Russell Straub's High-End Clients Were Straining His Business With Tougher and Tougher Demands

Was it time to go downmarket?

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The four men huffed and puffed their way up a steep hiking trail in the Rocky Mountains. Russell Straub urged them on. "Let's go," he called out. "Got to get that blood flowing!" The men were all top managers at Loan Bright, Straub's online mortgage company, and they had gathered for a weeklong retreat at his home in Evergreen, Colorado, to make some important decisions.

A little exercise would help, Straub thought. He wanted everyone's head clear for what would be one of the toughest calls in the company's history: whether to abandon Loan Bright's high-end financial services clients and head downmarket. It would be a radical move, but something had to be done. After five years of rapid growth, the former Inc. 500 company had stagnated. Straub was eager to kick-start it and thought he had the answer.

Straub had founded Loan Bright with two of his University of Vermont fraternity brothers in 1999. The idea was to connect mortgage lenders with potential homebuyers. People seeking mortgages would visit the company's website, CompareInterestRates.com. After entering some basic information, they would get a list of lenders and available terms. Loan Bright, based in Evergreen, made money by selling that homebuyer data--including contact information, home value, and credit rating--to mortgage lenders, which handed them out as leads to their sales teams.

Loan Bright's first customers tended to be small mortgage brokers eager for leads. But from the outset, the company aspired to move up the food chain and take on more lucrative clients. To Straub, the logic seemed impeccable: "Would you rather have a million customers paying you a dollar a month, or one paying you a million a month?" he asked himself. By 2004, the company had successfully made the shift, with a dream list of fat clients including Wells Fargo, Bank of America, and Chase Manhattan Mortgages. And the strategy appeared to be paying off. Sales reached $4.5 million and the company came in at No. 162 on the 2004 Inc. 500.

But Straub was noticing some worrisome issues. With about 60 percent of the firm's revenue divided among its 10 largest clients, Loan Bright couldn't afford to displease a single one. "You'd have a hiccup with one client and it felt like it could put you out of business," he says. But demands from some big customers were becoming difficult to fulfill. One key client began requesting lead lists sorted by increasingly narrow criteria; it asked for a list of mortgage seekers with less-than-perfect credit who were purchasing a property above a certain value and financing a particular percentage of the purchase.

The problem was, Loan Bright's Web traffic wasn't great enough to create a meaningful list of those superspecialized leads. Indeed, Straub performed some calculations and estimated that Loan Bright would have to increase traffic tenfold. Doing that, of course, would involve some heavy advertising and marketing expenses.

That customer wound up getting frustrated and leaving. Loan Bright was able to land a new customer to make up for the lost revenue, but other longtime clients also were growing more demanding, and Loan Bright's difficulty in serving them was proving similarly frustrating. Straub realized that the company was treading water: lose a customer, gain a customer. "We just couldn't get any traction," he says. By September 2005, Loan Bright had lost money every month for the previous nine months. The company laid off seven employees and was "cutting into bone and muscle" to save on expenses, says Straub.

The problem began consuming more and more of his time. And soon new issues began to emerge. A group of salespeople, for example, came to see him one day. They begged him to stop advertising Loan Bright's services on Google. The ads were generating plenty of phone calls, they explained, but the calls usually came from individual loan officers who wanted to buy only a few leads. When the salespeople pressed them to buy more, or to connect them to higher-level decision makers who could authorize a substantial contract, the loan officers invariably balked. For Loan Bright salespeople, who were paid by the size of the deals they closed, a Google phone call was a nightmare.

As Straub thought about the Google problem, he had an epiphany. "Wait a minute," he thought. "Why are these loan officers calling us?" Obviously they needed help, and coincidentally Loan Bright needed to tweak its business model. Perhaps the emphasis on large clients was misplaced. "Maybe we should shift gears and embrace these folks," Straub thought.

On the first Monday of September 2005, Loan Bright's management team gathered in the great room of Straub's house nestled deep in woods at the base of a small mountain. The top agenda item for the weeklong retreat: how to get Loan Bright back on track.

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