Why Local Sucks. Or Maybe Not.

Chris Devore, a long-time friend, writes an interesting blog post on why you shouldn't do  a startup in the local space.  Or why it was a bad idea a few years back.  I've exchanged a few comments on facebook with him and Andy in a friendly spar.  Ben Smith weighs in and so does Jason Culverhouse with a comment on Chris' blog.

In short, local sucks if you are an Internet entrepreneur.

And yet, there have been a few  big successes (OpenTable and Groupon), a few moderate ones (Topix, urbanspoon, and  MerchantCircle -- a company I co-founded), and a few that I'm pretty sure are (going to be) hits. Peixe Urbano, for example.  Maybe it depends on the metrics you use to define success and therefore YMMV depending on your viewpoint.

My conclusion: There was and still is money at the end of the local road.  It's a matter of taking the right path and choosing the right angle of attack. At MerchantCircle we believed similarly to Judy's Book but executed differently. 

Merchants First.  We knew our customers were the small local businesses.  While others went down the path of on-boarding a large audience first, we knew where the money was.  The local business owners.  While we never grew a ginormous visitor base, getting to the mom and pop operators was more important.

Scale Free Customer Acquisition.  We believed that low cost customer acquisition was important to success.  High cost of customer acquisition and high churn rates would be death.  Unlike Groupon and ReachLocal, we were fundamentally against building a large sales force.  We did not think that would scale.   Knowing that the merchants were our targets, our goal was to acquire a customer at $1 a pop.  We spent countless of hours experimenting and deploying different tactics to get in front of customers at low cost and at scale.  Automation and software were key.  Special kudos to Doug Kilponen for being the business driver behind all of this.

Hit the Hinterlands. 
Unlike many, we did not focus on the big cities (San Francisco, New York, Los Angeles, Chicago, and Seattle).  We actually feared that successes in any single geography (big or small) would yield false positives.  Tailoring a special plan of attack for each city or zipcode would not scale.  Again, automation and software  allowed us to get access into 20,000 cities, 40,000 zipcodes, and 15 million businesses, inexpensively, quickly, and effectively.

Go Lean.  Before the Lean Startup movement, we decided build a company with few people.  We called that lean.  It was over a few beers in 2004, a friend was on pedantic rant:  "People suck.  You should build a company and product without people.  A product should market itself and sell itself.  Everything should be driven out of engineering."   I took it to heart (even though the person revealed later that he didn't quite mean it).  We set out drive everything out of product and engineering -- a product that marketed itself, sold itself, and was fully self service.  We had no sales people, no marketing folks, no customer support, no separate IT organization, and no QA group.  Eventually of course this changed.  But the company never grew much larger than 10 people in the first two years and it was smaller than 20 nearly 5 years later.  Because labor was the most expensive cost to the company, the small employee foot print was paramount to conserving cash.  Further, the small team size made communication much more efficient.


Many of our assumptions were the same as Judy's Book. But we acted on them differently.  For example, while "turning on many cities simultaneously" didn't work for Judy's Book, it was important to our success.  Execution is/was everything. 

And what about MerchantCircle in the end?  Well, it would have been nice to have achieved the success of OPEN or GRPN.  While we sold the company to Reply, I still have hope that, as part of a larger family, MerchantCircle will make a massive positive impact on local businesses and be part of a great success.  

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This page contains a single entry by published on February 1, 2012 4:34 PM.

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