What they do: OwnLocal automatically converts print, radio, and television ads into digital marketing campaigns for small businesses. They partner with newspapers to reach their existing local business customers and launch online campaigns that actually produce measurable results without requiring businesses to do a thing.Why it's a big deal: Nearly 50% of small businesses in the U.S. don’t have a website, and even more have never advertised online, often because they just don’t know how. OwnLocal uses their newspaper partners to access the 5+ million small businesses that already buy print advertising from them, and add online campaigns - automatically. Small businesses need an online presence, but are intimidated by the process of getting started. OwnLocal solves this by using the materials they have already created for newspaper ads to get them online at the click of a button. By sharing revenue with newspapers, Ownlocal is able to efficiently acquire new customers, totalling 47,000 businesses last month. Their annual revenue run rate is $5.3 M, and they have a scaleable channel to layer in more and more services to their small business customers.
Set to more than double revenue from 2014 -> 2015.
Publication partners growing 140% / year since 2010.
Cash flow positive since 2013.
Why investors us
$3,147,701 since our founding
Newspapers are struggling but contrary to popular belief, they aren’t dying. Only 16% of newspapers have closed in the past 25 years. Their only path to survival is to figure out how to grow the revenue they make from their 5+ million small business advertising customers. OwnLocal does that, and by doing so has unlocked the most valuable channel for acquiring local business customers that we can think of. Just like Intuit upsold their accounting software customers on web services and built a $2 billion web services business, OwnLocal uses newspapers. Local businesses are automatically opted into online ad campaigns by the newspapers that they have known for years, and when they see results without any setup time, 95% of them choose to stay on. Their first product is interesting, but what makes this a great business are the numerous opportunities to sell other products to those customers once they are on board. They just expanded their product to include SEO, SEM, and Facebook targeting. And while the new offerings are only in beta with 20 publications (of 1,200 current partners) they’ve already generated $1.3 million in new revenue.
Not just anyone could build this business. The OwnLocal team has ink in their blood and a passion for journalism as the last line of democracy. Lloyd starting delivering papers when he was 13 and has worked as an editor, journalist, and manager in the industry ever since. Jeremy worked for his father’s newspaper before founding two companies of his own. Over five years they’ve achieved profitability on the back of less than $2 million in fundinding, and on track to more than double yearly revenue again. The new money they raise will go to accelerate tried and true processes to make them the de facto first step for local businesses moving online.
Our clients are as small as your local town paper and as large as the LA Times. We take all their print ads and turn them into online ads by hooking into their ad system or working directly with their advertising team. Our technology essentially reverse engineers the ad generation process to automatically extract all the ad data from every publication before it goes to print. Every print ad has taken a long time to design and perfect, and our system pulls all the details including hand drawn logos, coupons, date of the offer, phone number, etc., then verifies all the information using Google, Facebook, and Yelp to ensure information is correct.
Last month we built campaigns for 47,000 small businesses, so we’re compiling a lot of data about different business categories and their advertisements. Because we’ve worked with so many advertisers we have an incredible amount of data about every industry, every type of print ad and how well they translate online. We know what works for plumbers in rural North Dakota, and what sells for a retailer in central LA. All we have to do is plug in an advertisers information and our system will automatically set up an online campaign and landing page for them all optimized to the industry and demographic they’re selling in.
Why OwnLocal, what specifically about your model works so well?
We’ve known for a long time now right, that these small businesses are not that savvy about the internet. They need to move online, but all the solutions to manage an online presence and advertise are super complex and not what small businesses should be focused on. OwnLocal has a dual relationship with our newspaper partners, we’re actually driving them revenue and we have a very easy on boarding process to get small businesses online in a way that’s not intimidating, because they have to opt out. Which a very low percent of them do. We show small businesses how helpful an online presence can be and then we’re able to upsell them on different advertising packages to make more money as small they get more and more excited about the advantages of online advertising.
When did you get started and how did you figure out the problem and solution?
We’ve been doing this since 2010. We started as a Y Combinator company back then and what happened, was, we raised all this money to build a product but we didn’t really know what we were doing. We talked to probably about 2,000 businesses personally, between me and my cofounder, in actual markets all across the United States. Basically we would just sit down with a small business owner and say hey, tell me what you’re doing and who’s your biggest competitor? Then we would compare their ads to the competition and finish with a suggestion about how to improve their ad campaigns, we really weren’t selling anything.
98% of businesses that acted on our free advice saw huge results and would then ask us if we could handle their entire advertising campaign. After we heard this 1,000 times, we had a lightbulb moment: we should be creating these ads and just handle online marketing for all these small businesses.
Small businesses, especially in small town America, don’t focus on good marketing. They’re focused on being a plumber or a lawyer, etc. They don’t want to be thinking about whether they should spend $100 a month on Facebook or Google ads, they simply don’t know the answer to that. What we’ve been able to do is take over online advertising for them, allowing small businesses to focus on what they do best.
How do you find your customers?
We find almost all our customers via our relationships with newspapers. There are about 13,000 newspapers that advertise for 5 million small businesses in the United States and we already work with about 1,400 of them, so just over 10%. Even though print media is rapidly dying, newspapers are able to survive because they’ve built great trust and great relationships with small businesses over decades. We’re leveraging that trust and turning it into the ability to run the online campaigns for their small businesses.
Newspapers love us because they get to offer the whole new product without any legwork on their end. We turn their print customers into digital customers for them. What we’re trying to do is take hold of that customer, and transform them, using technology, into buying off of a new platform.
Can you give an example of the sales process?
We use an opt out onboarding process that automatically opts in small businesses that work with our newspaper partners for a free month. We start running ads online immediately and then give small businesses the option to opt out at any time. For instance we just started with the Austin American Statesman (newspaper), Q1 of this year. Day one, they send out a letter to all of their ~1,000 small business customers which says: “You haven’t done any online marketing, so starting next month you’re gonna get an ad campaign for $35 a month. This includes a search engine optimized landing page on the American Statesman website. You’re also gonna get reports and tracking from Google, so you can see how you stack up vs. competition.”
Businesses can go to our site to monitor their free live campaigns and review the OwnLocal model. If they’re skeptical or want to cancel because the service is so different from what they’re used to we get them on the phone and walk them through the system. Once they realize how much exposure they’re getting for $35 a month, more than 95% stay on with OwnLocal.
Why does the Opt Out model work so well?
One because these small businesses would never set up a site without us and two we’re not forcing potential customers to do something they don’t want, we’re merely showing them incredible results and then asking if they want to quit. Before us these businesses had no idea where to start for an online presence - we give them that starting point.
Have you had any success upselling after the initial $35 month package?
Yes, we’ve tested up selling with 1% of our partner newspapers (~20) and the new services already account for 25% of our yearly revenue. Some examples of these new services include SEO, SEM, and Facebook targeted advertising for the small businesses.
When will you expand the newest portion of your business beyond the initial 20?
There are approximately 1,200 newspapers ready to be up sold. After our beta test with the 20 newspapers we analyzed a worst case scenario for the new products. If those 1,200 papers only performed 30% as well as our beta market, we’d still make $20 million a year.
How big is this industry and what about your model will allow you to capture all these cus
The small business web service business is about a $450 billion industry. Intuit, for example, has taken a big chunk of it ($2.2 billion a year) by leveraging their relationship as a tax solution to cross-sell small businesses into their web and marketing services. But Intuit doesn’t have the same access to small businesses that we do, they only have access to 500,000 businesses using their tax software. As we continue to roll up the newspaper industry we’ve got the potential to work with five million small business customers. We’re really hacking the sales process, to be honest. We could never have the success we’ve had by selling to businesses ourselves because we don’t have that trust yet. But when a local paper like the Austin American Statesmen reaches out for us we ride that brand trust and prove the effectiveness of our product before a customer chooses to opt out. We have the chance to sign on all 5 million small businesses via our print partners because that trust is already there.
How has the market shifted in the last 15 years?
Print advertising peaked in the year 2000 at $66 billion (normalized for inflation) but since then print advertising has been in a rapid decline. Last year it was about 20 billion dollars. Print advertising will be all but gone within a few years, and publications are all shifting their revenue streams online.
How fast are you growing?
We are growing like crazy. Three months ago we had 15 people, now we have 28 people at the company. Two years ago we had 300 publications that we were working with, and now we have 3,000. We’re growing exponentially. Last month we did $4.5 million annualized revenue and this month we’re doing $5.3M. And all of these numbers are only a result of half our partners, because each new newspaper takes a few months to really drive revenue after they sign up. Right now only half of 2,000 partners have actually gotten started, the other 1,000 papers are still being turned on. By the end of the year we’re gonna be at a $10 million run rate, and that’s just from existing contracts that we’ve signed, 99% of which we haven’t up sold yet.
How do you measure growth?
Our KPIs are. Publishers signed, publishers on-boarded, and top line revenue. Everyone in the company tracks those three numbers. Everyone in the company, from support to sales to development, has a bonus that’s tied to these three numbers. Revenue is most important, followed by the numbers that directly influence revenue. Revenue is directly tied to the number of live publishers which is a direct reflection of how many publishers we’ve onboarded.
Revenue has been growing steadily at 100% per year, and we’re on track to beat that in 2015. We did $2.5 million last year. As of December 2014 we were looking at $3.75M revenue run rate, but now it looks like we’ll double revenue from last year and end 2015 with $7.5 million for the year.
Who is your competition?
We face two areas of competition, 1/ for our newspaper partners and 2/ the web services we provide to our small businesses. I’ll address number one first. I think there are gonna be a lot of great companies out there with amazing technology that are gonna work with newspapers to do very specific things. Weebly is a great platform that could definitely find a way to use newspapers as a sales channel. ReachLocal is another that has recently tried to sell their services through newspapers. There are also a number of companies selling advertising directly to small companies, businesses that just manage Google and Facebook ads or just optimize for search engines. But we’re not competing with these ad agencies or website platforms directly, OwnLocal fills in the gaps by focusing on the complete website and advertising solution for small businesses that want to outsource everything.
The reason we can be the only solution for those companies is because our technology is so good. Our technology for extracting data from print advertising is better than anything in the world. So we can handle absolutely everything for these small businesses completely with technology.
Why is your technology so much better than your competitors?
For the last five years we’ve built an algorithm that extracts data from print better than anyone. Print is so difficult because there are so many variables to account for, hundreds of fonts, thousands of layouts, millions of variations that our system can read and compile automatically. We’ve been working on and tweaking this program for five years. Now when someone tries to come in and just copy us, and this happens time and time again, it’s nearly impossible, because we have a five year start on them.
Who actually owns the small business advertisers, and what is their churn rate?
Our newspaper partners own almost all relationships at first simply because our $35 a month is a fractional percent of most of their advertisers some of which account for $20,000 a year. But as small businesses add additional services like social media management, SEO management, Facebook advertising, etc. We take that opportunity to take over the billing process and make them our direct customers. Right now we have about a 3% monthly churn rate with these customers, many of them drop off simply because they go out of business.
How many of your newspaper partners have churned?
We’ve lost two newspaper partners in five years. Two out of thousands.
What are you margins?
We try and give our newspaper partners 70-80% margins while taking the rest for ourselves. For instance News Corp charges $60 a month for our product and we make $15 of that. Of that $15 we make approximately 80% after paying for hosting, QA on our ads, and publication fees to Google or elsewhere.
Who is the team and what are your motivations for OwnLocal?
I come from, if you count this company, about 16 years in the newspaper industry, I’ve done pretty much every job that you could imagine, including selling newspaper subscriptions door to door when I was 13. Jeremy, my co-founder, and I both have ink on our fingers as his dad was the publisher of the local newspaper. Jeremy did a lot of different jobs all through growing up. We got together over our shared passion for journalism and most importantly funding journalism on the local level.
The NPR model works really well at the national level, or even the state level to pay for quality journalism. The problem is this new generation of people believe, and I’m one of them, that you shouldn’t have to pay for things on the internet. So once the print distribution goes away, local journalism which is the last line of democracy, will disappear. Both Jeremy and I are doing all we can to keep this voice alive and OwnLocal is that line of defense - the way for local journalism to fund itself online.
Our third founder is Jason Novak who I’ve known literally my entire life. He got his computer science degree at the University of Minnesota. We all applied to Y Combinator together six years ago and it’s been a wild ride ever since.
Can you talk about your funding and spending history?
We initially raised two million in 2010, 2011 and we haven’t really raised money since then. We never went after a really big venture round, we’re not so much of a Silicon Valley mindset, which is just go go go, for the sake of going because we got burned by that. We probably wasted about a million dollars trying to scale prematurely. I read afterwards that this is the most common reason that startups die, is because they scale prematurely.
We burned through a million dollars back in 2010 because we tried to scale too fast, but learned from our mistake and then cut back to profitability. We were able to just keep going because of that profitability and then all of a sudden we hit our market fit and it exploded. We’ve been profitable since then and everything that we’re doing is drawing out of profitability. Our investors consider us a pretty safe investment because we’re growing, we’re growing quickly but we’re doing it out of cash flow. We’re not out to raise $100 million at a $1 billion valuation just because the money is there. We’re raising money to speed up our growth a little bit while staying in control.
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