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Why Local Is So Damn Hard For Startups: Foursquare Borrows $41M To Try Again 121

Posted by Soulskill
from the addressing-trivial-details-like-having-a-business-model dept.
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?"
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Why Local Is So Damn Hard For Startups: Foursquare Borrows $41M To Try Again

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  • by White Flame (1074973) on Friday April 12, 2013 @06:11PM (#43436381)

    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.

    • by White Flame (1074973) on Friday April 12, 2013 @06:14PM (#43436419)

      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"

    • by Bieeanda (961632) on Friday April 12, 2013 @06:21PM (#43436481)
      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.
      • Re: (Score:1, Interesting)

        by Anonymous Coward

        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 b

        • by Grishnakh (216268)

          If we're talking about mom-n-pop local brick-and-mortar businesses, like the local deli, no, they don't need any of that crap. All they need to do is produce a good product/service consistently, so people living nearby will go buy stuff from them regularly.

          What they CAN benefit from, on the internet, is showing up on mapping services (like Google Maps), so that when someone searches "deli near 90210", their deli shows up, and people nearby go check it out. It also helps if there's reviews on there, as Goo

          • by Grishnakh (216268)

            I will add, however, that a small and simple website can be very useful for many local businesses. For instance, for a restaurant, a small website with some photos of your dining area and your menu are very helpful.

      • I can't agree. More times than I can count I've had a question about a local business which I've tried to find an answer to on their web site, something like what their hours are or often restaurant menus, but searching their name only results in a listing on one of the many useless yellow pages type sites. Many of my customers are small one or two person businesses, they'll tell me their email address and it's some random @aol or @hotmail which was clearly their personal account long before the business. It's entirely unprofessional these days to have absolutely zero internet presence and puts them in a position of having an uphill battle for me to respect them as a business.

        It's not rocket science to have a domain with email and a basic web site. It's trivial to get a domain and the absolute minimum level of hosting required for such things, why people consider it acceptable to not do this I can't understand.

        • " It's entirely unprofessional these days to have absolutely zero internet presence and puts them in a position of having an uphill battle for me to respect them as a business."

          That works both ways. It's entirely unprofessional to expect a web presence from a company that isn't interested in doing business with you.

          Don't misunderstand me: I have myself had plenty of experience with the former. But the latter do exist, and they may be more common than you think.

      • by rtb61 (674572)

        Small business is an interesting market having dealt with the a lot, there a couple characteristics worth mentioning. They often do not play well with others, the reason they are in small business is they are often unemployable otherwise. They often have a cheap greedy streak that makes doing business with them painful. The typical statistic for small businesses is that 9 out of 10 fail in the first two years. So churn is huge and the actual size of the small business market is, likely, 90% smaller than it

        • by Grishnakh (216268)

          I agree mostly with what you wrote, except the bit about the internet favoring medium and large businesses. The internet has been a boon to many small businesses, just not the local old-fashioned brick-and-mortar kind. For small businesses that exist solely on the internet, selling products or services directly to people, it's been a boon, because it lets your little mom-n-pop business sell directly to people across the country and even around the world, if what you're selling is something that can be shi

      • by jonbryce (703250)

        I don't really agree with that. It depends on your business of course. There are many small ebay traders who's business wouldn't exist if there was no internet. They sell a niche product that doesn't have a huge amount of demand, but having access to the whole world gives them the scale they need to make it a viable business.

        Then there are local service businesses. If you are a restaurant, it is a good idea to be on google local search so people can find you, and a brochure website with details of openi

    • by King_TJ (85913) on Friday April 12, 2013 @06:47PM (#43436663) Journal

      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.

      • I know I'm just one more armchair commenter, but there's clues here to work with.

        First of all, I think anyone wanting to start a business needs to go into it with a solid chunk of funding knowing full well that they'll burn money for a couple of years. So then while your point had rhetorical value, "$50 at a time" is a little low. I'd prefer to think of it more like "plan an ad campaign that seems to get the most bang for the buck". Personally I think company vehicles are severely under-rated. I've noted a

        • Re:Word of Mouth (Score:4, Insightful)

          by Jane Q. Public (1010737) on Friday April 12, 2013 @10:08PM (#43437947)

          "First of all, I think anyone wanting to start a business needs to go into it with a solid chunk of funding knowing full well that they'll burn money for a couple of years."

          In most cases I would agree with that only if it is YOUR OWN funding, not borrowed money. DHH (if you know who he is) watches the tech industry closely and he has said it many times: the FIRST and often fatal big mistake many small companies make is going straight into heavy debt to finance their startup.

      • by bhcompy (1877290) on Friday April 12, 2013 @07:18PM (#43436853)
        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.
        • by Grishnakh (216268)

          I think the bottom line here is: the type of advertising that's effective for your business, if any, depends entirely on the nature of your business and its industry. The type of advertising that works well for a local restaurant is probably not the type of advertising that works well for a company that sells specialized products to another industry, for instance.

      • by Monoman (8745)

        I agree.

        However i would like to add that some businesses can benefit greatly if you pick the right location as well. If you expect people to find you and/or come to you then location is VERY important.

    • No, and google and foursquare are making the same mistake. I deal with a lot of small businesses (one to twenty people) and I'll tell you, there's no such thing as the small business sector.

      Every small business has its own needs and strengths but more importantly it revolves entirely around the owner. A family run shop thinks and operates differently to one where some guy ploughed his inheritance into it, or someone with a business plan got a loan from the bank, or a place that's been run by the same guy fo

  • by ThorGod (456163) on Friday April 12, 2013 @06:11PM (#43436389) Journal

    Their idea doesn't sound like it requires 100M to get going off the ground. It also doesn't sound like it'd ever raise 100M all that quickly.

  • Google seems remarkably successful in cracking the small business advertising nut. Arguably that is Google's core business. They have been successful. But the thing is most of the time when people are searching for a product on the web they are ready to buy and many times when people are buying they start by searching.

    Foursquare would need to have something like local groupon type deals. Something like "I want to buy gas where is a good place" "I want a good meal" with some advantage for the customer i

  • Have all the power to list themselves just about anywhere and be found...

    The ones that haven't probably don't feel they need to. That's all fine and dandy till you get down to food... the good ones focus on their food rather than advertising and I've seen good ones go out of business as a result of a lack of customer base despite their food being 10x better than the deep fried garbage they served around it. It would be just to draw business to these places, but everybody else... like mechanics, CPAs, mom

  • Privacy (Score:4, Insightful)

    by nairnr (314138) on Friday April 12, 2013 @06:15PM (#43436425)
    Everything seems like a good idea until you actually get to do it, especially when it comes to the next social wave. I think people are reconsidering what it means to be on social media, and what the companies get from you using the service. Most importantly, it is the commoditzation of yourself as data points. In the end, these companies are raising gobs of money on the prospect that they can turn you or your information into revenue for them. Free services are not free, they have a cost - hidden or not- to you as a consumer.

    There are so many bubbles of tech companies trying to be the next big thing, people trying it our, and then getting bored with it. With so much money invested, how could they possibly get such a return on it?
  • Small Markets (Score:5, Insightful)

    by Archangel Michael (180766) on Friday April 12, 2013 @06:16PM (#43436435) Journal

    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?

  • by Lordfly (590616) on Friday April 12, 2013 @06:18PM (#43436449) Homepage Journal

    ...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.

    • by ThorGod (456163)

      and what would people in smaller cities use location aware devices for?

    • Not just that... but even in the bigger metro areas they also need to be useful for people who aren't hipsters looking for the latest gastropub or trendy cuisine hotspot. We've had bad results with Yelp and Urbanspoon, and always thought that was because we weren't in a big/dense metro area - until two weeks ago when we spent a weekend in downtown Seattle... and they were *still* pretty much useless because we aren't in the hipster demographic.

    • by Anonymous Coward

      I learned about Herpaderp Iowa through Friendster and its now my favorite vacation spot.

    • Well, except for your unfortunate slang term for a small city, you might be right that the services need retooling. If the town is small enough, you can get the entire list of businesses into an app. So then make it customer-driven: (Parody of Clippy meant for humor only!)
      "I see you want to go somewhere. Pick by name or by category?"
      "I see you are going to Joe's Hardware store. What do you need there?"
      "I see you are intending to get a new garden hose. Did you feel like trying out the new expandible host as

    • by roman_mir (125474)

      population 4,354

      - definitely. What do you do to help a small business in a small town like that? Advertising? I don't think so, everybody already knows you there.

      I spent a few years building software to run retail chains, manage the supply chain, collect all the data, allow quick good analytics, manage a single store with part of the system, manage cash register, price checkers, etc.etc. It's all tied together, gives suppliers access to their sale data (this depends on their contract with the chain). At the end it's a

      • I spent a few years building software to run retail chains, manage the supply chain, collect all the data, allow quick good analytics, manage a single store with part of the system, manage cash register, price checkers, etc.etc. It's all tied together, gives suppliers access to their sale data (this depends on their contract with the chain).

        You must be very smart to have done all that in the few spare minutes between running your huge web of sockpuppets.

        Can you tell us the name of this software, so we can a

  • Local vs. global (Score:5, Insightful)

    by Todd Knarr (15451) on Friday April 12, 2013 @06:18PM (#43436455) Homepage

    The Internet's good for global reach. But someplace like Rudford's [rudfords.com]? 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?

    • by Anonymous Coward

      This. I live in a small town. Local is local. I know what is local. I know where my friends go. Everyone in town knows when a new restaurant opens, and just go at least once (unless one of their friends gets food poisoning on opening night). I don't need help. Most small businesses in small markets primarily survive on local traffic, and none of these services can hold a candle to word of mouth.

      So if I am a small business owner, how do I invest my precious little marketing budget? Some local/social interne

    • by tukang (1209392)
      You get free coupons to local businesses for checking in and local businesses pay Foursquare to distribute those coupons. If they can keep their costs low enough so small businesses can afford the service, they have a good chance of building a nice businesses.
      • by chihowa (366380)

        So small companies trying to make it through the initial lean years pay a third party to make their prices go down? I bet they make it up in volume, right? (and that volume is an insane spike that generates loads of unhappy customers)

        I think Groupon showed how bad of a strategy this was. These "Local"-targeting companies' business model seems to be to siphon money out of failing small businesses. I can't imagine there's really that much money to be had there.

      • by Todd Knarr (15451)

        Why would they pay Foursquare? There's the local newspaper and several local tabloids, they can put coupons in them cheaper than Foursquare and almost everyone local who's looking for coupons is already reading one or more of those. Better local coverage, lower cost, again we're back to what exactly is Foursquare giving a local business that doesn't need to reach the entire world?

        • by tukang (1209392)

          You're assuming that Foursquare will cost more and be less effective than local print media but I don't know if those assumptions are right because delivering coupons electronically can be cheaper and more effective than advertising in a paper. Foursquare can target their ads based on your check ins, so they should be able to achieve higher conversion rates and it's more convenient for users to just get a few targeted coupons vs having to find a paper and then searching through all coupons. If I were into u

          • by Todd Knarr (15451)

            Local, remember? If I'm checking in at a place, they don't need to offer coupons to get me in. I'm already going there and know them. If they want to distribute electronically to repeat customers, all they need's a mailing list and a server to send the e-mail through. To attract new business they need to get the offers to the people who live in the area who aren't checking in. Except those people probably already know about the place from driving past it every day, right?

            Now, a non-social search site would

  • by rwa2 (4391) * on Friday April 12, 2013 @06:19PM (#43436461) Homepage Journal

    Groupon is a pyramid scheme that isn't really sustainable.

    I want to like Foursquare, but never really tried it because it sounds too social.

    Yelp was great when it was included by default on Google Maps. Even if the reviews were inconsistent, I got great results from them.

    I've been somewhat pissed since Google Maps Mobile started using Zagat. For their restaurant recommendations, Zagat puts way too much emphasis on appearance and 'chic', and not enough on food quality and novelty. So maybe they're a little more consistent, but I find myself having to consciously filter their ratings, like subtracting 5 points for Thai and Chinese and mainstream American, and adding a few points for any kind of obscure ethnic hole-in-the-wall.

    • This. Yelp does the local job just fine. I've yet to go into a venue and not have the overall Yelp opinion be far off from the truth. I don't need all that social capability, I just need to know if anybody got sick from the food at this Chinese takeout place.
      • I've yet to go into a venue and not have the overall Yelp opinion be far off from the truth.

        Doh! Typo. Scratch the 'not' from that sentence.

    • Seriously what does it even do? I see a facebook post saying someone has checked into Burger King via foursquare and think oh good for them. What does that do for me?

  • by Animats (122034) on Friday April 12, 2013 @06:19PM (#43436463) Homepage

    Basic truth: neither "social" nor "local" makes big money. Users, yes; profits, not so much. Compare Facebook's profits with Google, or Microsoft, or HP, or ... And Facebook is considered a winner in "social". Failures include AOL, Geocities, Myspace, Orkut, and Google's various tries.

    As for "local", Yahoo was the original "local" directory service. Where are they now? There's "local.com". Does anybody use "local.com"? Yelp is probably the leader, but loses money. If you're the industry leader for several years and are still losing money, your business model is fundamentally flawed.

    If there's a winner at "local", it's going to be somebody in the phone space.

    • by sirlark (1676276)

      If there's a winner at "local", it's going to be somebody in the phone space.

      You mean like the yellow pages?

      • by lgw (121541)

        I'd love to find a site that combined what Yelp does and what the yellow pages do with a map view.

  • Time (Score:3, Interesting)

    by ubersoldat2k7 (1557119) on Friday April 12, 2013 @06:48PM (#43436673)

    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.

    • 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.

      Angie's List seems to have solved that problem - they charge people to look for reviewed service providers rather than charge the providers. Just a reversal of the typical "if you aren't paying for the product, you are the product" scenario.

      Angie's List also sells "preferred placement" in searches and personally that's enough for me to distrust their whole operation. But I am a cynic.

  • Small business may not have all the smarts that big businesses can buy, but they're way too canny to splurge on advertising in an unproven medium which could sink without trace tomorrow. Businesses like 4[] who want their cash are going to have to offer a MUCH better deal to attract them.
  • If I'm a small entrepeneur, these three give me platforms for advertising, promotion, and e-commerce with optional "social interaction" channels built in. I'm probably already an experienced user with all of these systems, and I can safely assume that the overwhelming majority of my current and future customers know these systems as well. How much time and money do I need to invest up front in order to exploit these tools? Zero. Zip. Nada.

    Anybody who wants to deliberately insert a $$ product or service into this space is going to have to identify a gap in the current ecosystem that is painful enough that the entrepeneur will happilly throw the money at them. I don't see Foursquare doing anything right now that meets those crieria. They might have something interesting in mind but we'll just have to see.

  • The problem as I see it from a weekend warrior, tinkerer, technical point of view is as follows: 1. The majority of SB is not open afer the standard set of work hours (m-f, 8-5)to allow for other run of the mill people to purchase goods 2. The SB is engaged in a trade based (can not remember the exact name for this) buisnesss such as window tinting, hardware supply, or other wholesale or redistributor only market that will not sell to the "common folk" 3. If the SB will sell to regular person, their inven
  • Yelp? (Score:5, Interesting)

    by CohibaVancouver (864662) on Friday April 12, 2013 @07:21PM (#43436887)
    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?
    • by dfghjk (711126)

      "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!? "

      For the same reasons that anyone would advertise anywhere.

      Bad reviews are not evidence that the service intends to oppose a business. Don't reject it because it does its job well and you don't. User-driven feedback sites are services that support users; companies that want to treat customers well should be fine with that. You should only fear what cust

  • by Anonymous Coward on Friday April 12, 2013 @07:35PM (#43436959)

    Stop frickin' calling me while I'm working. My phone is not here for you to tell me how sweet your search engine optimization service is, or how I can attract lots more customers if I give away my product for a quarter of its value. My phone is to service my customer. If I need your help, I'll find you. Leave me the hell alone and let me work and take care of my customers.

    And stay off my lawn.

  • checked Google's 'feeling lucky' lately?

    The result used to be all interesting stuff, even after
    the randomized topic thing started to intervene.

    But as of now about one in five times "lucky?" opens up to "feeling hungry" with a clickmap to local restaurants.

    I'm feeling steered.

  • I read through the majority of the comments and they almost completely agree. There are several different points made, but they are variations on the same theme. That theme is that big, national advertizing campaigns really do not offer anything of value to small, local companies. To put it another way, what small, local companies need in an advertizing company is one that understands the small, local market they are in (in other words a small, local advertizing company).
  • Startups usually start with a small application and small infrastructure. To "do local" would require massive infrastructure and fairly sophisticated applications that can cater to the differences among the millions of local businesses. If somebody can "do local" it'll probably be Amazon. I've thought of more than a few ways they could work symbiotically with local businesses in partnerships which would own the Anti-Walmart crowd (and the ambivalent in many cases).

  • I honestly can't believe they haven't figured it out yet.

    Google knows practically everything about you. So does Facebook. The local advertising nut is cracked when they figure out how to get your attention when you are in proximity to a local advertiser that you have affinity for - and they are right about it.

    No, it is not sufficient to just scan your email for keywords and then try to refer you to advertisers with those same keywords. They have to figure out the purpose of your trip accurately as well. Say

  • A rule of business is sell to customers who have money. Small businesses are notoriously poor. They don't have much cash don't pay their bills on time, if they pay them at all. They are often poorly run. Even though you may stumble across the odd 2-man Apple-in-a-garage operation, even they were cheap and nasty when they started. It's a really bad market to chase. They won't pay much, and you won't get repeat business because most fail in 12 months anyway.
    • LOL! WOT!? Someone modded me down. I've worked with small biz. It's the reality. You spend most of your time chasing debts.

      If whoever modded me down didn't like what I said because they are chasing small biz then they are in for a rude shock.
  • They fail because they're not fucking useful enough.

If a subordinate asks you a pertinent question, look at him as if he had lost his senses. When he looks down, paraphrase the question back at him.

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