they buy regularly. 

It mashable right?  Is this a smart idea for Google?  Unless you think coupons, and deals, are dead – you have to like this investment.  There’s a reason Groupon has grown so very fast – and that lies in meeting a market need.  How fast can it grow if Google adds its skills at ad sales, email (gmail) use, user database analytics, networking connections and technology wizardry?  While $6B is a lot of money, if you can see how Groupon on its own could become a $6B revenue company within 4 years from today is it really too miuch? (Groupon has grown from $0 to $500M in just about 2 years, so does 12x growth in 4 years [just under an annual doubling] really appear that difficult?)

Smart investing doesn’t mean “hold your nose and jump” off the bridge, hoping the water is OK.  And that’s not what Groupon did, or Google might do if it acquires Groupon.  Both companies are focusing on future scenarios about how we will get things done in 2012 and beyond.  Both are thinking about the impact of existing trends, and how those will allow everyone to be more effective, efficient and successful in 3 or 5 years.  Both are developing solutions that help us be more productive by building on trends – and not merely expecting the future to look like the past.  Their planning is based upon views of the future – and that’s why they can see such greater opportunity, and create so much value.

Most business limit their planning, and investing, to doing more of what they have always done.  Better, faster, cheaper are the hallmarks of the traditional planning process output.  Expecting to get dramatic growth, or value, out of a system so narrowly focused is expecting the impossible. Creating value – big value – comes from providing solutions that meet new market needs. And that requires overcoming the limits of traditional planning – and traditional ways of thinking about investing.  Instead of doing more of what you know, you have to do more of what the market wants.  Any company can get there from here – if you simply open your planning to moving beyond the limits of what you’ve historically done.