ReachLocal CEO: Digital Ad Industry Has a ‘Very Poor Reputation’ Among Small Businesses

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Small Business

Eighteen months after shaking up its leadership, ReachLocal has yet to turn the corner. The local marketing company has watched as nearly every metric of success, from revenues and profitability to active customers, has declined over the past year, sending investors fleeing and its stock price to new lows.

But turnarounds take time — and no one is more aware of the challenges than Sharon Rowlands, the turnaround expert who took the helm at ReachLocal almost a year ago. The former Thomson Financial CEO has set her sights on combating a massive churn problem, which she says stemmed from an aggressive sales culture within the company and throughout the small business marketing industry as a whole.

In an interview with Street Fight, Rowlands talks about why she thinks ReachLocal is not the only company in the small business marketing industry with brand problem; how to fix the sales culture in local; and the need to move beyond the land grab mentality of the late 2000’s.

Do you think ReachLocal has a brand problem among small businesses?
In some areas, yes. But I think every single company has a similar problem in the local marketing industry — and it’s fascinating to me. Whether we talk about YP, Yodle, Reachlocal and even Google — all of these companies have massive churn problems. It’s more that the the digital advertising space as a whole has as very poor reputation, and I do not think ReachLocal’s is worse than anyone else.

I want to read a comment from Glassdoor because I think it’ reflective of a broader cultural issue within ReachLocal: “The #1, #2, #3… focus of this company is to sell, sell and sell without any regard for what is right for the customer.” When you think about changing culture, do you eventually need to change people?
It’s a bit of everything. You do have to look very carefully at talent and make sure that your sales leadership basically has the character and culture that’s consistent with where you want to go as a company.

But compensation has a huge amount to do with it. I’ve ran many different businesses and at the end of the day salespeople do whatever they have to do to make the most money. You’ve got to make sure they make the most money by doing what you want them to do for the business. If bringing on quality accounts is important, that needs to be the way they make their money. But historically, the media business has not paid compensation in that way.

During what I’ll call “The College Years” of local — between 2007 and 2012 — the industry was dominated by a top-line-driven way of thinking that emphasized market share over profitability. That’s changed somewhat, but Groupon CEO Eric Lefkofsky, for instance, has held onto that strategy. Do you think that approach is problematic?
I think it’s very problematic. While you’re in a big market where there’s always another thousand customers that you can grab and then burn, you can keep that top-line story going. But at some point in time it breaks down, and it breaks down because the market gets wiser and new competitors come in with a better value proposition or better model and then you’re isolated.

I find it amazing that a company today can go on and on forever, just driving top-line growth and never have to worry about profitability. You can con the market for only so long with your big valuation, but at the end of the day, if you have a good business model and strong value proposition you should be able to get the balance right.

Are there certain characteristics of local digital marketing industry that have created this churn problem that are not just endemic to the small business market as whole?
It’s a couple of factors. To start, the absence of standards and definitions is hugely problematic. Sales people go out and talk about clicks and contacts and leads and customers, and on the whole, small businesses do not know what means what. A lot of companies sell on the basis that we’re going to generate 10 good  leads a week, but what they’re really saying is that they will generate 10 good contacts. But a contact isnt a lead. With this lack of metrics definition, the small business inevitability becomes cynical because they think they’ve been oversold.

In general, I think there is a transparency issue in this industry particularly around setting expectations upfront. It’s partly because the sales model that this industry has historically deployed is a very intense aggressive model. It’s just: get the customer and then hopefully they will stick. If you let your salesforce operate like that then you will inevitably have high churn rates.

Do you think that’s a vestige of legacy local media or is it something unique to the digital industry?
I think it’s a bit of both. It obviously stems in part from the old media and the ad sales model. But today, in digital, it’s become exacerbated by the market being so competitive. There are so many people trying to sell into local markets and trying to make their voice heard and get across a differentiated pitch — and that can lead to very aggressive selling.

Rooted in technology, many digital companies selling to small business try to scale products with little to no service and support organizations. Where do you stand in the do-it-yourself versus do-it-for-me debate? Will small businesses ever self-serve?
I think you have to do it. If you look at the makeup of  of these clients, there’s a range of levels of sophistication, and even those that have the expertise do not have time to put the tools to work. And in many ways, this feeds the churn problem: if you sell software tools without helping them to do it they’re not going to use it. And what happens with a subscription services that is underused?  It gets cancelled and there’s your churn.

If you really want that stickiness you have to find a model where you can help them do it and make it work. Out of all the research we’ve done, that the help me do it is by far and large the largest segment of the SMB community.

Steven Jacobs is Street Fight’s deputy editor.