The 1M1M Deal Radar 2010: Balihoo ,Boise, Idaho

Balihoo provides local marketing automation technology and creative, media buying, and media planning services to the distributed marketing partners (i.e., franchisees or resellers) of national brands. Balihoo’s customers have reduced local production costs by up to 90%, improved local ROI by more than 30%, and improved national visibility into local marketing efforts and their results.

Balihoo is based in Boise, Idaho, a location that has been a key driver of the business’s culture since its founding. Known for its low cost of living and thriving tech community, Boise is a good location for a startup with, the team says, “a work hard/play hard mentality.” CEO Pete Gombert founded the company, his third business, in 2005. He was evaluating industries ripe for disruptive change and received an idea from a friend with an ad agency. This friend pointed to the massive inefficiencies involved in media purchasing as the sales side continued to fragment, which was increasing the number of transactions and lowering the volume per transaction – ultimately decreasing margins. Balihoo’s initial business model aimed to address these inefficiencies by creating software for media buyers that streamlined the media research, selection, and request-for-proposal (RFP) processes with on-demand data. A combination of market factors and lessons learned caused the business to transform in 2008. Instead of selling its technology to large media agencies, Balihoo brought the technology in-house and added a services team to complement it. This allowed the company to sell directly to the brands and better serve the ultimate end-user, the local marketer.

Balihoo’s current business model is built on a local marketing automation platform that aims to reinvent the way national brands market through their local resellers. Oftentimes, individual resellers or franchise owners develop local marketing efforts on limited time and resources, and campaigns may be fragmented. Balihoo’s platform provides tools and solutions that help these marketers maintain the integrity of the national brand. The platform delivers an integrated co-op solution that gives national brands better control of the local marketing process, combining financial, creative, and media marketing aspects and providing reporting capabilities. This allows brands to see how their local-level marketing efforts are affecting the bottom line.

At the center of Balihoo’s product is AdBuilder, which has templates and customization tools that help marketers to create various types of ads: direct mail, in-store, television, radio, online display, pay-per-click, newspaper, magazine, outdoor, and e-mail. AdBuilder works alongside an integrated marketing planning tool that handles scheduling, budgeting, and analysis of media trends. Balihoo uses the platform’s fulfillment and media placement tools to manage vendor relationships and media buying for the user. Pricing for the platform is based on a subscription model, and there can be additional transactional costs at the local level depending on the marketing vehicles selected.

Total advertising spending per year in the United States is $235 billion. According to BIA/Kelsey, 55% of that, or $130 billion, is spent at the local level. Looked at another way, there are approximately 9 million local business in the country. At an average marketing spending of $20,000 per year, this translates into $180 billion spent annually by local marketers, who are typically not professionally trained marketers with access to enterprise-class marketing tools.

The company’s first target is the franchise industry. A single franchisor may have 10,000 or more locally owned and independent franchisees that are all tasked with driving demand in their local market. It is critical for the franchisor to ensure the local entities accurately and consistently represent the national brand to maintain the brand equity. Balihoo’s key markets in the franchise industry include home products, service-based businesses, and Quick Serve Restaurants (QSRs).

The second key segment is product manufacturers. They face a similar challenge in that they must enable their thousands of local resellers to drive local demand for their products. In this market, the reseller typically carries multiple brands within the same product line, so the national manufacturer must make it easy and profitable to market its products. In fact, it often offers co-op advertising dollars wherein the national brand pays for up to 100% of the local affiliate’s marketing efforts. The financial and creative components of co-op advertising have typically been separate, administrative-laden work streams, resulting in low adoption at the local level. Balihoo has integrated these two components into a system that increases revenues for both the local affiliate and the national brand.

Balihoo’s largest customers include Quizno’s, Kohler Co., and Specialized Bicycle Components. Other well-known brands are Gandolfo’s, DaVita, Inc., Nobel Biocare, Oil Can Henry’s, and Molly Maids.

Competition was limited at the time of Balihoo’s founding. Since 2008, when Balihoo transformed to its current business model, the primary competitors have been local marketing technology providers such as Saepio and AdGiants as well as co-op marketing service providers such as Strategic Marketing Service and Advertising Checking Bureau. Balihoo competes on providing true cross-medium, integrated marketing; successfully combining Web-based software with marketing services; and blending the creative and financial components of co-op advertising into a single platform for both the national brand and its local resellers.

Since Q3 2009, the company has been growing at a rate of 30% quarter over quarter. Balihoo expects 2010 revenue to be above $5 million and to be profitable in Q4 2010. Initial seed funding of $100,000 was provided by the founder, and Balihoo has raised $12.5 million in VC funding: a $1.5 million Series A from Lacuna Gap Capital and Blackfin Technology in July 2007; a $4 million Series B from Highway 12 and Lacuna Gap Capital in January 2008; and a $7 million Series C from Lacuna Gap Capital, Highway 12, and OpenView Venture Partners in August 2009.

As with any VC-funded entity, there is the need to deliver shareholder value and liquidity, but there is no definitive timetable or set exit strategy for Balihoo. While the company says it would be “disingenuous” to say there will never be an exit or potential sale, at present the focus is to build Balihoo into a profitable, sustainable business that continues to grow. Balihoo’s investor group is supportive of this approach and believes that a profitable, growing company controls its own destiny.

Recommended Reading
Deal Radar 2008: Local Marketers

This segment is a part in the series : The 1M1M Deal Radar 2010