Local media survival depends on Low Cost Sales Models

May 29, 2009 by

Amidst the doom and gloom of local news media, it’s lost on many that there’s a sector of local businesses that can provide a 20% lift in revenue. McKinsey did an analysis using a market of 1 million people to determine the revenue increase a newspaper could get if it attained a similar share of ad budgets in small and medium sized businesses (SMBs) as it had with larger local businesses. It represented a 20% revenue increment over where they are today. In an environment where “flat is the new up”, that’s significant. It does require a fundamentally different sales approach than what most local media have practiced which I outline below.

In my experience as a revenue traction consultant and local publisher, I have seen 20% growth is attainable as we saw that with a number of clients in Q1 when most businesses saw a decline in revenue. McKinsey also found that already the penetration of SMBs spending online is greater than the penetration of SMBs spending in newspapers. Though we often think of smaller businesses being behind larger organizations, it turns out they have deeper penetration with online than any other form of measured media. It is worth noting that SMBs aren’t simply interested in display ads, however. McKinsey’s findings echo my experience that SMBs have interest in other online marketing tools like Search, Email and other non-display tactics.

In general, we have seen a gap between the high-end of the market where shoe-leather sales models are still appropriate and the low-end of the market where some local media have pursued self-serve models. Our experience has been that added sales focus in the mid-market will increase sales yield. This isn’t lost on companies like ReachLocal, Citysearch and others who are grabbing swaths of the market that local media has every opportunity to capture with the proper focus. One of the ways to differentiate versus the national players is outlined in the follow-on piece on thought leadership I outline below.

It is critical to apply the appropriate sales model to the revenue opportunity. As a general rule of thumb, here’s what we find/recommend:

  • If a customer will bring in more than $100,000 in revenue, you can afford a shoe-leather sales model
  • If a customer brings in between $5,000 and $100,000 per year in revenue, a telesales-based approach is most appropriate. Note: The biggest point of confusion I observe is people confusing either inbound order-takers or outbound “script readers” in call centers with a well-trained, professional sales organization that actually closes new business.
  • At under $5,000, you’ll want one or some blend of the following:
    • Inbound order-taker call center who can quickly turnaround a new advertiser but aren’t involved in cultivating new business
    • A self-serve ad model
    • A channel sales model where your offering is part of a larger solution/relationship

A reason this gap exists is that the traditional shoe-leather approach isn’t economically viable in the SMB market. Thus far, all of the efforts I have heard about are taking wrong-headed approaches. While SMBs are looking for a partner who can provide consultative advice, instead they are getting low-value “script readers” who are no different than the irritating telemarketer calls we hate to get at home. This is in contrast to the well-trained, professional telesales organizations that are profitably driving revenue for many organizations. One of the best examples is Dell that drives over $3B in sales via their outbound telesales organization (my business partner ran that organization before joining my firm). In McKinsey’s study, they found 60% of SMBs are comfortable with remote support via phone or email. An additional 26% said a mix of face-to-face and remote was ideal. Only 8% stated face-to-face was what they always wanted.

One might reasonably ask “where do I find the resources to build a professional Inside Sales team when we are cutting back?”. In every sales organization we have worked with whether it is in the media business or not, there are bottom performers that should be let go. Typically, the Inside Sales reps we hire have a loaded base cost of $3,000 per month and a variable comp of an additional $2,000 if they hit their targets. Two or more of this type of headcount can be filled for every bottom performing shoe-leather sales person. When we build these teams from the ground up, we normally start with two people and then scale the organization with revenues so this is well within the reach of every publisher. We have seen these Inside Sales organizations grow to dozens of team members as the revenue supports it. The typical range in revenue generation is $300-500k per rep which can be quite profitable.

Let me comment on self-serve ad models since it is held out as a savior of sorts. Like many things in technology, I believe that it is overestimated in the short-term and underestimated in the long-term. My consulting business has worked with one of the leading self-serve technology vendors. Their lack of success with the self-serve model is why we helped them develop an alternative low cost customer acquisition model that reflects the reality that the vast majority of advertisers today still need human involvement. I believe that will change but my gut tells me we are three to five years from self-serve ad models delivering on the promise many of us hope for. In the interim, a bridge to that will be what I call a “publisher assist” model. The publisher realizes some of the efficiency benefits of the self-serve tools while taking an approach comfortable to the SMB.

A topic for a separate article is the products one should offer to SMBs. In a nutshell, simplicity is key. In addition, experimenting with different offerings is important.

In a follow-on piece next Wednesday, I will address a critical component of a low-cost customer acquisition model. That is, it’s necessary to have a cost effective lead generation machine. One way of doing that is to establish thought leadership. The disruption caused by what Jeff Jarvis has called The Great Restructuring has created demand on the part of local businesses to accelerate their understanding of Internet-based marketing. Local publishers have an opportunity to fill that void by establishing themselves as thought leaders in digital marketing. In the follow-on piece, I will highlight how we are using a How-to guide to digital marketing and a series of seminars to stimulate demand for online marketing that my site fulfills. The how-to resource and seminars are being used both for customer acquisition and retention purposes.

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Top 10 business mistakes that newspapers must avoid as they go online-only

April 1, 2009 by

I’d like to welcome the Seattle Post-Intelligencer to the world of pureplay, online-only local Internet sites. They have a heckuva a jumpstart with their level of web traffic which any local site would be thrilled to have. Unfortunately, there are many other items that they must put in place to succeed. To their credit, they have taken some good first steps. The first and painful step was reducing headcount which reflects the reality that revenues will be lower for awhile. However, no business can cost cut your way to a successful business. The second laudable step was outlining how they plan to position themselves as a digital marketing agency with their advertisers selling everything from Yahoo display ads to paid search from all the major search engines.

Nonetheless, this is all moot if they don’t develop a viable revenue model to go along with it, something they have no apparent experience with since the Seattle Times had done all of their advertising sales as part of their JOA. The painful truth is that 99% of the local Internet plays have proven how NOT to develop a sustainable model. Some newspapers have claimed their online properties are profitable but this is a suspect claim since they weren’t burdened with the costs borne by the print product. In other words, most local online plays are subsidized by an offline counterpart which the P-I no longer has.

One of my observations from attending the New Business Models for News conference hosted by CUNY and run by Jeff Jarvis (of Buzzmachine & What Would Google Do? fame) and David Cohn (Spot.us) was that virtually all of the new business model discussion was about ways to lower production costs or new ways to fund journalism. While those items help, it’s clear the only path to long-term economic viability is to directly address the revenue piece of the equation.

Having spent the last 13 years off and on working on local Internet media, I’ve made my share of mistakes and have learned many lessons along the way. I’ve applied those to the site that I own and run (SunValleyOnline.com) and have managed to build a modestly profitable business. I hope the P-I has success so I’m sharing what I believe are the 10 most common mistakes that have prevented most local media sites from having success.

The following are the list of things the P-I, and other online-only newspapers, should avoid that most other local websites haven’t avoided:

1. Many local websites assume that since they’ve been in the business for a long time that they don’t need to conduct any research with their customers and non-customers. When we did research, we learned things that changed how we positioned our website to our advertisers as well as it informed our editorial direction. We also gained terrific insights into how much we did/didn’t overlap with our competition.

2. While most of us in the local publishing business think our site is available to everyone, the P-I should avoid the one-size-fits-all mentality. It’s a mistake to have your sales team start calling on as many advertisers as possible without regard to vertical market, psychographic attributes, etc. A well-honed value proposition for a particular segment is more work but worth it.

3. Until we did research, we had no ability to quantify the value of our audience. Just because one is the market leader (in terms of traffic) you still need to articulate a return-on-investment calculation to a prospect. Just as important, it’s important to worry about calibrating expectations with your advertiser about your advertising. Most small businesses need help and can have unrealistic expectations. If you don’t set expectations properly, the advertisers will “one and done” — i.e., they won’t renew as they may have had wildly out of proportion expectations.

4. Most newspaper sites clutter up their pages with as many ads as possible. After all, if there are more ads on the page, doesn’t that mean more ad revenue? [Hint: No] Many of these sites also use tiny static ads. There has been ample research on ad effectiveness of various types of banner ads. Apply that insight. While banner ads are the mainstream “solution” today, I’m fully convinced that new models of matching buyers and sellers will emerge. Google’s AdWords has been the “killer app” for online advertising but there’ll be others. Our motto is to test, analyze, refine, test, analyze, refine. I have little doubt that we’ll look back 10 years from now and laugh at what we considered to be state of the art.

5. Most media sales organizations aren’t tightly defining each step of the sales process with the corresponding likelihood of closing the deal. Too many also don’t have a systematic Win/Loss analysis process. While there are thousands of businesses in Seattle, it’s a path to failure to think you can just churn through advertisers.

6. Most local media sites simply create a rate card and when it’s time to ask for the order, toss it over the transom. The thinking is “A rate card is just a rate card. No need to use it as a strategic selling tool.” In reality, it has a lot to do with driving long-term retention of an advertiser as well as creating scarcity during the initial sales process. If they understand the rate card and you remind them on a monthly basis of how you are delivering against your agreement, advertiser retention rates will climb.

7. There’s a myth that since advertising is a “relationship” business it’s necessary to hire expensive shoe-leather salespeople as that’s the way it’s always been done. Many don’t have a grasp of how one builds a world-class Inside Sales organization and assume that an Inside Sales organization wouldn’t work for media sales. Unfortunately, they forget the fact that they are trying to extend beyond the normal 10% penetration of local businesses that newspapers have and that this means less revenue per account. That demands a lower cost model. Just because you are hiring an experienced media sales person with lots of field experience doesn’t mean that they’ll know how to create a low cost customer acquisition team/model. This is a radically different skill set.

8. Unfortunately when many local media organizations hire their online sales people, they don’t worry about making the distinction between “hunters” (i.e., sales people adept at developing new relationships) and “farmers” (i.e., account manager types that like to develop long-term customer relationships). Just because some sales people have an impressive roster of past clients from their offline sales experience it doesn’t mean they will know how to build a new book of business.

9. The P-I is fortunate that they have a buyer’s market when it comes to hiring but that doesn’t automatically mean they’ll hire the sales talent with the greatest potential. I’ve seen growing sales organizations hire unseasoned but high potential sales people and have great success. Having the right job descriptions with accompanying compensation and quota models is critical. It’s also vital to have a structured and ongoing process for developing the sales team’s sales and marketing skills. The P-I needs to have much more than an initial training curriculum and then “turn them loose” to make some rain. High performing sales teams train all the time.

10. The P-I needs to do more than just provide the sales team with a salesforce automation tool so they can use it to manage their pipelines. It can be a strategic tool for the business on a daily, weekly, monthly and quarterly basis not only for the sales team but also the executive team. We often see a tool such as Salesforce.com be under-utilized.

There are many astute and experienced readers and I hope you add your thoughts so we can tap the collective intelligence as no one I know purports to have all the answers in this evolving area. It’s an exciting (and challenging) time for those of us in local media. I wish the P-I all the best.

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Local news media needs dual business models, not dueling business models

March 13, 2009 by

I own and run a hyperlocal site www.sunvalleyonline.com. While we’ve managed to be one of the few pure-play local Internet media ventures to eke out a profit, the financial returns aren’t anything to write home about. This resulted in a minor epiphany when it comes to thinking about the viability of local media.

If you think about what made newspapers viable for so long it was the fact that they had two products/businesses that were largely unrelated but delivered by the same organization. Newspapers have had a news-and-information business monetized by display ads and a classifieds business monetized by classified ads. The classified business was enabled by the distribution and audience of the news franchise. However, it’s been clear that that second revenue stream doesn’t translate on a sustainable basis online.

To date, most local Internet plays have struggled to make it work relying solely on display ad revenue. I’ve come to the belief that it’s going to take a similar dual business model to support local media (we’re working on doing that ourselves). Unfortunately for many local news organizations, it has been more about dueling business models (i.e., worries of cannibalization) than recognizing that what they need is a dual business model to make their online business much more successful.

So the question is what will be the accompaniment to the display ad business? We’re seeing a few different approaches explored. For example, micropayments and non-profit/foundation support are oft-discussed. I don’t believe those have much opportunity to scale beyond some exceptional situations which are terrific but hold little promise for most media organizations.

Then there’s the problem of transitioning from a for-profit to not-for-profit model which typically begins by laying off the entire staff and getting the investors to agree to donate all of the assets of the enterprise into the new nonprofit entity. My friend Jonathan Weber expanded on this in his Endowed and Out piece. There are a number of other potential second business models but I think the Search-related model is a viable “other” business model.

The interesting and loose parallel with the classifieds being enabled by the news distribution historically is with those sites selling online directory solutions bolted on to a news site. Since most local news sites have the highest PageRank in their area, the PageRank is a form of “distribution” advantage that the news sites have and usually don’t recognize. One could argue when we see the demise of newspapers like the Rocky Mountain News that one of their most valuable assets in a liquidation is their high PageRank. When you have a high PageRank site with a leading directory solution, the businesses in that directory should show up very high in SEO and thus the news site has some unique value they are adding to those local businesses competing to be found.

The challenge remains setting up a winning sales model to capitalize on this. I wrote a couple of pieces for David Cohn’s and Jeff Jarvis’ NewsInnovation.com site expanding on this.

The approach I’d espouse is much closer to Dell than it is a traditional local media sales force, which is generally ill-equipped to sell these new products. When I was at Microsoft and focused on the local space (I was part of the founding team at Sidewalk), we often thought that the biggest asset that the incumbent newspaper and yellow page companies had was their local sales force and relationships. Having gotten closer to “the last mile” of the Internet, I’ve come to observe that in most situations the local sales organizations of the incumbent media is more encumbrance than asset.

Consequently, the smart incumbent media should setup a parallel tele-sales based model that are filled with “hunters” and leave the existing “farmer” sales force to harvest the longtime advertisers as long as they can. It is important to note that this outbound tele-sales organization is dramatically different than the typical “call center” that newspapers have for classifieds. Thus, thinking that that group will have success is a long shot. The sort of tel-esales organization that exists at a place like Dell is able to prospect and close business into the low six figures. In other words, it’s not taking a $150 classified order over the phone.

The sooner local media businesses recognize it’s critical to have dual business models rather than dueling business models, the sooner we’ll see hiring rather than firing being the storyline of local media.

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