I was at a comics store (Chicago Comics) yesterday when a pair of startup guys came in to pitch what sounded like a loyalty program. (I didn't catch the name, but they said something about users getting points called "pixels", if anybody recognizes it.) The owner politely but firmly brushed them off saying that he'd heard from a dozen similar startups and he was just going to wait a few years to see which survived and became worthwhile.
So there's a fourth reason: there's enough of these startups that small business owners are sick of you.
It's not just startups, either. In many markets, you've also got embedded competition from newspapers, radio, TV, and local magazines. And, of course, there's the national players like Groupon, Living Social, Google... The market is very likely disproportionately crowded for the amount of money you could feasibly extract from SMBs.
Local businesses in the US alone spend around $100 billion/year in advertising. I think you're underestimating the size of the market and how many companies it could support.
Small businesses often don't have the expertise to analyze things like ROI so often end up spending large amounts of money inefficiently (that restaurant with a 2 column 10-inch ad in the local newspaper typically pays around $80 per customer gained), there's a huge opportunity in this space.
Small business owners get pitched for stuff several times a week. It gets to the point where you refuse everything outright unless you're looking for something specific.
This analysis is painfully similar to the last (start-up?) company for which I worked.
A huge chunk of my time in client acquisition was first dedicated to education. Things like impressions, clicks, CTR, and god forbid CPM are all jargon to most small business owners. Further, the concepts of geo-targeting or limiting delivery rates while possibly advantageous just make this first step a problem of too many choices. They wanted to be able to open the site (like opening a newspaper) and know they would see their ad and pay a fixed amount.
The second problem was then the same that we consistently see on Hacker News about pricing. Because it is a digital medium, shop owners expect the price to be much cheaper than that brick called the yellow pages.
Looking back, I can't blame the SmB owners for their resistance to give me their money. If I owned a small business, I would much rather use the money to help fund some community event or provide discounts to loyal customers. I personally believe that SmB owners are better served avoiding most traditional advertising and instead creating ways to better interact on a personal level with their community/city.
The only exception I can think of are artists. It would be really beautiful if all the medium rectangles and half-pages were tasteful ads for galleries. If that were the case, I would definitely turn off Adblock again.
The education component is where the disruption comes in. We have a solid business selling phone calls. Our sales pitch is "we make your phone ring and you really never have to worry about it."
SMB's get it and we don't need to educate them at all.
This is so wrong it's hard to know where to begin. I work for a very successful local company in Switzerland - have written about it before here - http://news.ycombinator.com/item?id=2053665
The problem with local + is not local, it's us - us geeks. We don't understand it. We expect it to play out like the rest of the Internet - grow community, B2C, performanced based etc and we're wrong. And we're not listening...
Some of the fundamentals of local + are;
- don't waste an SMEs time. You really want to tell, say, a hair dresser they should spend a morning a week managing their ad campaigns (or similar) instead of cutting hair?
- be on the ground with a sales force - 75% of SMEs aren't interested in the logic of why yours in the best idea ever; they'd rather talk to someone they like and hear a sales pitch they can relate to
- bring genuine value - i.e. help them generate leads - stop trying to screw money out of them - I'd argue Groupon are an offender here
To the idea there's no money to be made, I can only smile.
I never understood the appeal of doing a local online startup. The conversion rates are not much bigger in local, and your visitors are scattered all across the USA. So suppose you got a 1% conversion rate, and 1 million uniques. That's pretty good: 10,000 buyers. At 1% conversion rate and 100 uniques in 1 city, you're down to just 1 buyer. That stinks. But it doesn't scale because no local advertiser is gonna get excited over 1 buyer.
This analysis is spot-on. Especially when it comes to getting small businesses on-board. Groupon, one of the champions of local, spends massive amounts on educating and selling local businesses on the value of daily deals.
Salesforce is charging my company 1000 euros per month per sale person for what appears to be a rather simple crm. SAP is charging hundreds of thousands of euros for an ERP that is anyway too complex for small businesses.
Maybe it is me, but I believe the real problem is that start ups don't take the time to understand the businesses they want to disrupt. They like to discuss about scalability, nosql, complex software stuff, but guess what, probably a simple application in mysql that does know the business is worth 1000 times more.
And just to give a practical example about my point, look at how much discussion has generated a rather simple problem on linkedin: http://tinyurl.com/89ocf8x.
Stores are a marriage of a logistics business and a marketing business. The split is about 75%/25%. That marketing component is ripe for disruption that directly connects the original sellers (brand, manufacturers, authors) to their end users (consumers, readers).
Letting the stores control the decisions about how that connection gets made is not in the entrepreneur's best interest. Making that connection efficient by using your great idea is not in their best interest. That's disruption for you.
The winners will figure out how to separate the logistics of local availability from mobile/local marketing.
This strikes me as terrible advice. Local remains wide open for new ideas. Some of the very brightest current startups are local-driven (eg groupon, square). Local is far from "done". Entrepreneurs who can crack the local nut will be rewarded handsomely.
Groupon = very bright startup? You might want to check up on those guys, as things like their burn and churn rate in expenses and customers are more than enough to give one pause.
Square = credit card processing. Sure, a local businesses can use them but calling Square is a play in the "local" space is a stretch.
Please do share some of these "new" ideas. The only ones I've seen are Groupon clones and each seems to get worse than the next. (Not to mention SMB's hate Groupon after using it.)
Off the top of my head: Ness, TinyReviews, FourSquare, Stampt, Perkville, Giftly, MotionLoft, Savored, Gobble, Farmigo, Rewardli, Prism Skylabs, Zaarly, Local Hero, Red Beacon, SeatMe, ZeroCater.
There needs to be real innovation on business model, but there are local services from 2000 era that are BETTER suited to today than then.
Kozmo.com is my prime example.
There is need for a local delivery site where you can find affordable delivery of anything in your area. They need to employ all the bike messengers and others, adopt the task rabbit scale of service and branch out to delivery, errands etc.. on an affordable scale.
I flew to NYC with one of the founders of Kosmo back then and expressed how much I loved the service and wished I could use maps (something like google maps which didnt exist) to be able to view various stuff near me; "Show me all indian restaurants within 1 mile" etc..
He didnt think that there was any value in such granular searching.
Anyway - I still want these services, but I think this nation needs a rude awakening on how much shit should cost.
Sam, how can i reach you via mail? Would love to talk to you about the service you describe and what we're doing at Postmates. I'm bastianlehmann@gmail.com
>...Anyway - I still want these services, but I think this nation needs a rude awakening on how much shit should cost.
What I mean is that I think that everything is overpriced.
While the market seems to support current costs - I also think that costs are out of balance with value. For example, when I look for freelancers both programmers and designers - it appears that every single freelancer believes their value to be ~$200K per year, i.e. they are all asking for $100 per hour or more.
While I think that there are a lot of talented designers and programmers/developers out there, I am skeptical that EVERY one of them is worth 200K.
I also think that a lot of menial tasks seem to be overpriced.
Most task rabbits seem to want $20+ per hour, I just dont think that errands and what-not really are valued at $20 per hour, even though everyone seems to want to be paid that.
I think this is a symptom of everything being too expensive, from food to services.
I think the task rabbit price drops when the density of task rabbits is high enough in a locale to make the marginal cost drop. If I am right you should see this happen for certain tasks that don't make people deviate much from their ordinary course. Data gathering while shopping, for example, should be cheaper than delivering furniture.
A very interesting and timely article coming right at the time when I am reevaluating the launch functionality for my Asian "yelp-like" startup what2do.asia and after just having a series of meetings with seed/vc investors.
The interesting thing is that the Asian local search market has never really been cracked, it is highly fragmented and travel patterns and local search needs are very different. Anyway thanks for posting this and sharing, it has provided some great insights.
So there's a fourth reason: there's enough of these startups that small business owners are sick of you.