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?"

Comments

Small business don't advertise that much

[White Flame]

Many small business which are suppliers establish themselves already having a customer base from their prior life. Word of mouth is best for small local businesses. Sure, some advertising is often necessary, but many of them also know that they don't have the infrastructure or manpower to handle a large customer influx.

Plus, many small businesses run on tight margins and just barely pay for themselves, if they're lucky. Trying to make it big selling advertising to small businesses is like trying to bleed a turnip.

Re:Small business don't advertise that much

[White Flame]

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"

Re:Small business don't advertise that much

[Bieeanda]

I really wish I had mod points, because White Flame hits the nail right on the head. Small local businesses need the Internet like a fish needs a bicycle. A blogspot page for events, maybe a simple '90s style page to show off bits of inventory and provide contact information, and that's really all they need at most.

Small Markets

[Archangel Michael]

are small. For a reason.

There are basically two types of Mom and Pop (aka Local) stores, those barely surviving on what they are doing, and those doing very well and don't need more help.

Which of these are these apps targeting?

As someone living...

[Lordfly]

...in a mitten-shaped flyover state, I think part of the problem might be that these businesses don't realize that most of the US doesn't look like LA, San Fran, or New York City. Therefore their idea of useful or exciting really isn't to someone living in Herpaderp Iowa, population 4,354. Maybe if they tooled their services to be a little more useful to people who can't just hop on the subway to the latest gastropub, they'd be a bit more successful.

Local vs. global

[Todd Knarr]

The Internet's good for global reach. But someplace like Rudford's? If you don't live in the area, you probably aren't going to make a trip to San Diego just to eat there and they aren't really interested in paying to make you aware they exist. And the whole checkin thing fails when it trips over the simple fact that it mainly tells me where my friends are at and if they're at Rudford's I probably already know because they pinged me asking if I was interested in dinner.

So what exactly does Foursquare bring to me? Not much. And since I'm the product it's selling to advertisers, if it's not bringing anything to me then why would I be showing up there to be sold?

Parent poster just summed it all up!

[King_TJ]

The more I get successful businesspeople to tell me the story of how they got started, the more I hear that common theme. Advertising and marketing is pretty much *useless* for the small business. It simply doesn't make any sense to divert funds to it that are so desperately needed at that stage just to tread water.

Word of mouth is by FAR the most successful thing the small business owner can use effectively to grow the company. PROVE you're valuable by pleasing someone who actually wants/needs what you're trying to offer. Ask them if they'd be kind enough to refer you to to the people they know. (A surprising number of happy customers will do your "advertising" work for you at no cost to you at all. People like to feel like experts about things, including having an answer when their cousin or buddy mentions he/she sure would like to find a good source for "fill in blank".)

For someone just starting out, I'd even say they should scrap ANY kind of advertising idea that costs them more than $50 or so at a time. Print up a bunch of cheap business cards, perhaps, or make your own flyers and strategically mail them out to locations that make sense. But otherwise, invest in things that make your business better at doing whatever it does. If it fails and you have inventory or computer hardware or furniture or whatever -- at least those items have some resale value or can be reused for another business plan. The money you poured into someone's 30 second radio spots or billboards or signs on benches at the bus stop? It's just spent and gone.

Re:Parent poster just summed it all up!

[bhcompy]

I don't wholly agree. Traditional advertising is bad(web ads, tv, some radio). Local advertising(signage, newspapers, some radio) can be useful for certain local products(a paintball store, for instance, not someone doing web dev).

And more than anything else, if there are trade shows for your target demographic, spend the money to go and put up an exhibit. Over the first 10 years the software company I work for(60 people, a small business) existed the vast majority of sales started or closed at trade shows for the target industry(public safety). Trade shows are expensive to attend as an attendee, and even more costly as an exhibitor, but they work very well because your entire audience is your target demographic.

Yelp?

[CohibaVancouver]

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?