Category Archives: Reputation Management

Sam Zell…First in Our Hearts and Last In Line for $$$

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The following article ran on April 2, 2007 in the Media Bistro under a byline by Kate.

 Sam Zell – Tribune’s New Owner

Sam Zell, the new owner of the Chicago Tribune Company, has quite a reputation as a motorcycle-riding, cowboy booted swashbucker who came up the hard way.

He’s on the Board of Directors of Equity International.

He likes to take risks, according to Forbes and he’s #52 on the Richest list.

He’s the biggest landlord in America or was, in 2004.

He’s called the “grave dancer”.

He’s “salty to the point of crass”, according to the CJR.

He owns, at least in part, two baseball teams.

So what does this mean for the LA Times? Got any predictions? Send ‘em our way.

After a short run in which he fleeced nearly everyone in sight, including the employees of the Los Angeles Times where he used their money in an ESOP to fund a major portion of his purchase – Sam has finally met his match.

Judge Kevin Carey of the U.S. Bankruptcy Court in Wilmington, Del. ruled that Sam Zell should be the very last creditor to get money in any payout from the Tribune bankruptcy proceeding. The judge found that “Mr. Zell’s investment ranked dead last in the Chapter 11 payment priority competition, ‘at the bottom of Tribune’s capital structure,’” the Wall Street Journal reports.

Ouch…but it couldn’t have happened to a more deserving guy.  We wish you well Sam.  No, actually we don’t!  Go away and don’t come back again.  You will forever be the poster child for all those who hastened the demise of U.S. newspapers.

Can Groupon Survive?…and Should It?

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Is the end near for Groupon?

It’s been years since I got my first penalty flag for piling on, nearly 50 years to be exact.  Today I’m getting my next one.  I’ve had more than a few over the years, but this is a ‘fun one.’  Today I’ll take one for the team and talk about Groupon again.  Talk about penalty flags, they are setting records for their first year as a public company.  Like the targeting scandals in the NFL, they could be coming close to getting a death penalty called on them.  Time to stop and reflect on where they are now, and ponder can they save it before someone comes in and takes the ball from them.

Last week they were forced to admit that they had overstated their earnings in the latest quarter.  The CFO fell on his sword and was officially let off the hook by the CEO.  However, the investment industry doesn’t take well to these kinds of ‘mistakes’ and a drumbeat has come up with a chant looking for changes NOW, with a decree that this can’t happen again.

The market came on line at the same time and hammered the stocks on Monday, and yet again today.  The price is now well below the initial offering price, but the overall market value of the company is still strong…too strong actually, and this is the real problem for Groupon.

Groupon was started with a great idea – daily deals that would shake money from the pockets of the public mired in a recession.  They were sitting on their wallets and needed a real reason to open them back up.  Groupon started the ball rolling, created buzz in the market, and produced some amazing results for many of their client businesses.  Consumers fell in love the ‘daily deals’ and a new marketing segment was born.

It started so quickly, and the results were so strong for a number of advertisers, that many thought that this model would be the key driver for local marketing and would overtake all of the other media including daily newspapers.  Investors roared in with loads of cash.  Big money on Wall St. was looking for a place for high returns, and fodder for the mill on IPOs.  The die was cast and Groupon went public in a blitzkrieg not seen since WWII.  But then…the roof fell in, and here we are today.  What happened?

What happened is that the creative spirit that drove the design and initial rollout of Groupon has no depth or maturity.  The CEO Andrew Mason has been shown to have some great ideas, but no real management depth.  A real manager should have been brought in – they needed an adult.

Secondly, the infrastructure to account for all the transactions and dollars is woefully inadequate.  In these deals the money is collected up front by Groupon and then the remainder after the Groupon split, is paid back to the client company as they are redeemed.  So here’s the picture- lot’s of cash rolling in, and slowly rolling back out over time.  Sounds like a big bank that needs lots of financial controls – and there weren’t any, or at least, not enough.  I’ve dealt with this many times in my career in business and consulting, and this always leads to problems.  With all that cash on hand, you just have to feel wealthy and successful, but then the money has to rollout to clients and suppliers and the giddy ‘wealth effect’ sets in.  This is where Groupon is today.

And now the ultimate penalty could be coming.  The SEC, as toothless as they are, is now starting to investigate Groupon for having to restate their earnings.  It doesn’t look good for Groupon, especially in light of the fact that the SEC needs a win to help them in their fight to keep their funding from being cut further by Congress.

If having the SEC on your case is not enough, an influential segment of the blogging community is also coming after Groupon. Rocky Agrawal in his reDesign blog opens with “Groupon was forced to restate fourth quarter earnings, sending its stock down 6% in after-hours trading.  This surprised me as much as my $2 investment in the Mega Millions jackpot not paying off.”  Ouch!

Rocky picks apart the business model of Groupon and that it is neither a coupon or marketing company, but rather a receivables factoring company.  They are a sub=prime lender in effect, living off of one cash stream while they try to meet the spread on the other end.  I think he is spot on in his points here.  One thing for sure is that they are not the saviors of the marketing field, not newspaper killers.  Newspapers have committed suicide over the last several years and needed no one to do the job for them.

So what next.  Enjoy your daily deals.  Groupon or someone else will continue to provide them.  They work for many on both sides of the transaction, but not for all, as many complaints will show.  I think the real issue is that Groupon can survive as a business, just not as a publicly traded one.  A great idea, but a horrible timing in the rush to the public market.  Yeah, they are a sub-prime business and Wall St. yet again was at the ready to make the deals cause they get paid no matter what.

I’d be willing to place a small wager that in this game, like the housing markets they have bets all across the line – win or lose, black or red, and they know how the numbers work.  They will be the ultimate winner in this ‘daily deal’ at the expense of shareholders.

No More “Kodak Moments”

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There are those things that are touch points to our past.  This was a big week for key events that highlight how far and fast we have gone over the last several years.  Growing up with a Brownie camera and Kodak film I was the model of American youth.  The advertising phrase – ‘ A Kodak Moment’ was the catch phrase for time to store a happy memory that only film could do.  Movies had many scenes of hapless dads and moms trying to capture their ‘Kodak moment’ while their kids were going crazy to get out of the scene.  While working at Disneyland in college there were signs at various locations that encouraged people to take advantage of a Kodak Vantage Point with a sign in Kodak yellow.  Kodak film was sold on Main Street and shops all over the park.

A logo soon to die - KodakThis week we got the news that Kodak, now in bankruptcy for reorganization, was going to drop most of their last links to photography.  This is a sad story, and one we have seen repeated many time over in our ‘ industrial digital transition.’  Old services, products and companies are in decline as our economy, and lives, are changing in this new ‘digital’ world.  Yesterday’s business leaders are tomorrows canon fodder…do they still ‘make’ canon fodder?’

The shame for Kodak is that it saw it coming and did not take the steps needed to survive.  They saw the digital revolution in photography early on, and made some minor adjustments, but in the end the effort was staged to protect their lucrative film business, even when the ‘digital barbarians’ were at the gates.

What will Kodak do now?  Their next phase, if they can survive the bankruptcy courts, will be to continue as a provider to online and retail photo printing services – like Costco, where I get my prints done.  They will also continue in the desktop printer arena, but with heavy competition from HP, Canon and others.  Selling printer paper is also a key factor, but that is a commodity business, and margins are shrinking there as well.

What does the Kodak transition mean for us?  I guess we have great role model for change – or at least what happens when you fail to adapt or change.  Strong brands with years of earned equity in their brand can flame out just as easily as the next brand.  Twinkies and Ding Dongs are still trying to find a new home since their founding baker has faltered.

Kodak shows us that the allure of circling the wagons and protecting the flanks because of high margins for existing core businesses will not work in this new world.  Being both ‘digital and flat’ will be the keys to new high margins.  Kodak saw the light coming down the tunnel and didn’t think it was a train.  Everyone should be alert for their own ‘trains’ being aimed at them now.

My own experience in marketing and advertising has been in the publishing field – newspapers and shoppers, and in the direct marketing – mail.  Think I don’t know the numbers and schedules of all the trains coming down the track – I do now.

My clients, mostly those with strong roots in the pre-digital world, are learning and alert to the transition.  However, the force is strong with those who want to protect what they have built up, and that causes many to falter and lose sight of the pending changes.  Now is the time for reinvention, for all of us.  No more ‘Kodak moments’ will be coming, at least for Kodak in coming months.

A Tale of Two Texans

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Lance Armstrong- A Reputation RestoredAll is right with Texas, and all is thusly right with the World.  As a former Texan, circa 1980-1983 I am a living testament to the uniqueness of Texas, actually really it’s the Texans who are so ‘unique.’  I now enjoy having Son#1 living in Austin, the unique heart of Texas, with his native Texan wife and native Texan daughter.  I loved living in Texas, back then, and they love Texas of the 21st Century.  The last few months have been trying times for Texans as they cheered and mourned the fates of two favorite sons – Rick Perry and Lance Armstrong.  Now there is resolution for both.

Rick Perry is back in Texas, some are happy, and some are sad.  Texans love to cheer on favorite sons, but Rick didn’t come home with a victory, and Texans hate to lose.  Texas papers are reporting the polls are showing that Perry’s favorability ratings have fallen in the state.  They interpret this to mean that many Texans are not happy to have Rick back in the state after his run for the Presidency.  His poor showing on the stump reflects poorly on them they think.  Ouch!

Lance Armstrong is back in Texas, in fact he never left.  Not only is Lance a great cyclist, perhaps the greatest of all times based on his Tour de France record, but he is a great businessman.  Lance built an entertainment empire out of Austin, one that would be the envy of any rock impresario.  It helped to build Austin into a center of the earth for entertainment of all ilks with the SXSW each spring.  I’ve never been, but my son is there every year, and now each year he is a contributor in the digital field

Texas in a unique place with its own culture, actually cultures, since there is no single culture to embrace all Texans, except for Pride, and in Texas that is spelled with a capital ‘P’.  They love to win, and love it when they get to bring home the glory.  In the case of Perry and Armstrong, both favorite sons with unique stories, Texans regaled in their successes, and held fast to them when both got into ‘trouble.’

The Texas miracle is built on two factors – lots of cash, and a tight network of ‘good old boys.’  It was many of these good old boys who bank rolled the Perry run for President.  Texans don’t like to lose, that is in every area including both money and face.  Rick came up ‘short’ in both areas.

The money was bad enough for the donors; they can make it back, but losing ‘face’ with Rick’s poor performance in the debates and on the stump.  Not only did Rick come back to Texas diminished from his performance, he came back to a deflated Texas, where many are now questioning the ‘Texas Miracle’ he was touting on the stump.  That was embarrassing to all Texans, and Rick may find it hard to mount any future campaigns.  His network is still strong, and full of cash, but they are likely looking to the future with other names in mind.

One more opportunity for Lance came this week with the Susan B. Komen flap over cutting off funds to Planned Parenthood.  Stepping in to help offset the cut in funds were Michael Bloomberg, Mayor of New York and Lance Armstrong’s Livestrong Fund who matched funds lost from the Komen actions.  Nothing like a lot of great publicity announced almost simultaneously with the announcement that there would be no further legal actions planned against Lance for the doping/steroid allegations.  Wow, what more can a man do to get his reputation back.

Texas, like California, has a very unique culture.  They love their favorite sons, but sometimes when those sons go astray there is a price to pay.  For both Rick Perry and Lance Armstrong, going ‘astray’ has had consequences on their reputation.  The press has been all over the both of them.  It appears that Lance has weathered the storm, and is back on top in Texas.  His reputation is being restored, or at least it has been expunged from the official records.  He will recover.

Rick Perry embarrassed Texans with his poor performance, his reputation is now down.  It remains to be seen if it will recover.  Time will tell, time will tell.  For Lance, all is good, and all is forgiven.  Perhaps Lance should consider a run for the Governor for the next term.  I know a few Texans who would vote for him now.

Groupon CEO Survives Digital Suicide on 60 Minutes

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Last week Andrew Mason, the 31-year-old CEO of newly public Groupon conducted an interview with Leslie Stahl of 60 Minutes.  I was excited to get to see for myself just how crazy this newly minted multimillionaire could show himself.  Groupon is know for its wild culture, and Andy did not disappoint.  The words, the look and the attitude were just what I was expecting.  Lesley, to her credit, seemed taken back, not that she hasn’t interviewed a number of crazies over the years, but this was a masterpiece of craziness.

Crazy how?  Crazy in that Groupon continues to struggle to achieve real relevance since going public.  As the biggest tech IPO in some time it was to be a real bellwether of things to come for others seeking to go public.  The price was set relatively high at $20 per share, and it hit the mid-thirties in the first day, but then retreated.  The bloom quickly faded from the rose and it continued to slog along in the low 20’s, sometimes dipping below.

One thing for sure Mason was still high on the ‘juice’ of their success, though smarting from the comedown of having to restate their earnings.  They had forgotten to include things like ‘sales expenses’ that included the returns back to the advertisers after sales had been booked.  Ouch!

Started in 2008, Groupon was one of the few businesses that actually took advantage of the economic downturn.  Blessed with a large pool of available talent, many recently displaced from their current jobs, they were able to build a solid team to blanket the market with a novel concept.  Pay nothing up front, get a lot of customers in your doors, and get around 50% back when the customers pay Groupon.  Groupon gets all of the money upfront, and the clients have to collect from Groupon.

In the existing advertising world a number of clients have tried to negotiate these deals with newspapers and others, but this was generally for remnants that the newspaper knew would go unsold anyway.  This did not happen often, though more today, and Groupon created a new model for the financial transaction.  Would it work?  Yes, but there are catches.  This is built on the model of getting new customers, and the goal of building loyal customers.  This has been the real sore point from my research with a number of Groupon advertisers.

Most of the Groupon advertisers have found that redeemers of Groupon offers are not returners later.  Having found one deal they get hooked, and then search for the next deal.  Others have found the process somewhat confusing and hard to understand and are not flocking back for more of the same medicine.  The last factor is the holdouts that have not jumped on the bandwagon for ‘daily deals’.  This is the sector that, in the tight economy, has shut down their discretionary spending.  They are not enticed to buy something they didn’t really need just because it was 50% off.  Tight times mean tight wallets for many, and enticing offers just won’t work well with this group.

What does this mean for Groupon?  Groupon will continue, and will continue to produce some great results for some types of businesses.  For many though they will burn and churn through a number of clients who will never do a Groupon deal again.  Competition will continue to grow, why because the barrier to entry is low.  Existing forms of advertising will also offer daily deals, most already have just on that bandwagon.  The churn and the increased competition will make it hard for Groupon to be the 800 lb gorilla many had thought.

What does this all mean?  Groupon will continue, but it will not become the growth stock many had hoped.  Those who bought the initial offering will come out ok, but those who bought in the 30’s will never recoup their full investment.  This could change if Groupon evolves beyond its existing concept, demonstrates solid growth, and solid customer retention through great sales results at the advertiser level.

I wouldn’t bet on it.  I also don’t believe that monkeys can fly, even if Andrew Mason thinks they can.  Time for Andrew to grow up, put on a tie and be responsible.  I’ll be reading the results weekly to see how it goes.  And regarding the interview?  It was classified as a PR nightmare the next day.  The stock price went up for a couple of days and then declined back to around 20 again.  I guess that proves the old adage – ‘buy on the bad news, and sell on the good news.’  It’s Monday, and the price remains about the same.  Put on the tie Mr. Mason!

Lt Gen William Caldwell Beats the “Rolling Stone” to Dust

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General William B. CaldwellSometimes mistakes do get corrected.  Back on March 9th I wrote about the case against Lt. Gen William Caldwell, a very old associate of mine, who was covered by  Rolling Stone.  The accusation against him was that he had run a rogue operation attempting to brainwash visiting government officials and elected representatives into supporting the mission in Afghanistan.  Coming on the heels of the article that forced the removal of Gen McKristol for his, and his staffs remarks denigrating their President.

I spoke in defense of LTG Caldwell because I knew him, and I thought I understood what had taken place.  I was right, or at least the Army and of its’ investigators thought so as well.  He was acquired of all charges and will continue in his role heading up the training of Afghans for U.S. and NATO commands.  This is a big tough, and thankless command for any senior military officer.

The good news here is that a good man had his reputation restored.  After all the press comments after the Rolling Stone article I felt he would need a lot of luck to achieve a positive outcome…and he had it.  A career of stellar and exemplary service will continue.  We are all the better for this outcome.

For everyone else undergoing a trial of their reputation should take notice and heart.  Good things can happen to good people – even when a reporter from Rollng Stone is asking you questions.  Good can prevail!  This time it did.  His dad, my former boss, must be smiling from above.

Your USPS…with guns blazing, wants your business!

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The USPS Investigation Control Mobile Central

Forget to pay your postage?

One of my real hot buttons is reputation management.  I’ve written about it many times, and it is of continual interest to my clients.  Most of them fear getting smeared by something they cannot foresee or control.  This week two institutions that I am very familiar with came to ‘blows’ and both had their reputations sullied as a result.  The two institutions – the USPS, and a large commercial printer and mailing service, Advantage Mailing, Inc in Anaheim, CA.  What happened?

On Thursday morning the USPS in the form of Postal Inspectors and U.S. Marshals, a contingent of approximately 60 strong showed up at the doors of Advantage with guns.   They were there to search for malfeasance on the part of Advantage for short paying postal invoices for several months.  Wow, I didn’t realize that was a shooting crime.  I’ve been in the mailing arena since 1979, and I’ve never seen guns brought in to any facility and I’ve mailed billions of pieces of mail.

Quickly the word got out and the OC Register, another paragon of journalistic virtue, reported the event in their online coverage.  It wasn’t until today that they reported that the investigation was ongoing, and that Advantage had opened for business again on Friday.  For those who don’t understand how large commercial mailing operations work – there is ‘in-plant verification’, meaning that postal employees work onsite to verify all mailings before they leave the dock for the appropriate postal facility, generally then to large Anaheim mail facility.

So, if they thought Advantage was not paying the right amount on mailings they could have been stopped before they left the plant.  In nearly all of these cases all of the postage is computed via highly controlled postage software, certified by the USPS, which makes all of the computations.  The postal employees on site can do any checks they desire including weighing the pieces, weighing the total loaded mail and checking all mailing lists used to address the pieces.  Why then show up later with guns?

Advantage is back in operation.  They are now trying to rebuild their reputation that, with a large hue and cry of the media, was destroyed last Thursday.  They were guilty the minute the armed postal inspectors showed up.  The USPS will also have to repair their image.  Does any other large mailer, or large mailing client, want to have the similar circumstances show up at their door in the future?  I doubt it.

With all of the problems the USPS is having, mainly being several billion dollars in the red this year and requesting more cuts including dropping Saturday delivery, they don’t need to scare off their customer base – especially with loaded weapons.  I think they are also losers in the reputation area.  This will not help them in trying to win back commercial customers to mail who have switched their programs on-line.  As far as I know Google, Microsoft and Apple aren’t allowed to carry loaded weapons.  That appears to be the ‘safe’ choice for the future.