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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?"
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.
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.