ReachLocal CEO: Company Got ‘Distracted By Shiny Things’

ReachLocalReachLocal has taken something of a precipitous fall this year. Shares of the local marketing company, which built  its business by selling search optimization tools to small businesses, have dropped by nearly 70% since the beginning of the year, and last week, the stock hit a new all-time low, settling around five dollars a share.

The company started to unravel publicly last fall. Both Zorik Gordon and Nathan Hanks — the two founders who led the company through its IPO in 2009 — left in quick succession. The interim leadership quickly killed their bet on local commerce by spinning off ClubLocal, and then proceeded to botch a reorganization of the sales force in December.

In April, the board hired Sharon Rowlands, a veteran turn-around expert, to take the helm. The fifty-five year old served as chief executive of Thomson Financial in the years leading up to the merger with Reuters in 2008, followed by two short stints leading distressed media companies in private equity-funded turnaround gigs. She has also sat on Constant Contact’s board of directors since 2010.

In an interview with Street Fight last week, Rowlands indicated she would be doubling down on the company’s strategy to build a soup-to-nuts solution in a deeply fragmented local marketing space.

Since the company’s IPO in 2009, and then a bump in 2011, investors have mostly cooled on ReachLocal’s story. When you examine the company’s performance in recent years, how much of that decline stems from broad strategic decisions, and how much from tactics and execution?
Hindsight is a wonderful thing. But frankly, I believe that the company has gotten distracted by new shiny things over the last few years. The previous leadership made a series of pretty significant investments in relatively adjacent areas like [local commerce] with ClubLocal, which we eventually spun off. Having said that, I do think the company did put stake in the ground in building ReachEdge and identifying that one of the challenges that small businesses face is the complexity and fragmentation of the industry.

The company also made some tactical mistakes on the execution front. For instance, the significant change they made to the north American sales operation in December 2013 has had a significant impact on the performance of the company. And while the good news is I think they’re all very fixable, and it’s all blocking and tackling; it doesn’t happen overnight

You spent over a decade at Thomson Financial, selling a pool of technology and information-related tools to bankers and investors. What’s the common denominator between the financial industry in the 2000’s and the small business marketing space today?
At Thomson Reuters I was in charge of 50 different companies, and we developed a product called Thompson One which really unified the business. The strategy was very much about bringing together all of the point solutions for bankers and portfolio managers into a single, integrated experience, and it’s a strategy we’ve also worked into Constant Contact, as they looked to move from a pure email marketing play to an integrated play. In a funny way, it’s a similar opportunity to what we have at ReachLocal.

In a post last week, Fred Wilson offered a great example of the kind of rapid commoditization which tends to happen in industries selling software to smaller business, and it’s something we’ve increasingly seen in the local marketing space. As a software company, how do you increase the switching costs for users — creating that moat around your business — so that you don’t end up in a price war with YP, Yodle and the other companies selling to small businesses?
I think it’s about packaging all capabilities together. By aggregating all of these services, we’re going to be able to give the client a much clearer view into the spending and performance of their marketing initiatives. We have a unique opportunity to use their data in search, per se, to help them optimize across other channels like display

In my mind, if a client is just buying search from you, tactically, it’s not that difficult for them to move from one search provider to another search vendor. But if you can really start to show how you’re driving performance across a all of their channels, I think it’s a much stickier experience: you’ve made the client’s life easier while improving the retention possibility for your customer base.

In the early days, ReachLocal grew by funneling large amounts of capital into a massive, on-the-street sales force. How does the shift in product from one-off reselling of media to a software-as-a-service play impact the way you think about the way you structure ReachLocal’s sales effort?
For starters, I think the economics of the cold call simply do not work anymore. Small business are being cold-called by so many different people that it’s just not an effective method anymore. You need to make so many calls before you get through to a decision maker that it doesn’t make sense from a financial perspective anymore.

Overall, there’s a absolute need for [ReachLocal] to do a much better job of marketing. We need to use marketing and lead generation to bring marketers into the ReachLocal ecosystem, and allow them to start to get some value from our software in a low-touch way. That creates a broader pool which we can watch, and then upsell them into our other capabilities — digital media, et cetera.

The war over the small business is set to explode in the fall with Yodle and GoDaddy gearing up for an IPO, and rumors of YP weighing its options. How does an explosion in meaningful, well-capitalized competition impact your strategy?
First, it’s a huge market — and not just domestically —there’s a particularly huge global market and It’s extremely fragmented. You’ve got a host companies building up point solutions, creating even more complexity in terms of what SMB can buy, and then you have the players trying to aggregate those capabilities. On the one hand, you have companies that want to create do-it-yourself software. But we’re always going to have one foot in the camp of helping you do it.

In the meantime, we are aggressively investing in product development, and in particular developing better methods to optimize across all media types in order to get away from the commoditization of search. At the same time, we need to fix the things we need to fix in the business. The bottom line is that we think 2015 will be a big year for us.

Steven Jacobs is Street Fight’s deputy editor.

  1. n
    August 12, 2014

    There’s a typo in the second question: “You spent over a decade a Thomson Financial,”

    1. Steven Jacobs
      August 12, 2014

      Fixed, thanks!

  2. Avanti Inbound Video Marketing
    August 12, 2014

    Watered down marketing at best. Same with Yodle and YP. Maybe terrible ROI for the business owner is the real reason it’s in the toilet?

  3. An Insider
    August 12, 2014

    If they didn’t take 50% of the smb’s budget and pocket that while only spending the other 50% that would help, but having to dig this out of the 400+ page SEC fillings was rather difficult to find, what Smb would do this research on their own? I did and it’s in plain black and white that’s why we’re loosing so many clients selling a product that’s not even ours
    Kirk Wright

    1. Kirk Wright
      August 14, 2014

      One of the comments above is attributed to Kirk Wright, an employee of ReachLocal. However, I’m Kirk Wright, I currently work at ReachLocal (and I’m the only Kirk Wright to have ever worked at ReachLocal). We have communicated this deception to Street Fight, but, the comment is still there and so I feel I must address this obvious unethical behavior. Accordingly, I want to clearly and unambiguously repudiate the comment improperly attributed to me. I have worked for the company for over four years and can proudly say that I have helped hundreds of SMBs grow their businesses through ReachLocal’s unparalleled total digital marketing solutions.

      1. C.A.
        August 15, 2014

        In Kirk Wright fashion a whole lot of talk but didn’t say much. “Helped hundreds of businesses”?? How many did you actually “help” or “sell” yourself? Salesforce says only a few before you fell into the management position by cheering on ReachLocal once the Orlando market was built out by another manager who was pushed out.

        Did Kirk believe in the guys from Dell as much as the new CEO? Everyone thought they were going in the right direction, or left the company. So who is really left there to bring this company back from it’s current state? What is the real plan? What hasn’t been tried yet that ReachLocal is now going to do?

        Ohhh and since Kirk is answering questions i’ll ask one more: What is the markup on search? Have you told those hundreds of clients what it is? (OK Sorry that was 2 questions)

  4. LongTime Employee
    August 13, 2014

    ReachLocal has been riddled with problems for years, way before the founders left. All these new “VP’s” are & will remain disconnected from the people who actually do the work: the sales people.

  5. RLFree
    September 10, 2014

    I’d like to say ReachLocal is a joke but its no laughing matter. There is no leadership there, just followers drinking Koolaid. There is no true concern for customer’s needs, only, “How can we push the latest product on them and make it sound valuable?” There is no real company loyalty or pride. The company eats its own. Even in a sales environment, it’s really bad there. It’s apparent to customers and painful for employees. I know, I was the latter. They are a mill at best. No amount of press or spin will help them:

  6. Transparent SEM
    September 29, 2014

    It is absurd to say that the company is where it is just because they got derailed by ClubLocal. If that is what they think then the problem is even more serious because it means that they have no clue and you cannot fix what you are unaware of.

    First, the culture at ReachLocal has always been very dictatorship style with many tyrants being rewarding by pushing and intimidating teams under the threat of getting fired any time unless you became a telemarketer and made ridiculous amounts of calls and log them into Salesforce. As a result everyone was entering garbage into the system and faking appointments, etc. You know the old saying garbage in……garbage out. So the first problem is culture and ReachLocal has never done anything to retain and promote talent, quite the opposite the good people were smart enough to see the writing on the wall and leave to better and bigger things. It is impossible to build success unless you show your team that you appreciate them and that you care about them! For as simple as this may seem this concept has been totally foreign to ReachLocal and the majority of the RSM’s and AD’s which by the way are a big part of the problem and yet are still there. With no team spirit there is no way that you can create a culture of success, people will do enough to get by until a better opportunity comes their way.

    Extremely low salaries is another problem, ReachLocal started to hired like crazy at the pick of depression/recession offering great professionals with years of experience base salaries of $40,000….. a new grad makes more than that!!! But the economy is cyclical and since it is improving the talented employees are finding better jobs that compensate them fairly for their skills. By the same token they are having a hard time hiring top talent and since they fire people like crazy they are forced to hire anything or anyone that has a pulse!

    Lack of innovation is another big problem, everyone and their dogs is doing SEM, display, etc. ReachLocal resells all of these products by adding marginal value which they call optimization (everyone is doing that) so the value proposition and business model is not sustainable with so much competition. Campaigns often do not work well and generate a ton of out of area traffic and there is no accountability! ReachLocal is quick to take clients money but it turns the other way when they have to reimburse them due to poor performance…..

    ReachEdge is the biggest joke! it is an over priced website with CRM capabilities and they call it SAAS!! this is part of the problem….someone needs to stop drinking the Cool Aid there! It is a website and a very expensive one that ReachLocal resells from Scorpio…. But they prey on the ignorant and call it smart website when the only smart thing that you can do is to stay away from it or cancel the most expensive website ever. You can get a much better solution and integrate a CRM and lead nurturing for less than $100 / month maybe even less than $50 and get better ROI given that your cost is lower.

    So there is an internal tsunami that goes way beyond ClubLocal and I really do not see how they can build a culture of success when there is none and some of the worse tyrants are still there in offices like Denver for instance where in one year the company lost over 50% of the top producing staff….before that it was a pretty steady working environment with low employee turnover which deeply contrasted with the rest of the company. So no culture of success + no innovation + not having a clue of what is wrong = ReachLocal Stock value trend. To say that 2015 will be a strong year is very optimistic….I am not confident that the company will make it past this year and the stock will go below $1. So if you own stock here….better sell it soon before your $3.85 stock is worthless or worth pennies!

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