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The Key to Start-up Success? Be Boring

You may not live for accounting or operations details. But ignoring them (ahem, Groupon) will put you in a world of hurt.
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As of last fall, Groupon had the biggest IPO by a U.S. Internet company since Google. Shares selling for $20 and up brought the company's valuation to almost $13 billion. Not bad when you consider that it had spurned the search giant's $6 billion acquisition offer.

Sad that good things seldom last forever. Last Friday, Groupon's stock dipped below $10. As of today, the number is back above, but just, with a price hovering mid-day around $10.50. Why? The strategy hasn't fundamentally changed, nor has the technology. And yet, Wall Street has pounded on the daily deal king ever since it went public, as this Google Finance chart shows:

Groupon's woes have been a strong endorsement of aspects of business that many might call boring: such things as good accounting, clear operations, and disciplined communications. You can have a great strategy, innovative product and services, and a founder's vision. If you can't manage the operational aspects, however, you'll soon be out of luck.

Bean counters get no respect

Accounting, for example, is far more than a company's complex equivalent of balancing its checkbook. Look at Groupon's recent fiasco of having to restate its earnings for the last quarter of 2011, which is what started the more recent stock slide. Rounding up the bad news was that Groupon's auditor, Ernst & Young, noted a "material weakness in its internal controls."

Controls are the heart of accounting. Not only do you want to know how much money you have at any moment, but you want control over how the business runs. In this case, Groupon had added higher-priced products and services to its offerings without enough realism about possible return rates. More customers wanted their money back than management thought.

When your accounting fires on all cylinders, you have a built-in necessary counterweight to the optimism that entrepreneurs must embody. Even when you take a calculated leap, you must think through what will happen if those plans don't work out as neatly as you wanted.

Who's steering?

You also need a competent hand on the operational tiller. A good idea poorly implemented will drive you into a ditch far more readily than experienced operations and an average concept. At Google, co-founders Larry Page and Sergey Brin originally brought in Eric Schmidt to act as CEO because he had more executive experience than they did. As Schmidt said, he was the adult supervision.

At Groupon, founder and CEO Andrew Mason called a meeting to tell employees that the company had to grow up. He drank a beer as he said it. Here's a telling snippet from the Wall Street Journal report:

"We're still this toddler in a grown man's body in many ways," Mr. Mason said during the closed-door employee meeting, which The Wall Street Journal observed via webcast. At one point during the address, Mr. Mason's voice broke and he said, "Sorry, too much beer."

It's not enough to keep atop operations. You have to look like you're in control, to give the appropriate amount of confidence to employees, investors, and business partners.

Sorry, did you say something?

Entrepreneurs need healthy egos if they will survive all the downturns and hurdles they can meet. And yet, giving in to bragging and posturing can be a deadly choice. When Mason circulated the pre-IPO memo in which tried to rally the troops and showed disdain for much of the criticism the company received, he did two things. One was to positively beg for bad press. The other was to spark an SEC investigation.

This wasn't the first time that ill-considered and poorly-timed remarks by the CEO caused problems for the company. Remember the public service announcement parody ad during the 2011 Super Bowl? It resulted in enormous bad press, after which Mason issued a non-apology.

Trip over communications and you make everyone involved with your company—backers, employees, business partners, and customers—wonder exactly what is going on and whether they should continue their allegiance.

Communications, operations, and accounting can well be dull and boring details to a big picture person. But if you can't get your arms around these business musts, you will find yourself tripping constantly. And a face firmly planted in the floor boards is no way to keep an eye on your company.

Last updated: May 7, 2012

ERIK SHERMAN | Columnist

Erik Sherman's work has appeared in such publications as The Wall Street Journal, The New York Times Magazine, and Fortune. He also blogs for CBS MoneyWatch.

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.



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