Inside Groupon SA, and the founders’ transition

Two local startup founders have moved to being executive managers in a global operation. Daniel Guasco and Wayne Gosling are the founders of Twangoo, the collective buying website recently acquired by United States-based Groupon, whose estimated revenues are in the $3-billion to $4-billion range. From being start-up entrepreneurs, the two oversee a growing local division of a worldwide company. The Project Manager spoke exclusively to the two founders, shifting focus from the success of the widely covered acquisition to details of the management factors central to the company’s transition.

For a start, Groupon SA’s business model is based directly on that of Groupon: It negotiates big discounts on popular local goods, services and events – subject to delivering a minimum number of customers. It then offers the deal to thousands of subscribers in a daily e-mail. If enough people sign up, the deal is activated; if the threshold is not reached, however, the deal falls away.

“Our subscribers get a great deal and the business gets a ton of new customers,” explains Gosling, who points out that the two carefully analysed oversees group-buying models before launching their own toward an intention to sell.

In the process of setting up what was then Twangoo, the two assessed just how companies transfer from small-scale start-ups to being part of a global corporate entity, arguably laying a good foundation for a transition to management.

“We understood how we were going from a start-up to a more corporatised start-up and no longer operated on the fly with limited resources; we now have all the resources we could wish for,” explains Guasco.

Groupon SA operates in all South Africa’s major cities, granting people an opportunity to rediscover the delights of their city at discounts of 50% to 90% – giving local businesses a way to reach new customers in the process.

With low barriers to entry, competition in the online group-buying space has been quite vigorous.

“South Africans are cashing in,” acknowledges Gosling, in light of competition locally and abroad.

“Not a day goes by when another group-buying site starts up. Everyone is jumping on the bandwagon,” says Guasco, who remains confident that Groupon is leading the way.

Worldwide, there are over 500 similar sites, including more than one hundred in the US. Most of Groupon’s competition is based in China.

So how does Groupon’s entrepreneurial-turned-executive leadership believe it is positioned to manage its current lead in the South African market?

For one, they agree that international best practice comes when being part of a global company, evidently pointing to the value of integrating with existing internal knowledge in a new business structure. “We are very much learning off the best practice used across the world. It’s now a case of needing to lead the market,” they concur.

Guasco says the rest of the operations have required significant focus on processes and procedures in the transition from start-up to regional corporate division.

Smarter customer service, sales and the structure have changed since the acquisition.

Twangoo was sold to Groupon with five members, two of whom were the full-time founders. The three others worked on a commission basis.

So what would have the managers done differently if they had the chance to launch Twangoo again for acquisition as entrepreneurs?

“In retrospect, we can be more aggressive in our approach,” says Guasco.

The tone in his response makes it clear that the two founders have no major regrets, but they are both reflective: “We had a careful approach to negotiation and discussion,” adds Guasco, indicating it would have not hurt to have a greater degree of assertiveness in the initial stages of the company.

Though the selling price is undisclosed, bandwidthblog.com, a site of the local Cape Town incubator, indicates reported rumours range from $1 million to as much as $6m. None of it is confirmed, but the type of playing field – the former Twangoo succeeded and has now transitioned – is the story highlighting the ambitions of many start-up entrepreneurs.

Gosling adds that Groupon’s acquisition of Twangoo is merely the first of its steps into Africa. The company has set an explicit target to continue rapid growth and leadership.

“The key to keep our customers coming back is the deals,” noted Gosling in an interview with The Media Online.

“We must keep presenting the most incredible, amazing, have-to-do deals on out site every day – and the key to great deals is people.

“We have sales people to go find the deals, and customer service people to make sure every deal ends up in smiles for all involved: the merchant wanting to promote their offering, and the coupon holder.”

Guasco told The Project Manager that the company is doubling in growth each year, adding that most of the staff are geared at the customer service component.

Given Groupon SA’s attention in the public eye, he says the media attention that the acquisition received locally and abroad was in line with expectations, noting that it was a “fair amount of coverage”.

Since the acquisition, there have been a few speaking opportunities as well.

Adjusting to the new lifestyle as a manager in business as well as something of a public figure does not seem to faze the two entrepreneurs, who remain humble and engaged.

“I suppose, when you become the leaders in the market, you have a lot more confidence,” says Guasco. “We were more reserved and accommodating in the past, but now we can be more assertive and move forward.”

Professional life has changed slightly for the two. More South Africans approach them, seeking guidance for opportunities and ideas.

Both Gosling and Guasco believe persistence and the classical adage of belief in oneself may sound clichéd, but are very real business success factors.

The advice that the two entrepreneurs have for others seeking to make it big is simple: “Think beyond South Africa.

“Take initiative and relentlessly persist – it can happen.”

Guasco recalls that the idea and inspiration for Twangoo came about from the first Silicon Cape event. “I’m not a techie, but I am an entrepreneur, and thought: why not?

“The whole message of Silicon Cape is think global – and I really took that to heart.”

Despite some analysts warning that the group-buying model may be saturated in the current market, the rapid rise provides a strong indication of the information technology potential in Africa – and, consequently, may see more small-scale entrepreneurs and managers overseeing a corporate transition.

Arthur Goldstuck, managing director of consultancy information database site, WorldWideWorx, says that “over the next five years, the Internet user base is likely to double”, thanks in part to the arrival of new fibre-optic cables.

On the corporate front, South Africa’s digital presence is not limited to the smaller companies; after all, the South African media group, Naspers, is the part-owner of Russia’s Mail.ru which, in turn, owns a 5% stake in Groupon.

The case of Twangoo’s acquisition and two local entrepreneurs making it big, point to a larger optimism about South Africa’s Internet penetration in the future.

As for the obstacles for doing business online in the country, those facing Gosling and Guasco as a start-up duo remain the same, as both hold down key management roles.

“Part of the problem is the low access to credit cards – we’re still a relatively underbanked country,” says Gosling.

He adds that Internet penetration is still only at about 10%, meaning we are not online to the degree to which citizens of many other emerging markets are. ☑

Garreth Bloor