Lessons Learned While Building a Hyperlocal Startup

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Building a company serving the hyperlocal marketplace is exciting and rewarding — and if executed correctly has the opportunity to positively impact local economies around the world.

But the process can also be quite challenging. The hurdles to achieving breakaway speed are vast and much different from building a SaaS business with no connection to a specific geographic location.  Merchants are very tough to get a hold of, unaware of recent advancements in technology and at the end of the day are simply stretched too thin to pay attention to all the new tools available to them.  Add these issues to the overall challenges of building any new business from ground up and startup founders can quickly find themselves in over their heads.

With that in mind, I recently asked our sales team at Knotis what they thought about serving the local market. I drilled down on what it’s like to build a hyperlocal company in today’s ever-connected world and how to best handle the inherent challenges of this unique customer base.  Below is a crowdsourced version of what we discovered about the local market and how best to approach it.

What technology is a typical merchant using for day-to-day operations and local marketing?
Our sales team agrees that local merchants are predominantly leaning on marketing concepts which have been around for decades such as print and telephone, mostly because that is what they are comfortable with. When we visit a local merchant we frequently notice they seem confused, frustrated and ages behind what younger consumers deem as today’s commonly used technology such as mobile apps, text and photo communications. Prying further, our team discovered merchants put off investing in new technology during the recession, waiting for the dust to settle so they could find a better time to invest their precious money, time and energy.  Surprising to us, most seem to still be frozen in the same duck-and-cover position.

When we do come in contact with early adopters, these “forward thinking” merchants tend to be focusing on three things — the POS, loyalty/payments, and social networks. Merchants are upgrading the retail counter using Square, Shopkeep or other new POS systems to run day to day retail operations. The trouble we still foresee is how these merchants will satisfy the growing mobile demographic in offering them an effective and easy way to communicate, order and pay the merchant with their mobile devices.

We also found a large number of merchants have a Facebook page, but very few dedicate a significant amount of time or resources to it.  The more active merchants on social platforms have a dedicated marketing manager, or someone solely responsible for those interactions.  Far fewer of the merchants are active on Twitter, but we found the limited number taking advantage of alternative social media sites like Twitter, Pinterest, Instagram are keenly aware of the benefits of connecting with their customers.  Lastly, plenty of merchants use a newsletter (MailChimp or Constant Contact) which can be a highly successful marketing tool, however, this only reaches current customers and doesn’t help in gaining new ones.

What is hardest part about selling new technology to a local SMB?
Lack of time is the the biggest challenge facing any SMB today, and our team discovered one of the most difficult aspects of selling to this market is just getting any amount of their time set aside to actually talk about their needs and requirements. These small business owners are slammed with managing staff, ordering products, handling payroll and expenses on top of the day-to-day operations of their business, so to put everything aside and take another meeting is a very difficult ask.

We quickly figured out frequently stopping by their store would at some point lead to a meeting, and in the process build a relationship with the merchant. Given their time constraints, face to face or phone communication has become essential when dealing with local businesses. And most importantly, we learned email is the least successful way to close a deal since there is no opportunity to build trust, pitch a vision, or gain constructive feedback.

Another big issue to overcome is the fact that SMBs get approached daily/weekly with “new” ideas and potential marketing stunts. If they have been around for any length of time they usually have given a few new ideas a shot but rarely have any data to illustrate success or failure of each approach, so again they just lean on what they have done in the past. By taking this into consideration, we acknowledge merchants are initially very hesitant to new ideas, especially when they are oriented online or involving a mobile device. The best way around this sticking point is by leading with what they know best — like a tangible product such as a print marketing piece — and show them the path to how it will help them in the digital/mobile world as well.

Maintaining a proper balance of offering the current products and their value proposition in addition to pitching the future vision is another challenging aspect of selling to local businesses. Even if you align all these things perfectly in your pitch, the merchant can still get weighed down by confusion, thinking they will end up having too many things to control and maintain, and in the end simply say no to adding any more to their plate.

What are the most common misconceptions when talking with merchants about new ideas and mobile technology?
One of the most common misconceptions when selling to local SMBs is around discounting and how it affects their brand. There has been a strong and visceral whiplash response from the Groupon era, a negative wake still spreading through the local market today. Simply put, the bruises left from the group discount heyday continue to haunt SMBs around the country, and they hesitate to even consider other local technology concepts (even ones unassociated with group discounting) because of how frustrating the whole experience was for them.

Another common misconception is the time required to test a new idea to see if it actually works or not. We found a lot of owners just put up earmuffs when we talk about new technology, reflexively stating they don’t have the time or resources to test out “new” ideas.  What they might not yet understand is how little time is actually require to test and see immediate results on new concepts, keeping what works and discard what doesn’t.

A third misconception is the lack of perceived value, which is due to the misunderstanding or misalignment of value propositions between merchant and tech platform.  Most tech companies pitching local merchants are “consumer” focused applications and make the mistake of not tying a clear value proposition back to the merchant. Merchants don’t view these products as champions for their business, but more like a way for the tech company to gain additional users at the expense of the local merchant. In our experience, SMB’s initial reaction is to perceive tech startups similar to the likes of Groupon, Yelp, Facebook and Google, who tend to lack much empathy of the struggles of the local small business owner. We found it takes a number of visits for the earmuffs to come off.

Lastly, and maybe most importantly, SMBs’ perception on social media and how to use it seems off base. They expect investment in social media to immediately drive sales and new customers. They seem to perceive the use of social media as the end, not a means to an end. Social media (Twitter and Facebook especially) are best used for customer service after the sale is made and a new customer is won. Social media gives merchants an easy way to engage with customers as Q/A, FAQ, feedback, and Customer service tools. Most merchants we encounter don’t view social media this way and, in effect, are losing valuable opportunities for communication and connection with their existing customers.

What characteristics/features should a product team have to be successful within this market?
Through constant customer outreach our team learned success in this market requires building a trusted relationship with local merchants.  This is achieved by consistently delivering on the promises made during each visit. We found diligence and persistence are the keys to building a customer base of local merchants, as the majority of companies selling to SMBs take one pass and then move on. The best performing companies stick around, make a number of attempts to find out what is really important to each merchant so they can better tailor their offering.

In the end, we observed a successful local tech product employs a delicate balance of high tech and high-touch service, meaning they include a lot of face-to-face interaction when deploying a new customer. Most small businesses are not going to break down your door to learn about or test your product on their own. Someone needs to hold their hand throughout the process, answer questions and help with onboarding. This is what the industry calls the “Neighborhood Concierge” concept.

A neighborhood concierge gives personal attention and training on the technology, webinars and group training – all of which lead to high success rates of tech adoption and deployment. In addition, eating, shopping and frequently attending merchant stores as a customer increases buy-in with the business as it shows you actually care for them and have taken interest in their success.

*A big thanks to the Knotis team in helping compose this article.

Nick HughesNick Hughes is director of business development for Knotis. He previously founded the mobile payment startup Seconds as well as Coinme, a new company built around expanding bitcoin and digital transactions into the physical realm via Bitcoin ATM’s. In addition to those projects, Nick is co-founder and the host of Founders RAW, a multi-media platform focused on highlighting stories of startup founders and their companies.