In the Zone with MWEB Entrepreneur: Groupon SA

Daniel says that he's always had an entrepreneurial spirit, and from a young age, was involved in a mixture of business ventures. After finishing school, he worked in various sales and marketing positions within big companies, ranging from Vodacom in South Africa, to Nestle and then Cadbury in the UK, followed by two years in Eastern Europe working for Sony Ericsson in Hungary.

Beginnings

After 'doing the corporate thing' for a couple of years, Daniel remained convinced that he would rather be something entrepreneurial, and he enrolled for an MBA at UCT at the end of 2007, which is where he met Wayne Gosling. Towards the end of his MBA studies, Daniel took part in an exchange programme at the London Business School and while there, made some good contacts with tech entrepreneurs.

After completing their MBA degrees, Wayne and Daniel decided to start a business together, and were involved in 3 or 4 product-related companies.

In 2009, after attending the launch of Silicon Cape in Cape Town, Daniel felt hugely inspired by what was going on in the tech space and 'all these tech guys who seemed to have made a lot of money doing good stuff'. He made contact with a tech entrepreneur friend in the UK who, when asked about some of the hot topics happening in the US technology markets, told Daniel about Groupon and the concept of discounted online group buying.

"I didn't have any idea of how it worked, as it wasn't yet here in South Africa but the whole model seemed really interesting because essentially you get paid today for what you have to pay for tomorrow, so it's a cash positive business," says Daniel. "We didn't have a lot of cash to put in the business, it was online, and a relatively simple website to start, so there were a number of boxes that it ticked. So towards the end of Dec 2009/early Jan 2010, we decided that this seemed like a good business."

Launch of the site

But to launch the company they needed an operating platform with the correct technology so they formed an alliance with some of the people Daniel had met at the London Business School. They created a holding company called El Media Global whose focus was based on developing software for group buying. "They developed the technology and we rolled it out to various different international markets. We launched in South Africa as well," says Daniel.

"We were completely separate to Groupon but seeing their massive growth, realised that something big was happening. In January 2010, Groupon had been valued at US$1-billion after only two years of operating. And the business model made a lot of sense. Our thinking was, either Groupon will never come to Africa because its not typically on the map for a US company, or if they do, it will be great because we could sell on to them. And that was kind of the plan that we always had, although we didn't really know starting off, where it was going to end up," says Daniel.

"We developed a platform in South Africa and Twangoo officially launched on the same day as the first World Cup match in Cape Town, in June 2010. Back then we were lucky to do a deal a week, and the whole operation was being run by just Wayne and me. But because it's a cash positive business we started to grow it, spent a lot of money on marketing, building our database, and going out to get deals signed."

Big break

Daniel says that their big breakthrough came with Madame Zingara. An event company had organised a fund raiser for City Ballet. It was their event and Madame Zingara was the venue. When this company had not sold enough tickets, however, it approached the then Twangoo, which sold about 100 tickets. At the last minute Madame Zingara (which has never had problems filling the house) filled the house at their own cost and also donated money to the ballet as the fund-raising effort had not met expectations. "Because of the strength of their brand, from that day onwards, it validated our business; we had traction, sold more deals, and our business really took off."

Although they were having discussions with various local VCs and potential investors, Daniel also stayed in contact with Andrew Mason, then CEO of Groupon, emailing him updates on Twangoo's growth and trends, on a weekly basis. "Even before we launched Twangoo, we realised either we needed a lot of capital to really scale the business, or we needed to sell out to a bigger player who would have an interest in coming to South Africa," Daniel says.

"And then, to cut a long story short, I received a call from Groupon's M&A department and after a series of negotiations, we sold the company to Groupon. From January 2011 we rebranded Twangoo as Groupon."

With Groupon's substantial international support and backing, the whole business scaled up from there. They received huge amounts of investment for marketing, and in particular, online marketing and in 2011, DMMA rated Groupon as one of the biggest online advertising spenders in South Africa.

Learning from mistakes

Daniel admits that it's been a big learning curve, with some growth problems along the way. "To grow that fast in such a short space of time into this many different verticals, we've made mistakes along the way but we've learnt from those and we're now in a far better position. It's been a fantastic journey and I'd say, from a sale perspective, in terms of the kind of multiples we got out of the business, given where we'd got to with Twangoo, and what we did with the size of the business at that stage, I would argue that it's probably one of the most successful e-commerce success stories that's happened in South Africa to date."

"And growing the business, as we have, we are pretty much one of the biggest e-commerce companies in this country. Obviously Takealot and Kalahari have been here a long time, but because of the nature of our business we've been able to grow that much quicker because we're all about price and about discount. The appeal of a discount, says to consumers 'I want this'."

The trouble with deals

The nature of the Groupon business is linked to the types of deals they have on the site, which also bring its own challenges. "A quality deal and quality brand generates huge amounts of revenue, but you can't always get those deals. So the ability to forecast and predict the business can be difficult.

Today you might sell 100,000 deals and tomorrow you might only sell 100," says Daniel. "The intention is to keep consistency but you never know, which makes business difficult to manage from resourcing perspective, although not impossible, when you're dealing with high volumes."

Daniel says that Groupon has also driven local engagement with e-commerce quite significantly. "With traditional e-commerce, the reluctance to purchase a big item online is pretty high because consumers are scared of fraud, and have delivery concerns, versus our model, which is selling an everyday item. We have three divisions in the business - local services, product and travel. We've tried to build trust within the mechanism as well, but the biggest thing with us is that you're not buying a TV that you have to wait for delivery for; you're getting what you've paid for today, like a movie or restaurant voucher, and you can go and redeem it tomorrow. With us it's simple, and you know that if it doesn't work, you can come back to us and get a refund."

Becoming the main e-commerce site

Daniel says that Groupon's aim is to become the operating system for e-commerce and become a destination site, instead of only a push mechanism sending out daily email deals.

"What we mean by operating system for local commerce is, when looking at SME enterprises, we provide our customers with marketing information through our merchant portal, which allows a business to understand where their customers come from. We also have a huge ability to drive consumers into a retail store, or distribute a product into a user's home, with measurability and customer feedback. We can identify trends and consumer preferences. Customers benefit from access to a wealth of metrics that they would never have the opportunity to use without huge investment."

Locally, Groupon has been around for over 2½ years, and Daniel says that while it's been a crazy journey because they've grown rapidly in a very short space of time, it's been a hugely successful one. "It has come with some challenges and some things we've had to learn but overall, it has pretty much changed the way local consumers act, certainly in terms of online. They're becoming more comfortable with embracing e-commerce and purchasing online."

Entrepreneurial aspect

As an entrepreneur, Daniel says that being in this environment and heading up Groupon brings excitement, constant change and innovation. "The entrepreneurial aspect to it is very much there so I guess that's what motivates me, drives me and excites me. One of the points that's exciting about what we do everyday is that it is ever-changing; we discover new deals that we didn't know about yesterday, we discover new industries, and every day we learn something new."

And as more South African consumers gain access to broadband and e-commerce platforms, their expectations will rise, which means that the online standards expected will need to rise too.

This translates into exciting times ahead for these tech and marketing-savvy entrepreneurs who successfully brought Groupon to our shores.