Agreed. These things are covered in depth when setting up a Groupon, and Groupon has a pile of resources to help a business prepare to deliver what they're offering.
These stories pop up all the time, though, and the press keeps gobbling them up. I'm no fan of the company, but it's easier to paint Groupon as the villain than the individual business owner who didn't do the math of running their own business properly.
At the risk of stating the obvious, someone with a business that has 4k monthly turnover in cupcakes probably enjoys making cupcakes but is not necessarily an expert in industrial scale capacity planning. Groupon inverts the laws of physics for her business. Customer acquisition is no longer hard, gross margins are no longer $2 a cupcake. A part of me sympathizes.
It looks like they did 75% off of $40 leaving them with just $5 after Groupon's cut. I don't know how that would ever work with all the labor needed to make a good cupcake. They should have stuck with 50% off and a cap on groupons. Poor planning by the business owner.
I have heard that Groupon's sales folk are incentivized to have merchants not cap their offers, despite how bad it is long-term for both Groupon and the merchant (if the merchant can't time-shift the purchase, say requiring scheduling)... it's a quick win.
This is a logical pressure coming from the rushed IPO and lack of strategic planning for competition.
It just goes to show, if you don't plan and look out for yourself, others will just take advantage of you. This is especially true in the business world.
