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I believe strongly in the consumerization of IT. The new sales model of that many SaaS companies are pursuing are high velocity, low touch and low cost of customer acquisition.

Companies like Solarwinds (SWI) build commodity products to suit a market need. The innovation isn’t necessarily in the technology but the creation and relentless refinement in the customer acquisition process. 

Leveraging the tools on the web to acquire new customers whether click-to-call, online advertising and lead generation optimization, new enterprise businesses can acquire many more customers at smaller price points with sales cycles measured in hours or days rather than quarters.

How does enterprise relate to LBS?

One of the key themes I’m pursuing at the moment are hyper local ad networks (HLANs) that will provide an intermediation layer between advertisers, both national and local, looking to advertise on location based services and the services themselves; they are equivalent to ad networks on the web, with the extra wrinkle of highly accurate location targeting.

An additional critical wrinkle is that the majority of the customer base are SMBs whose advertising patterns are shifting, but slowly toward using new media for customer acquisition and retention. The key problems in acquiring the local pizza shop to run an ad on your HLAN are:

  1. Customer education: most stores don’t know how to use the web effectively let alone mobile coupons and marketing
  2. POS integration: if you’re looking to close the loop, integration into the point of sales terminal is difficult
  3. Training your people: SMBs will need to train their cashiers to be aware of the coupon offers in certain cases
  4. Seasonality and volatility: many local businesses don’t have permanent offers, so your revenue from businesses will fluctuate dramatically. Additionally, a non-trivial fraction of the nations 7M SMBs (there are 24M including sole proprietorships), go out of business each year; hence the need for a fast sales process
  5. Fraud: if SMBs don’t design their campaigns well, it could force them not to honor coupons or worse, put them out of business if a coupon has been replicated too many times. I’ve heard the horror stories.

All these reasons point to the need of a sales process for HLANs that is very similar to SMB SaaS: it has to be cookie-cutter

  • Pick a narrow target customer and sell exclusively to them at the beginning: given the market, the customer should have a high average transaction given the customer acquisition costs in the market today. Trying to make that paying $15 for a yogurt consumer to visit a yogurt shop where an average order is $3 isn’t going to work. The sophistication of most merchants isn’t there yet. So, go after restaurants, yoga studios, mechanics and high end retail. That’s where your margins will be. 
  • If you get a call from a customer outside your demo, don’t return it. Remember, you’re in the business of high velocity sales. The product should sell itself.
  • Focus on businesses who are already educated: if anything delays a sales cycle it’s customer education. Find businesses exposed to similar products or who are savvy in the space. Let them educate your future customers by word of mouth and give them channels to do so. 
  • Productize your offering: no custom anything, only cookie cutter. Take it or leave it. Determine reasonable CPAs for your target market, price as a function of total marketing budget today (most local businesses spend about $1200 per month on ads) and sell a package. 

We’ve seen this strategy work in many of our portfolio companies. The size of the opportunity available to HLANs is enormous. The key differentiator in the market continues to be successful customer acquisition. Following the model in SMB SaaS enterprise sales is a big step forward to winning this lucrative market.

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