Madoff and Blodget cross swords over Groupon

Sounds good Henry but how much money do they have in the bank and how much in unpaid liabilities to merchants do they have for deals that have already been done. That is the Ponzi part of this scheme.

Bernie Madoff commenting on Henry Blodget’s blog post HEY, GROUPON HATERS, ANALYZE THIS: Groupon Breaks Even In Q3

Right off the bat I have not been able to confirm to this point in time if this is indeed the real Bernie Madoff.  I will keep working on this to verify one way or the other, and get back to you with an update on my findings.

That being said, even if it is not Madoff the reference to the Ponzi scheme seems both reasonable and appropriate given the following:

1. The fact that Groupon’s Chairman Eric “Lefty” Lefkofsky had, in a pre-IPO round earlier this year, distributed $810 million of the $950 million that was raised to Groupon insiders (keeping $319 million for himself and his wife)
2. While underwriters were heralding Groupon as a $30 billion bonanza, the company was in reality a bust, losing $102.7 million in the last quarter on revenue of $878 million. The icing on the cake or pièce de résistance is that the balance sheet indicates the the company has $681 million in current liabilities (more than half of that total owed to its vendors), with only $376 million in assets.
3. Let’s also not forget the FTD story where the florist boosted prices for Groupon customers so that there was no real saving . . . perhaps a tip of the iceberg problem?

Conversely, and putting aside for the moment that outside of his “one hit wonder” prediction that Amazon’s stock would ascend to a pre-split price of $400, catapulting Blodget to fame and fortune, Henry’s track record is less than stellar in the financial advice department.  In fact I would  go so far as to equate an endorsement by Henry with George W. Bush endorsing John McCain during the 2008 election (anyone remember the SNL skit?) . . . it’s pure poison.

Henry, can you spell P-O-N-Z-I

Now I am not saying that the Groupon concept is in and of itself an inherently bad idea or model.  Quite the opposite in fact as the appetite for savings and coupons has never been more voracious as it is today.  You merely have to look at the advent of shows such as TLC’s hit Extreme Couponing, to recognize what is rapidly becoming one the year’s hottest trends.

Even I have been drawn into the couponing craze, at first as a moderate cynic and then, after knocking more than 40% off my grocery bill in the first month, an avid fan.

Like the Titanic, the problem with Groupon is tied predominantly to the individual or individuals at the helm.  Specifically Lefty Lefkofsky, and his apparent greed versus having a true desire to actually build something beyond a what’s in it for me attitude.

With “Lefty” Lefkofsky the sign behind him should read “lightfingers”

The evidence of Lefty’s avarice comes through loud and clear in that rather than distributing the pre-IPO funds to Groupon insiders on a more modest level, and then taking the bulk of the money to wipe out the company’s debt (at least in part) while retaining a certain percentage as a reserve or emergency fund, he saw an opportunity to cash in big and took it.

I can still remember the early days of my negotiation to sell my software firm to a company whose stock traded on the TSE.  At the time, we were bringing in hefty profits to the tune of generating $2.1 million GP on just over $3.1 million in sales.  Hungry for our cash flow, the CEO of the company that eventually did acquire us originally talked about offering $15 million in cash up front, but was met with such resistance by his board that the deal had to be modified.  The reason for the board’s resistance was pretty straight forward . . . getting that kind of cash up front, they wondered if our management team could remain motivated enough to continue to make a meaningful contribution on a go forward basis.  To a certain extent they had a point as I was already contemplating my exit strategy, albeit 2 to 4 years down the road.

The big difference between my little software company and Groupon is that besides being a closely held, self-funded private enterprise, our success had already been firmly established with a proven cash flow and corresponding profitability.

Groupon’s success is nowhere near that level of certainty and as such why would anyone invest in the company, especially after the management has already achieved an exit strategy pay-day?

At the end of the day the true value of any company is not just linked to the timeliness of its products or services relative to the market’s needs, but is ultimately based on the ability and integrity of its management team.  While a strong team can make a good idea great, a bad or questionable team can ruin even a great idea.

As it stands now, Lefty and his crew fall into the latter category.

Special Bulletin Update: The Office of Fair Trading (OFT) has launched an investigation into Groupon after the firm broke UK advertising regulations 48 times in 11 months.

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Engage, Enrage and Entertain . . . More Than A Catch Phrase! (The Canadian Perspective)

When Jim Bouchard asked me to be a guest on his Think Like A Black Belt Show to provide the Canadian perspective on last year’s U.S. elections, little did I know that this would become the launching pad for what has become the 49th Parallel Forum.

Without a doubt, our neighbor to the south has always had a great deal of influence in terms of simultaneously crystallizing as well as obfuscating the lens through which Canadians view the world as well as ourselves . . . I can still remember the political cartoon shortly after 9/11 which depicted a diminutive beaver in a propeller beanie cap saying to himself “any minute now” in anticipation of then President George W. Bush’s expression of thanks to the countries that assisted the US during and after the terrorist attacks.  The joke of course was that after thanking what was seemingly every country in the world, he never actually got around to mentioning Canada, let alone thanking us.  Talk about about a bruised psyche.

Of course the help to which I am referring relates to How Canada and Canadians opened our airspace, landing fields and homes to those who had to be diverted across the border.

However, given the circumstances surrounding the 9/11 attacks and all that the US was dealing with at that time, I am of the mind to readily overlook the snub especially in light of the fact that there are so many other more positive things upon which we as Canadians can focus.

For example, our continuing domination over the US in our number one pastime . . . hockey.  Be it supremacy at the Junior, Olympic or professional levels – and yes its true that even when a US-based team wins the Stanley Cup it is with a roster made up mostly of kids from the north, the Red and White Maple Leaf flies a little higher and a little more robustly on those days.

Other reasons for button-busting pride can be traced as far back as the war of 1812 when we (okay the British, but we are kind of the same thing) defeated the Americans pushing the invaders so far south that we actually occupied the territory that is now New York City.  Now that was territory we should have hung on to.  Think about it for a moment, Donald Trump could have been a Canadian!

An even more exciting contemplation is that the New York Yankees should have been called the Canucks!  Of course there would have been no problem with Vancouver’s NHL team having the same moniker as we above the 49th are used to this kind of sharing.  After all, in the one time 9 team Canadian Football League we had both the Saskatchewan Roughriders and the Ottawa Rough Riders franchises.  Now some have poked fun at us for this apparent lack of creativity citing the fact that the CFL was the only sports league in the world in which two teams had the same name.  I however like to think that is symbolizes a high degree of cooperation, collaboration and solidarity.

Besides hockey and the emergence of the New York Canucks MLB team, Canadians have also made an indelible impression in other key areas of the North American landscape such as in the world of comic books.  Take Superman for example, who has for the most part been viewed as an American icon.  Truth be known, it was Canadian-born artist Joe Shuster who put the finishing brush strokes on the Man of Steel.

And let’s not get started on our beer which is a real alcoholic beverage versus the watered-down swill that passes for brew in the US.  Come on people, cold filtered from the Rockies which comes in a can that has to change color to tell you when it is cold enough to drink  is another name for water to us of the hardier stock north of the border.

All in all, this means that deep down in the heart of every American there is a little bit of Canadian envy for everything from our Tim Horton’s Coffee to our socialized medicine and yes in the end, even our national animal the beaver.

No . . . not this Beaver!

Think about it for a moment, the Americans can have their eagle and the UK their lion but we, we Canadians as June Callwood so eloquently put it have “a flat-tailed, slow-witted, toothy rodent known to bite off its own testicles or to stand under its own falling trees.”

With the industrious beaver as our symbol one can only imagine what a Canadian’s take will be on the important domestic (North American) and global issues of the day.  You will of course have to tune in to the show to find out!

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