Groupon's long journey from flailing startup to multi-billion-dollar Wall Street obsession has played out like an opera, with subplots involving orgiastic young sales reps, brutal German managers, a puppet-master chairman, and amazing levels of greed. Business Insider's Nicholas Carlson went behind the scenes, talked to people in the know, and filed the sensational report that appears below.

It's August 2011, and Andrew Mason is agitated. He's at his desk in the middle of Groupon's wide open, call center-style office in Chicago. His headphones are on. His brow is furrowed. His company had been the darling of the business press for the past two years. Suddenly it's not.

He can't hang on to a COO. The SEC is asking questions. Industry executives are calling him a ponzi schemer. Early employees are demanding six-figure pay for 9 to 5 hours. One even filed a lawsuit. Merchant customers are screaming. And Mason and his board, having helped themselves to $900 million of cash that could have gone to the company, are are now being blasted for incompetence and greed.

What a turnabout from a few months earlier, when Groupon was the talk of Wall Street. Then, Groupon was one of the fastest-growing companies in history, spurning $6 billion takeout offers from Google, preparing to go public at a valuation fo $25+ billion. And now everyone was talking about it running out of cash!

So what happened? How did things go so wrong? And now that Groupon is finally going public, how will the Groupon story end?

This story, as told to us by insiders, answers some of these questions. Our sources all asked to remain anonymous, either in deference to the SEC's "quiet period" rules for companies that plan to go public or in order to remain in compliance with severance agreements with Groupon. Groupon itself declined to comment.

GOING CAPITALIST

In 2006, Andrew Mason was a music major, getting a graduate degree in public policy at the University of Chicago.

Mason maintained a website called Policy Tree, which featured articles like "Karl Rove should be fired or resign over the C.I.A. leak." On the side, he was doing contract work building databases at a company founded and funded by an entrepreneur named Eric Lefkofsky.

Lefkofsky was already a very rich man, having built several businesses around call centers and the Internet. Mason was an intern, "kind of squatting in their offices," according to one source.

In January 2007, with Lefkofsky's backing, Mason started working on a company - a do-gooder enterprise called The Point.

The Point was a social media platform designed to get groups of people together to solve problems. The Point was not intended to be a big money-making enterprise, and by one early employee's account, that was fine with most of the staff. The Point launched in June. It gained modest traction in Chicago, but basically went nowhere.

Every Monday, Lefkofsky, Mason, and a handful of early employees would meet to talk about the Point's progress. One Monday, in the middle of 2008, Lefkofsky raised an idea he had that could revitalize the struggling start-up, based on a campaign he'd seen launched on The Point.

Ordinarily, people used The Point to organize around some sort of cause that might make the world a better place. But in this case, a group of users decided their cause should be saving money. Their plan was to round up 20 or so people who all wanted to buy the same product and see if they could get a group discount.

"Eric said maybe this is the thing that we do," says a source who was at the meeting. "Maybe we set up a separate page, make it dedicated to group buying."

At first, Mason and The Point's other early executives dismissed the idea. "It didn't seem core to our mission," says the person who was at the meeting. Through the rest of the summer and early fall of 2008, Lefkofsky would not let that idea go. He'd bring up all the expensive purses his wife and all her friends were buying, and say, "It's crazy! Couldn't they buy 20 of them and get a discount?"

Around this time, the global economy entered free-fall as the sub-prime mortgage crisis exploded and credit markets ground to a halt. Then in September 2008, Lehman Brothers filed for bankruptcy and famous Silicon Valley venture capital firm Sequoia sent out a presentation called "R.I.P. Good Times." Mason and Lefkofsky decided to lay some people off.

"There was this pressure from the market crash [and] looking at our burn rate and revenue—it was time for us to try something to scratch that itch," says a source close to early employees. Groupon—a side project launched out of desperation by a team of do-gooders who professed no real desire to make big bags of money—was born.

Sources do credit Mason for coming up with some of Groupon's defining characteristics: that it's one deal a day, that the deal doesn't go into effect until enough people buy the voucher, and that the vouchers should be for local businesses.

Some of the characteristics evolved out of a crucial element of Groupon's early DNA; it was a business created by reluctant capitalists.

"[The] way we rationalized it with ourselves," says an early employee, "[was that we were] helping people find interesting things to do in their city."

"Some of the early things we did were an hour in a sleep deprivation tank, or skydiving. We [didn't] want to do stuff that's going to wind up in a landfill. We [didn't] want to sell overstock gadgets. We [didn't] want to deal with shipping and returns."

These reluctant money-makers decided that Groupon should offer one deal a day, and that it should sell vouchers for local businesses. They decided that the daily emails should have funny copy. Mason also pitched Groupon as a way to help local businesses with cash flow at a time when banks were not lending.

The concept immediately took off. Local press got wind of the company and made a lot of noise about it. Employees successfully recruited local business owners among their friends and families to sign up.

"Merchants started to tell us 'if I want to do a 10,000 dedicated email blast on Daily Candy, it's going to cost me X, but you're telling me I can send it to 10,000 people for free, and only if they buy, we'll give you a cut?' That was an eye opener," says one early employee.

By the end of 2008, Andrew Mason and Eric Lefkofsky knew that The Point would become Groupon. In December, Lefkofsky recruited Ted Leonsis, who made his name and fortune building AOL. Leonsis would eventually become Groupon's vice chairman. Lefkofsky's long time business partner, Brad Keywell, also signed on.

Others at the The Point/Groupon didn't see the transition quite so clearly. "At first we thought it would be a little skunkworks project and we'd go on and it would help us raise money to further develop The Point. But I think that idea didn't last very long because we realized we had a tiger by the tail."

In January 2009, Groupon held its company holiday party at the small apartment of its CTO, Ken Pelletier. He cooked for everyone—the whole company and all their spouses and significant others.

A year later, Groupon had around 300 employees. A year after that it had 5,000+. Today, Groupon has more than 10,000 employees.

Investors, some of them who also put money into Facebook, began calling Groupon the fastest growing company in history.

The first major test for the project was its move into a second market: Boston. "In Chicago," explains one early employee, "we had a big network of friends and family to sign up and spread the word. We had a lot of people who knew business owners. It's easier for business owners to trust a local company."

The expansion went off without a hitch—but only thanks to a number of make-it-work hacks on the technical side.

During Groupon's first months, customer support head Joe Harrow would spend three hours every afternoon personally emailing all the customers who bought Groupon vouchers whenever a deal closed. Nine months in, Groupon switched to software specifically designed for the new business.

Groupon successfully expanded into a third market: New York. By this time, says an employee, "we kind of had the playbook we needed to open in another city, another city, another city." Groupon knew, for example, exactly how much to invest in advertising in order to build a sizable subscriber list in a new market.

By the summer of 2009, Lefkofsky started pushing hard for growth in Groupon's Monday meetings. He started by suggesting Groupon be in five cities by the end of the year. Then he started pushing for 10 cities by the end of the year.

Finally, according to a source familiar with those meetings, Lefkofsky just started saying, "Why don't we try and go as fast as we can? Why don't we turn up the jets?"

"We realized the main barrier to entry is going to be scale. So we wanted to get to as many cities as we can because we saw direct, outright, verbatim copies of what we were doing, popping up all over the place pretty quickly. We said we can either go chase them and beat them back and fight them legally, or race ahead and do what we do, as best we can. So the choice was to not look back, and try to be better and bigger."

One source close to Groupon's board says it was director Peter Barris of Groupon investor NEA that came up with the original analysis behind this aggressive growth plan.

Groupon began to grow into a real startup with lots of employees. It hired a COO who had worked at Yahoo and sold his own company before: Rob Solomon.

By this time, not only were consumers noticing Groupon, the press was catching on too. Mason went on CNBC. He went on "The Today Show." In August 2010, Forbes magazine put Mason on its cover. His shirt is un-tucked. He's shrugging as if to say, who me? The cover reads: "Groupon Is The Fastest-Growing Company … Ever: The New Web Phenom."

Groupon developed a "typical startup culture," with "everyone in their hoodies, and sales reps dating each other—that kind of nonsense," says one early employee." It was sort of like a fraternity that worked very hard."

"Working there was crazy," says another early employee. "[From 2009 to 2010] we hired 10,000 people. That was completely insane—something that's never happened before, and should never happen again. We ended up in 45 countries in 16 months. It was nuts, it was fun, it was a blast."

THE MASTERMIND

Andrew Mason is the "soul" of Groupon, but chairman and early investor Eric Lefkofsky is the "mastermind," according to one source close to Groupon board members. "I think people would be surprised at the level of involvement that Eric has in the day-to-day business," says this source.

Lefkofsky—a "quintessential entrepreneur" and "romantic," according to one friend—started his first business during his freshman year of college. He sold carpets to underclassmen. He expanded the business from one school to five, eventually making $100,000 or so per year, which at the time, he says, made him feel like "the richest man on planet Earth."

After that, he started a t-shirt company. He sold it, too.

Then, with a friend he'd met in law school, Brad Keywell, Lefkofsky bought a Wisconsin company called Brandon Apparel Group. It made children's clothes with sports logos. Lefkofsky and Keywell borrowed a lot of money to grow the company quickly. It did grow quickly, but then it went bust.

In May of 1999, Lefkofsky and Keywell moved onto the Internet to start Starbelly.com. It sold corporate tchotchkes online. The pair sold the company for big bucks at the very top of the dotcom bubble. Later, the company that acquired Starbelly failed, and Lefkofsky and Keywell were sued by its shareholders.

During his time at Starbelly, Lefkofsky wrote an email that was later produced in that lawsuit. The email gives a sense of what it was like being in those Monday meetings at Groupon when Lefkofsky demanded the company expand to 10, then 20, then 50 cities as soon as possible.

"Lets start having fun," Lefkofsky wrote, "lets get funky... let's announce everything... let's be WILDLY positive in our forecasts... lets take this thing to the extreme... if we get wacked [sic] on the ride down-who gives a shit... THE TIME TO GET RADICAL IS NOW... WE HAVE NOTHING TO LOSE..."

Finally, Lefkofsky started building successful businesses, launching a series of call center-based Internet companies that specialized in high head counts and high revenues. They were InnerWorkings, a printing business; Mediabank, an advertising software business; and Echo, a trucking business. Two of the three went public, and MediaBank just completed a billion dollar merger.

Then came The Point, which turned into Groupon.

Besides pushing for Mason and The Point to experiment with a product that would become Groupon—and then pushing for its hyper-expansion—Lefkofsky was, according to several sources, the real operator behind the entire enterprise during its early days.

"Andrew is not a puppet. However, if it weren't for Lefkofsky, Groupon couldn't exist as it does," says one source. That's because early on Mason needed "filling around the edges," says another source close to Groupon's board.

So Lefkofsky—who is good at "efficiency in operations and financial discipline"—had to do "a little bit of what a COO would do and a little bit of what a CFO would do, and little bit of what a chairman would do," while Mason focused on product and development. Since then, Eric has been "pushing Andrew" on details like "how do we collect and pay the cash, how do we buy the servers?"

"And now he's brought Andrew along so he can go out on the roadshow and he is fully fluent in every nook and cranny of the business model, the financials, the cash. Eric—everyone on the board—believes in Andrew and wants to make Andrew the best founder and CEO ever."

These days, Eric no longer takes part in all of Groupon's operating meetings. He does, however, remain Groupon's largest shareholder—owning more than 21% of its outstanding shares, about three times as many as Andrew Mason.

NEXT: SIX BILLION DOLLARS IS NOT ENOUGH

By the summer of 2010, 18 months after its launch, Groupon had several thousand employees, revenues in the hundreds of millions of dollars, and businesses in more than a dozen countries. It was only a matter of time before the biggest companies on the Internet started paying attention—and trying to buy it.

Yahoo came calling first. Sometime in the early to middle part of 2010, Yahoo corporate development boss Andrew Siegel reached out and offered to buy Groupon for a price between $3 billion and $4 billion. What attracted Yahoo most to Groupon was the promise of personalized offers.

What attracted Groupon to Yahoo was just about nothing. According to several sources, Andrew Mason simply did not want to join Yahoo or work for its CEO, Carol Bartz, and that's what he told Groupon's board.

He also said, "We're just getting started. I'm not ready."

Groupon rejected Yahoo's offer. The board—and Groupon's investors—had a message for Mason, though. Someday, he was going to have to either accept an offer like that one he had just turned down, or take this company public.

One investor recounts the conversation: "We said, okay Andrew, you took venture capital, and remember venture capitalists want an exit. It doesn't have to be tomorrow but you always have to be thoughtful when a company comes to buy your company, because it's not just you, it's your employees, options, investors and alike."

Mason didn't have to wait long for the next big offer.

Within weeks, Google approached Groupon with a huge bid—one that, after negotiations, reached $5.75 billion. Selling the company for a price that high would have been an incredible return for Mason, Lefkofsky, Keywell, Leonsis, and the rest of Groupon's stakeholders. Keywell and Lefkofsky would have made as much as $600 million and $1.8 billion, respectively.

Because his firm was also an investor in Facebook, which had wisely ignored several huge buyout offers, Groupon investor and board member Kevin Efrusy of venture capital firm Accel hated the idea of taking the Google offer and "was always pounding the table, saying 'we should not sell, we should not sell.'"

In the end, Groupon rejected the Google offer too. "There's only one reason that didn't happen," says a source close to Groupon. "Anti-trust."

Groupon's board worried that the FTC would take 9 to 18 months to review the merger, and that there was a very good chance it would kibosh the deal. "Eric Lefkofsky is very neurotic and he wasn't going to sleep for 9-18 months, and at the end of the day that freaked him out."

So Google offered Groupon's board an astounding $800 million break-up fee. It turned out not to be enough.

Even with all that cash, Groupon execs and its board feared it would emerge from a failed review as "a broken company" because it would have been difficult to hire and expand during the interim.

"At the same time," says this source, "we started seeing insane growth and that suggested that the deal was too good a deal for Google."

All that said, Google probably could have had Groupon if it had upped its offer one more time. Says a source: "Had [Google] made a $7.5 billion deal instead of a $5.75 billion deal, I think it would have gotten done."

Saying no to Google changed Groupon investors and board members' view of the company.

"So Google offers $6 billion to buy the company, and Andrew and Eric, to their credit, after lots of discussions with the board and lots of people, say we know there's a lot of money at stake and we know we can make a ton of money personally if we sell the company right now to Google—we get our money, we would cash out—but we don't think that's the right thing. We're going to stay with it and continue to build the company," recalls one source close to Groupon investors. "And we go: 'Great. [But] if you say no to Google, then you've got to IPO."

A number of sources close to Groupon say the whole ordeal—Google's offer and the IPO goal—changed Andrew Mason, and changed his outlook on the company.

Says one source: "When [the sale to Google] didn't happen, Andrew said to himself, 'I'm going to be CEO.'" Another: "I think he was definitely energized, and he realized there was added responsibility now of that fork in the road."

Google's offer was eventually leaked to the press, and the incredible amount of money involved in the deal raised Groupon's profile to new heights.

THE GROUPON BOILER ROOM AND THE GERMAN INVASION

In 2009 and 2010, Groupon became a very lucrative place for a kid out of college to work.

"Early sales reps could definitely make six figures," says one early employee. "Probably the ones that were the first 10 to 15, were probably making well into the six figures. A couple sales reps [were] probably making over $300,000."

"It was kind of first come first serve, so no sales rep was going to be put on Boise, there was no Boise—they were all on important cities. So their commission was huge because the volumes were so much higher than what Groupon ever anticipated."

"Their base was thirty something [thousand dollars per year], [but] they were making a ton of money, because of cities like Chicago or New York where Groupon thought they'd sell 200 Groupons in a week and they were actually selling 2,000 or 20,000."

These massive pay days for entry level employees pissed off some of the older executives in Groupon's Chicago office. "I think there was sometimes a little bit of animosity of people who weren't in sales towards those who were working 9-5," says a source. "I'm sure sales was hard but those of us in management were joking about 24 year olds doing better then we would ever do."

Groupon higher-ups knew that eventually an entry-level sales position inside the company would have to have entry-level pay. The change to a more professionally organized, sophisticated sales force started in earnest in May 2010, when Groupon bought a German Groupon clone called CityDeal.

THE GERMANS ARRIVE

CityDeal was founded by a trio of brothers named Marc, Oliver and Alexander Samwer.

The Samwer brothers are infamous for having made a very rich career out of building European Internet companies that look a lot like American Internet companies—and then selling those "clones" to their American inspirations. The two most famous examples are Alando.de, which sold to eBay for $50 million, and StudiVZ, which sold for $100 million.

The price Groupon was reported to have paid for CityDeals was "somewhere around $100 million."

What the Samwer brothers really got was a humongous chunk of Groupon stock. Today, they own about 6.5% of Groupon's outstanding shares. Mason owns 7.6% and Keywell 6.8%. If Groupon's market cap reaches $10 billion in its IPO—as it is expected to do—the Samwers' portion will be worth $670 million.

In the year and a half since that deal went through, the Samwers' influence on the company has become commensurate with the size of their stake in Groupon.

Just like any other company filing to go public, Groupon has to list "risk factors" on its S-1—things that could clobber the company. One of these risk factors is if the Samwer brothers were to quit working for Groupon.

Even this fairly dramatic warning does not capture the size of the role the Samwer brothers play at Groupon. That's because, these days, the Samwer brothers run the Groupon sales force through their proxy, Groupon UK founder Chris Muhr.

They rule it with an iron fist. With some mixture of admiration, fear, and revulsion, their way is known amongst Groupon employees as "The German Way." "They're very shrewd, savvy, sharp elbowed guys," says one source. "They are extreme capitalists," says another. "For them there is no soft and fluffy side of the business. They're revenue driven, not people driven."

"I think a lot of us who were enchanted by Andrew's format of a combination of people and money and customer, were kind of turned off by The German Way. I think they really changed the internal happiness for the workplace."
For one thing, "The German Way" has meant the end of absurd pay days for entry level employees doing nine to five work. It's also meant that Groupon's office place has become a much more intense place to work for sales people.

"It's a total boiler room sales culture. And it's really hardass. It's pretty hardcore."

There are two views of this change. One is that it is ruining a once great place to work.

One source who holds this view says that the Samwer's proxy in the U.S., Chris Muhr, "is the kind of guy who will hold somebody up in a meeting, and say, 'Bob, you made a really dumb decision. Bob, you're a stupid asshole, sit down.' Really hurtful, demeaning, bad shit."

The other view of the changes the Germans have brought to Groupon is—phew—it's about time.

One source close to Groupon's board who holds this view, says that Groupon's sales force is simply becoming more like a large, traditional, canvassing sales force—just like the old Yellow Pages sales teams.

"For the most part it's an entry level job, people start and if people like it and are productive, then they get promoted. But the job's not for everybody. Sales and telemarketing are not for everybody."

Some, as one source put it, think the Groupon sales management shift toward The German Way signals "a very strong change of power from Andrew to the Samwer brothers."

"I think they play Andrew like a fucking violin," says another source.

But at a recent public Q&A meeting with Groupon sales reps and other employees, Andrew Mason made it clear which view of The German Way he holds. An employee asked, "What happened to you? It was supposed to be fun here and now it's not."

But according to a source, Mason responded, "If I gave off the impression that this was a place to just come and have fun, that was my mistake, and I did something wrong."

"This is a job and you are supposed to work hard and what's going on is maybe what you all needed to realize; that this is a huge opportunity for all of you people so you should be working hard."

In late October 2011, on the roadshow pitching the company's IPO, Mason told potential Groupon investors that he would replace the bottom 10% of his sales force.

One former Groupon sales rep, Ranita Dailey, is suing over the new work conditions, alleging the company violated federal and state labor laws by forcing her and other employees to work unpaid overtime hours.

SO, WHO IS ANDREW MASON, ANYWAY?

Andrew Mason—with his mild brown hair, scruffy beard, and faded polo shirts—is funny in a way that most CEOs would be afraid to be.

Even as he's currently on the road asking major institutional investors to trust him with hundreds of millions of dollars, his Twitter avatar—his public face to the world—remains a picture of him on his knees, in his underwear, gleefully unwrapping a NintendoWii.

Once, we emailed Mason for a comment on a story, and he replied in minutes: "You can say that I totally was going to comment except the way you asked for my comment suggested that maybe I shouldn't and I didn't want to let you down so decided not to comment."

In July 2010, Mason attended investment bank Allen & Co's famous conference for moguls in Sun Valley, Idaho. When we asked him what it was like being around so many famous, rich people, he replied: "Have u seen Eyes Wide Shut? Nuff said."

When we told Mason a quote like that could make for a good headline, Mason replied, "haha... man that would be so good. Unfortunately my commitment to our business is still marginally higher than my commitment to fucking around."

On CNBC, a reporter once asked Mason if he really owned 20 cats, as he'd previously told another reporter. Mason said no. "Most CEOs will make stuff up about themselves to sound way smarter and cooler and people are disappointed to find out otherwise. I decided to set the bar very low and make up lies about myself that make me sound lame."

This wacky, always-making-jokes version of Andrew Mason is the one outsiders know. Sometimes we see a more serious, self-reflective side of Mason—the one who started The Point, and now admits he's surprised to see himself in the role of capitalist.

How do these versions of Andrew jibe with the one supporting the Samwer brothers' hardball business tactics? How is he also the leader of a business that is already doing more than $1 billion of revenue a year?

Mason grew up in Mount Lebanon, a Pittsburgh suburb. When he was 15, he started Bagel Express, a Saturday morning food delivery service. He moved to the Chicago area after high school to go to college at Northwestern. He majored in music. Then he started working on a Masters in public policy. To make some money, he did contract web design for Lefkofsky.

When hiring people for The Point, Mason struck recruits as young—but very smart. Still, one early employee told us that if it weren't for Lefkofsky's backing, he never would have joined The Point.

For a while, Mason's age and inexperience showed. Always interested in Groupon's product and the customer experience, he wasn't exactly passionate about the nuts and bolts of running a business.

Says one source close to the Groupon board: "Three years ago if you had said to Andrew, this is really important for you to master—where the money is made, know how many employees you have, know the best way to onboard and recruit and terminate employees—he probably would have said, yeah, I know. But deep in his heart of hearts, I don't think he would have meant it or internalized it."

To help Mason with the nitty gritty—helping him to understand it, and to understand why it's important—Lefkofsky, the Groupon board, and Mason himself have sought out mentors across the industry for Mason to be in regular touch with. He's in frequent contact with famed VC John Doerr, Netflix CEO Reed Hastings, Starbucks CEO Howard Schultz, investor and ex-AOL president Ted Leonsis, and LinkedIn cofounder Reed Hoffman.

Mason is in particularly close contact with Marc Andreessen, the Netscape cofounder who's developed a second, very rich career as a Silicon Valley investor and entrepreneur coach to CEOs like Mason and Facebook's Mark Zuckerberg.

The other hard transition Mason had to make was from do-gooder founder of The Point to Groupon capitalist.

Mason and other early Groupon employees have come up with some pretty good rationalizations for Groupon and how it helps the world. They like to say it gets people to try new things and that it gets small businesses cash flow.

But most sources close to Mason and Groupon agree that he's made the transition into business life quite easily. One source says that after he joined Groupon, he learned that Mason "is more of a businessman than I ever would have guessed."

"He just likes to be the wacky, quirky, irreverent, 'I don't care about money, I don't care about business.' It's bullshit. It's just a shtick. He started as a socialist, and now he's as capitalist as you get. He wants to build a really big special company and he wants to fly private jets," says another source who worked closely with Groupon and Mason.

Mason jokes with the press, this source says, because "he wanted to be a performing artist at some point in his life, and he was granted a stage to do that and he went for it."

Another source says Mason "still wears grungy old band t-shirts and hoodies and disgusting flip-flops" and doesn't seem like he's "turning into this snazzy, d-baggy CEO kind of guy."

But this source says Mason definitely "cares about making money."

"There's no way anybody would commit this much of his life and time and stress to this if he didn't care about making money." He cares about money because it is "validation that he is smart, he can do this. "

Mason can turn against people. "I remember one person, who's still there, at some point was like, heads down working like a crazy person, super serious and not able to crack a joke for a few weeks and I was like, 'what the hell is up with you,' and he was like, 'I'm in Andrew's dog house and I'm working my way back out, don't talk to me for a month.' There's a little bit of that and once I heard that, I was like, oh fair enough, see you in a month. So, yeah, it's a trait of his."

"He's a total hardass," says another source. "He gives no recognition at all. He's very hard to approach. He always has a furrowed brow. He always has headphones on. Everything is through e-mail. His free-wheeling funny guy image is something he turns on very effectively when it's required, but it's not him. He's very arrogant, he's stubborn. He honestly believes he's smarter than everybody else."

Not everyone takes Mason's aloofness so personally. "Does he think he's smarter than most people? Yes. Is he? Yes." Some Groupon employees appreciate his stubborn streak.

One time Groupon's business development team managed to land an offer with a "national entertainment brand" that would have broken Groupon into a whole new market segment, but because the deal wasn't great for Groupon subscribers, Mason squashed it—despite protests from "most of the C-level people."

"Andrew was listening to all these guys explain to him how this was going to be such a big deal, and he stopped everybody and was like, 'you mean to tell me we're going to do a deal where we offer x, y, and z, and you're excited about that? That's a stupid deal, I wouldn't buy that? Would you buy that?' And everyone looked around and he was like, 'we're not doing that deal.'"

"He had a really consistent vision of what he wanted Groupon to be and he didn't compromise that even when there were big financial stakes. He's kind of no bullshit and tells it like it is."

A source close to the Groupon board describes Mason as "thoughtful," and "charmingly goofy." He says that Mason is learning to become "a fully developed founder/CEO," one that "provides the vision, the soul, the power-plant for the company to continue to innovate and do great things and grow."

This source says that there are still things Mason doesn't like having to do and that he will learn are necessary to do. To help, Mason is, according to this source, "bringing on literally hundreds of great seasoned executives and mentors."

SO WHY CAN'T GROUPON HANG ONTO PEOPLE?

After Groupon turned down Google's $5.75 billion offer, Mason, Lefkofsky, the Samwer brothers, and the Groupon board began pushing the company toward an initial public offering.

Then, in March 2011, Groupon COO Rob Solomon stepped down. Shortly thereafter, Groupon lost its founding CTO, Ken Pelletier. In April, Groupon hired a Google executive named Margo Georgiadis to replace Solomon.

But only months later, in September, Georgiadis left the company, too. In the interim, Groupon hired and lost its head of corporate communications, Bradford Williams, in a two month period. What was happening?

Pelletier had been at Groupon for four years, sprinting the entire time. The winter before he quit, a close friend died. He left the company because he was exhausted and felt like he'd accomplished what he'd set to do, and was leaving Groupon in good technical shape. He left money on the table.

When Groupon turned down Google's offer, and the board decided it would set a course for an IPO, it became clear to all parties that Solomon's time at the company was coming to an end. Says a source, "Rob was seen as a startup COO, not a long term COO."

"I think that the perception was he didn't have the chops to manage the type of operations that Groupon had evolved to. When it's that high up it's always a little mutual. He's an awesome relationship builder but is he an operations guy looking at the productivity and the yield per employee? I don't think that's his thing, and I don't think he wanted that to be his thing either."

Brad Williams didn't last long at Groupon, says one source, because "Andrew wanted a communications person who could think like Andrew, who could write like Andrew, who could react like Andrew."

"Andrew is hard to work for in that role, like impossible. He doesn't want to do all the work but he won't allow anyone else to do it. He cares about the image, and the persona, and the voice and perception and he wants all the news to be good news. "

Through recruiter Russell Reynolds, Groupon is still reaching out to New York and Silicon Valley PR types to try to fill Williams' position. We've heard from some of them, and they say that Groupon is hearing a lot of "no thank you."

Then there's Margo Georgiadis, the new COO. With Solomon on his way out, Mason remained convinced that, long term, Groupon needed a COO—someone to do a lot of the management Mason preferred not to do. "Andrew really thought that would be very helpful to him to find somebody to fill in the blanks of what he wasn't as good at and maybe what he didn't like doing," says a source close to Groupon's board.

Georgiadis—a veteran of Discover Card, management consulting firm McKinsey, and Google—fit his requirements. She certainly impressed some people at Groupon during her short stay. "Her experience running large complex businesses. Her understanding of sales operations. Her marketing mind is just incredible," says a source.

"I've been doing what I do for [many] years, and I'm pretty good at it, and she was just picking apart everything I did, and I think what she said was right."

"It was like having a really good professor who kicks the shit out of you, it's like, fuck, he's right. That was kind of the feeling I had with Margo, 'wow, she's really good.'"

"I think not having Margo is a big loss for Groupon," says another person who worked with her.

Sources say Georgiadis didn't work out because she's a big-company executive, not a startup person, and that even though Groupon has more than 10,000 employees, it's actually still very small once you get past the huge sales force.

"She is driven, really smart. She's a really talented manager. [But] she needs an environment that's not ready, fire, aim. [She needs] ready, aim, fire, re-calibrate, lets do a PowerPoint another time before we make a decision. That isn't how we worked."

"We built the fastest growing company in the history of companies and it's still operating in that way while also trying to becoming more process oriented. She isn't that person who is going to thrive in that environment. "

A source close to Groupon's board says that Georgiadis quit Groupon for a great job at Google when the Groupon COO gig didn't work out because she had a mistaken understanding of her role. "Her vision of a COO was command and control. Everyone reports to her, she gets all the info, and then she goes to Andrew."

"In her mind's eye, the COO had all of these people who had been at Groupon reporting to Andrew, not directly reporting to her. A lot of these people were accustomed to just going and talking to Andrew. They reported to Andrew for all this time. She felt really, really uncomfortable. There was this really bad alignment and fit around the expectations of the job."

"To their credit, they liked her at Google, and they didn't like losing her and they recruited her, and she left."

Mason was "really hurt" by Georgiadis's defection, but this source argues "it wasn't a huge loss. I mean look at the quarter." Indeed, Groupon finally broke even during the third quarter, most of which took place after Georgiadis left.

Another perspective on the same situation is that it wasn't Mason staying involved that ruined Georgiadis's expectations—it was the Samwer brothers who boxed her out.

"My understanding is the Samwers were supposed to be reporting to Margo. I didn't know that until after she left. It didn't seem like it was that way," says a source who worked with the Samwers and Georgiadis.

"The Germans can be very, very controlling. I'm sure they owned a much larger percentage of Groupon then Margo ever did, so at the end of the day their way probably won."

Briefed on the details of this story, Georgiadis declined to comment. A month after Georgiadis left, Groupon announced that it would not be hiring another COO.

One source who worked closely with Mason for years says that's the right call. "Andrew is a very evolutionary creature, and as quickly as she came in, he was going through this process I'm sure that's saying, 'I'm the man, I want everyone reporting to me, I'm really analytical and I want to dig into all this stuff. Do I really need a layer between me and all these guys who are doing all the hard work, and the fun stuff? No!' He didn't need that layer."

"THE BIGGEST SHIT- SHOW IN THE HISTORY OF QUIET PERIODS"

In June, with Solomon out and Georgiadis in—temporarily—Groupon finally put all its financials in an S-1 and filed it with the SEC, declaring its intentions to go public.

By then, the business was huge. Groupon reported first quarter revenues of $645 million, approaching 2010's total revenues of $713 million. Bankers whispered to New York Times columnist Andrew Ross Sorkin that Groupon expected to go public with a $30 billion market capitalization.

But, to the shock of Andrew Mason, Groupon's big numbers were not met with the kind of acclaim he'd grown used to receiving from the press.

The numbers were met with ridicule, skepticism, and even suspicion.

The first issue was that Groupon's S-1 reported the company had actually lost money during the first quarter of 2010.

This was odd to see in writing, because for the year or so prior, Mason had been telling reporters that Groupon had already been profitable for quite some time. During an interview with CNBC the summer of 2010, Mason told Julia Boorstin: "We've been profitable now for almost a year."

Groupon actually lost $413 million in 2010. Diving into the S-1, it turned out that Groupon only considered itself profitable because it used a peculiar accounting metric of its own creation—adjusted consolidated segment operating income, or ACSOI.

Basically, Groupon was taking the money it was spending on advertising to acquire new subscribers to its email and not counting that money as a quarterly, recurring expense—but as a one-time, capital expense, the way Google might account for the cost of building a new server farm.

Groupon was saying that ACSOI helped it figure out the ratio between the amount of money it needed to spend on marketing to acquire a subscriber and how much that subscriber would be worth to the company over the long haul.

But marketing expenses are not typically accounted for this way, and people looked at Groupon as though it were trying to pull a fast one.

Jose Ferreira, the CEO of a learning startup called Knewton, got a lot of attention for writing a blog post that asked: "isn't it really pretty obvious that Groupon is a massive Ponzi scheme?"

A source familiar with Groupon's decision to publish ACSOI says this reaction was frustrating for insiders who say the number still helps Mason and Lefkofsky figure out exactly how much they can afford to spend to grow Groupon in new markets.

In later filings with the SEC, Groupon removed references to ACSOI, but a source familiar with Groupon's on-going accounting practices says "[Groupon] still [looks] at those metrics and measures, every week, every month, every quarter, internal. It is an important metric of how [Groupon measures] the health of the business."

ACSOI wasn't the only weird accounting in the S-1 that had the press writing nasty headlines. Groupon's huge revenue numbers were also inflated by an unusual accounting decision.

In its initial filing, what Groupon called its "revenues" were actually its gross revenues, not net revenues. When Groupon sells a voucher to a subscriber, it collects the cash, and then, after the voucher is used at the merchant, gives some of that cash to the merchant and keeps the rest. Normally, the amount Groupon brings in before paying the merchant would be called gross revenues. But Groupon called them plain old revenues. Normally, the amount of money Groupon keeps after paying the merchant would be called revenues or net revenues. But Groupon called that "gross profit."

It was unusual accounting, and as with ACSOI, it made outsiders suspicious. One source familiar with Groupon's accounting practices says the decision to emphasize gross revenues in the S-1 had more to do with the way Groupon manages its own numbers internally than any desire to make the company seem like a more successful business.

This person said that Groupon has always offered a full money back guarantee for the full price of the vouchers it sells to consumers, not just the portion it will eventually keep. The groupon is the product. Sales of that product added up are revenues.

Another source close to Mason's thinking about such matters says the gross revenues screw-up was much simpler. "I honestly have no idea why Groupon was submitting a line item that wasn't the right one. To me that seems like a rookie mistake that's totally ridiculous."

After reviewing Groupon's S-1, the SEC asked Groupon to use net revenues going forward. Groupon complied in later filings.

The revenue numbers went down, of course, and to the frustration of Groupon insiders, this created a whole new negative news cycle about the company.

Mason and Lefkofsky did not handle the bad press well. On June 5, a couple days after Groupon filed, Lefkofsky told a reporter from Bloomberg that Groupon was not a sham business and that it was "going to be wildly profitable."

In an effort to prevent pump-and-dump schemes, the SEC long ago established strict "quiet period" rules for companies that want to go public. Lefkofsky's assertion with a reporter was a no-no.

Later, Groupon was forced to revise its S-1 and include a paragraph warning prospective investors to ignore what Lefkofsky said. "The reported statement does not accurately or completely reflect our Executive Chairman's views and should not be considered by prospective investors in isolation or at all."

These missteps—which may have seemed minor in isolation—started to create a negative aura around Groupon. Suddenly, this company that seemed to have sprung out of Midwestern dirt overnight looked fishy.

Reporters started digging into Lefkofsky's background. The Starbelly.com lawsuit came up. So did Lefkofsky's shouting email.

Business Insider's Henry Blodget, meanwhile, pointed out that Groupon was running low on cash and that if it didn't go public soon, it would have to raise more in the private markets.

This was a shock, especially since many of Groupon's principles had already used much of the money Groupon had raised in previous investment rounds to cash out instead of loading up the company's balance sheet. Business Insider's Pascal Emmanual Gobry noted: "Groupon has paid out $930 million to employees and investors; astoundingly, out of the $130 million it raised in its penultimate round, $120 million went to the founders' pockets. "

One source says that friends who knew he was close with Lefkofsky would come up to him "all worked up" and ask questions like: "Groupon is running out of money. How could Eric pull out all that money?"

This source, certainly an apologist, explained how he would answer these questions. "Remember, Eric owns 22% of Groupon. He could have gotten cash from the Google deal. Instead he said, 'I believe in the company.' Andrew, and Eric, and Brad, take some money off the table, and now the articles are written, they're greedy and they pulled the money out of the company when the company doesn't have any cash. And it's another one of those things, you go, how does this happen if they wanted to cash out and run away, they would have sold it to Google. They'd be done."

Andrew Mason made things worse, when, in August he wrote a memo to employees defending the company against all these outside attacks—and the memo ended up getting published on AllThingsD. It seemed like another clear violation of the SEC's strict—if old-fashioned—quiet period rules, and it further damaged the image of the company.

By the time Groupon finally hit the road to pitch prospective investors at the end of October, the expectations for its market cap had fallen from $30 billion to closer to $10 billion.

One source close to Groupon's board says Mason and Lefkofksy have displayed "real perspective, and real calm and steady leadership," throughout the messy lead-up to the IPO.

But people who spent years working with Mason and Lefkofsky are marveling at how badly the whole thing went down.

"This quiet period has been a fucking disaster," says one source who helped build the company. He says it's been particularly rough on Andrew Mason.

"He's having a rough year because we went through this amazing run where we were the fair-haired child for a while, which all these great internet companies get to be. We went through it all quickly. We grew quickly [and] we went through the hate period more quickly than anyone."

"I think the kid will come out of it much stronger. I think you'll see a different Andrew that's more serious, now that he's been beaten [down by] the biggest shit show in the history of quiet periods."

"He won't be as wacky and silly in this next phase, his ego won't allow that. "

A source close to Groupon's board says there has been no thoughts of replacing Mason as Groupon's CEO.

THE COMEBACK?

It's late October 2011, and Andrew Mason isn't at his desk anymore.

He's he's standing in front of a gray background, talking into a camera about Groupon's financials. He's wearing a coat and a shiny silver tie. His hair is combed and his face his shaven.

He's recording the video version of Groupon's "road show"—the presentation it will give to the fund managers who will make or break Groupon's IPO.

You can find this presentation on the Internet. Groupon is, at this very moment, touring around the country asking investors to put their money into the company.

Since that tough moment at Groupon's office in August, Mason has made some changes. He's decided he does not need a COO. He's decided to fire some of his under-performing sales staff. And, after pressure from the SEC, Groupon's "earnings before marketing costs" ACSOI is gone.

The company's marketing spending also dropped considerably in the third quarter, which brought it close to break-even. Using conventional accounting, Groupon reported it lost just $240,000 in the quarter—down from $101 million the quarter prior.

The fact is, Groupon looks like it is headed toward being quite profitable, as it has always insisted it would be. Not that this has silenced the Groupon bears, who remain plentiful and loud.

After the third quarter numbers came out, Forrester Research analyst Sucharita Mulpuru told the Associated Press: "Groupon is a disaster. It's a shill that's going to be exposed pretty soon."

Groupon bulls, meanwhile, like to point out that many analysts said all the same things about Amazon, which struggled through its own transition from light-speed growth to squeaking out a profit.

These bulls say that thanks to products like Groupon Now—a mobile app that shows users deals at nearby merchants in real time—Groupon is on its way to becoming something much more than a daily deals company. They say it is becoming "a yield management platform for business."

Groupon wraps its road show this week and will open on the NASDAQ under the symbol GRPN shortly afterwards.

After watching Mason go through so much the past few months, a source close to Groupon's board shares an observation.

"There are three acts in the American drama," says this source. "Act one is young kid comes out of nowhere, surprises the experts, wins big—he's the hero."

"Act two is a public fall from grace."

"Act three is the comeback."

Republished with permission from BusinessInsider.com. Authored by Nicholas Carlson. Business Insider's Zachary Lichaa helped significantly with this story. Photos of Groupon's headquarters and its CEO, Andrew Mason, via Getty Images.