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Why Local Is So Damn Hard For Startups: Foursquare Borrows $41M To Try Again
curtwoodward writes "It's one of the biggest, scariest graveyards for Internet entrepreneurs: Small, local business. Sure, a few companies have gone public trying to harvest this huge market — Groupon and Yelp, for instance — but even those big names aren't anyone's idea of a knockout corporate success story. Consider Foursquare, the 'check-in here' smartphone app that leads the latest wave of dreamers trying to strike paydirt among the mom-and-pop set. The company has now raised more than $100 million in private investment, including a fresh $41 million loan. It's just started trying to make money. And the CEO acknowledges that it'll take a massive new product overhaul to get there. Google's tried this market too, with nothing to really show for it. Same with Facebook. If these deep-pocketed techies can't crack the local business advertising nut, is there any hope for Foursquare — not to mention the countless smaller startups?"
Case in point, from TFA:
"Businessweek also reported that today, the business brings in about $2 million in annual revenue.
That’s not chump change, especially if you consider Foursquare’s assertions that it hasn’t spent any money on advertising, has a tiny sales staff, and actually blocks some big accounts from buying ads on its service"
I work creating new products to try to break this market and our biggest resistance is time. Most small business owners don't have the time to learn your tool, learn your business model or to care. They're not going into your HTML5 dashboard where you show them visits, spending rates, high traffic windows, etc. They're not going to download your app because they might not even have a smartphone and if they do, probably, don't know how to install apps.
They're not going to go through the process (as Foursquare is experiencing) of registering their business just to get some hate feedback and loose the little customers they have left.
Also, any normal small shop can have 2-3 visits a day from providers and commercials trying to sell them stuff. So you're simply another guy trying to reach into their rather limited margins and there's no MBA that can break that.
I disagree entirely. Small businesses need customer acquisition, messaging, reputation management and social engagement just like any other business. What they don't have is the budget to hire people dedicated to these tasks. The person managing these is likely to be someone whose main job function is something else entirely, if not the actual owner of the business.
What small businesses need is a turn-key simple solution that requires almost zero ongoing effort. It doesn't need to be perfect--it shouldn't be--as others have said, unlike big business, working too well can be problematic too since they don't have the capacity to handle that much more than they already do. But some way of getting their name out in a positive light and customers finding them beyond word of mouth is essential. And possibly more essential is keeping current customers engaged and coming back for their products and services.
If I was a small business owner, the issue I'd have with advertising on Yelp! is the fact that I'm giving money to an organization that might post bad reviews of my establishment tomorrow.
[Insert frothing-at-the-mouth posts about Yelp! being corrupt and taking down bad reviews for customers who pay. All done? Good.]
Couple cases in point:
There's a little Thai joint in my 'hood that I quite like. There are negative reviews (along with my positive reviews). Why would he advertise on Yelp!?
I'm involved in the management of a little rustic resort - It has one review on Tripadvisor posted by a couple of wingnuts who smashed up and almost burned down a cottage. Why would I buy an ad on Tripadvistor?
It's one of the biggest, scariest graveyards for Internet entrepreneurs: Small, local business
Not true
Internet graveyard is littered with businesses that does *NOT* make any sense
Most people have a misconception of how to do business online --- they often thought that Internet is a world of its own, that it has rules so special that online business must act differently than their brick-and-mortar counterparts
I'm talking from my own experience --- I had been in the Silicon Valley since the late 1970's and I had involved myself with several very very successful startups
Although my portfolio did include several failed projects, the majority of the projects that I involved with were successful --- simply because of common sense ---
Any business, no matter if they are online or in the brick and mortar form, must have at least one product that others need
And if the demand is great enough, others will actually PAY YOU to get that product --- and that's where you get your profit
No matter if it's google or youtube or facebook or foursquare or groupon --- as an investor (and an entrepreneur) you need to look at the project as a customer ... and ask yourself "Is there anything that I desperately need from them?"
If the answer is "Yes", I will pour my money in
If the answer is negative, or maybe, or not sure, or whatever, I won't waste my time with it no more
I can use my time better by looking around for other startup ideas --- and there _are_ a lot to choose from
Muchas Gracias, Señor Edward Snowden !