Throughout our 4+ years Street Fight, a certain paradigm seems to come up again and again. An entrepreneur will have an idea for a great local product (be it a hyperlocal news site, or a reviews app, or a deals platform) and decide to build it out without really tackling the specifics of end monetization — or what the process of winning customers and selling products will be like. There’s a lot of: “If you build it, they will come.”
The reason they can avoid thinking about the nuts and bolts of revenue is that the market of 28 million “small business owners” seems so vast and potent. “If I only get a small fraction of that market,” the thinking goes, “this very useful consumer product will be a huge success.”
The main detail that often gets overlooked in all of this is exactly how hard it is to sell digital marketing products to small business owners — the hand-to-hand combat of vying for a merchant’s attention amid a sea of products; convincing them to give their business to your platform instead of to the hundreds of others they have been offered; and then hand-holding them through the process of understanding the ROI of their marketing dollars. It’s not easy stuff. You can get a sense from our recent Local Merchant Report how difficult and nuanced this market really is to crack into.
That’s probably why it seems like many new companies launch with SMBs in mind as their customer base, and then within a couple of years realize that it’s much more efficient to try and sell upstream — they move away from SMBs and toward national-to-local sales. Why spend all of that time selling marketing to a single local restaurant when you can make one sale to a Subway or Applebees and get 45 locations at once?
In local, particularly, it seems important to underscore something for new startups: to really think about and envision and understand their customer base. Rather than solving the problems of local consumers, solve the problems of local business owners who need competitive marketing and create a product onto that thinking.
I was speaking about some of these issues a couple of weeks ago in Boston with PagePart CEO (and Constant Contact founder) Randy Parker at a Mobile Monday event that Street Fight co-hosted. I followed up with Randy a few days later to see if he could recreate some of the stuff we talked about, particularly around endemic issues to that local startups often fail to take into account. He replied with this list of four pitfalls that founders often face when it comes to local:
1. Failing to identify true pain points, whether for merchant or for customer. I believe we were talking about startups building mobile apps. Having to go download a special app so I can get a coupon pushed my way every time I come into my local pizzeria is not anywhere close to enough bang for the buck.
And that’s on the CONSUMER side. Let’s talk merchant then. Lack of clear merchant benefit is one reason why the age-old “coupon for customer walking by my store” mobile marketing trope makes no sense. Why do I push a discount to my frequent buyer in the vicinity? Smart merchants would see this as a “profit erosion” initiative.
2. Simplicity of what value really is. We tend to overcomplicate it. I gave the example of how ten years ago people were talking about Amazon having a virtual-reality style interface by today, where we’d pull books into our cart from VR-style shelves as we “walked” its aisles.
Instead, we have virtually the identical Amazon user interface today that we had then. It turned out that none of that mattered. The simple job people want Amazon to do is to help them decide what to buy, to find it cheaply, and to get it fast. NOTHING ELSE MATTERS. So now Amazon spends a big chunk of its $7 billion R&D budget on just solving those core issues.
Local companies face many of the same challenges. Do I need to see all the tweets around me? Am I dying to track all my friends location 24/7? We need to hit more basic needs first. Uber’s always an example: look at their focus on cost, safety, and no surprises.
3. Confusion regarding who the customer is, especially in local marketplaces, where you need to serve two sides of the market. I’m old-fashioned: at the end of the day, whoever is opening their wallet and paying you is your customer. So Yelp will continue to be in a challenging position by only honoring their consumer base while trying to take money from the merchant (while not really providing them with good value).
If you start a local app with benefits only to consumers, then think long-and-hard about how you are going to get paid properly, and over a long lifetime (to recoup your cost of acquisition), from those merchants.
4. Seeing the SMB space as a huge aggregate, instead of making sure they serve each merchant successfully. (And small businesses are very good at assessing who is serving them authentically, as well.) There are not piles of customers raising their hand and saying “I’m a small business.” What they say is “I’m a shop owner selling high-end kids clothing and having problems charging enough to make a profit…”
David Hirschman is Street Fight’s co-founder and COO.