1Mby1M Deal Radar 2010: SaleSpider, Toronto, Canada

Digital media company SaleSpider owns a 720,000-member social network for small and medium businesses (SMBs) accessed through the site, Facebook, and a mobile app, and an ad network for branding and direct response campaigns. The company focuses on helping small business owners make new contacts, maintain their networks, and find sales leads – a rapidly changing process that we discussed recently in a Sales 2.0 interview with HubSpot’s Mark Roberge.

The CEO of the Toronto-based company is Russell Rothstein, a serial entrepreneur who in the early nineties founded Bizware, a software supply chain for retail petroleum and major convenience stores. He ultimately sold Bizware to a Nasdaq-listed public company in 1995 and went on to Oracle, where he served in numerous sales and application capacities It was his next position, as founder and CEO of NorthPath, which eventually led to the formation of SaleSpider.

Rothstein founded NorthPath with the purpose of outsourcing its sales team of about 90 professionals to start-ups and venture capitalists that needed sales pros. The team provided sales leads at the NorthPath Web site, which was accessible only to those who registered. In 2006, Rothstein and his colleagues decided to automate the NorthPath sales model and change the company name to SaleSpider. The initial SalesSpider concept was to provide sales professionals a lead generation tool that continuously crawled the Web for new leads. However, Rothstein and his team quickly learned that they were attracting an unexpected demographic: rather than sales professionals, the majority of the people who signed up to access the sales leads were small business owners. The appeal to small businesses was the ability to instantly identify myriad sales leads from all over North America rather than having to employ a costly sales team.

One particularly big challenge the search tool solved was tracking the many government contracts put out to bid. While working in sales at Oracle, Rothstein and his colleagues were notified of new government RFPs by another department. By contrast, small business owner have to uncover government RFPs themselves, which means joining and spending considerable time on thousands of Web sites. Moreover, the format of RFPs varies from state to state and are often extremely difficult to decipher. The SaleSpider search tool automatically scours the Web for these leads and pushes them out to members in a format which is designed to be easy to comprehend.

SaleSpider’s revenue is derived entirely from advertisers who use various vehicles – including display ads, mobile ads, and the AdShare network – to advertise to SaleSpider’s members online. Earlier this year, IDC forecasted online ad spending to jump 12.6% to $29.7 billion in the U.S. during 2010. IDC also noted that during Q4 of last year, online’s share of total ad spending surpassed 10 percent for the first time ever.

The small business sector is a coveted audience by advertisers. The total addressable market for new members is the estimated 25 to 30 million people who fall into the small business category, according to the U.S. Small Business Administration Office of Advocacy.

SaleSpider targets small businesses, most of which (93 percent) have fewer than 100 employees. Seventy-one percent are business owners and 27 percent are C-Level executives. The members that are most active on the site tend to be ones that are trying to reach other businesses beyond only their local market. For instance, a local shoe store is not likely to be spending as much time on the site as another company that has potential customers and partners outside of their immediate area. SaleSpider’s 700,000 members come from an array of industries, wit the greatest representation in real estate, construction, technology, printing, and financial services. The targeted advertisers are those who want to sell to the SMB demographic. A high percentage of these companies offer technology products and services, for example, AT&T, Cisco, Ring Central, and VistaPrint.

When Rothstein launched SaleSpider in May 2006, MySpace was still the highest-profile social network, Facebook had only recently opened up to the world at large, and LinkedIn was still gaining traction with the broader market. Like these sites, SaleSpider helps people to make new contacts, but Rothstein believes that what sets it apart is the ability to make money through it, whether this be through new leads or through advertising.

Originally, SaleSpider was bootstrapped. Later financing consisted of a small amount of angel investment and research and development grants from the Canadian government. Further, Rothstein took no salary the first two years. SaleSpider has no intentions of raising any more money because it is cash-flow positive and has three times the capital in the bank from what it originally raised. Even in the early days before profitability, Rothstein never seriously considered taking VC money, given how dilutive it can be. In Rothstein’s view, even if VCs give a great valuation, their terms often contain ratchet clauses that require they receive a very high multiplier prior to any money going to the founder or other stakeholders (angels or employees). Rothstein’s answer to raising VC money was to focus on becoming profitable as quickly as possible. The only reason SaleSpider would entertain raising additional capital would be in an effort to do a major acquisition. Revenues range from $3 million to $6 million.

Rothstein is a big proponent of building strong cash flow and has never bought into the strategy of simply building a user base with the hopes of identifying a viable business model later. Because SaleSpider is already profitable and is growing its membership at such a fast clip, he believes that the company will be an attractive acquisition target. He notes that he is indeed interested in an acquisition when a suitor can demonstrate that it is “more interested in the company than I am.”

Recommended Readings
How Does Social Media Aid Lead Generation? (from SmallBizTrends.com)
Deal Radar 2010: Demandbase
The 1M/1M Incubation Radar: Phitch

This segment is a part in the series : 1Mby1M Deal Radar 2010