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

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Straub asked each manager to write down his top three choices. Nobody voted for "Enhance the product," Straub says, "because they concluded we just didn't have the wherewithal to do it." Instead, the clear winner was "Target the little guys." Everyone on the management team, says Straub, bought into the strategy: "It came down to what was practical."

Back at the office, Loan Bright's managers began plotting their next move. For now, the company would maintain existing customers and let most of the salespeople continue as usual. But two new salespeople would be hired to focus on signing up the Google callers. They would be paid commissions according to the number of deals they closed rather than the size of the transactions. Straub knew that to make a profit in this new model, he would have to make it as easy as possible for clients to sign up. So instead of sending a 12-page contract and asking for payment in advance, Loan Bright would send a one-page contract and allow people to sign up by simply giving a credit card number and paying for services as they consumed them.

Sales manager Stacy Horrocks remembers being concerned at first. "You think about your commission and how this is going to work dealing with a lot of smaller people," he says. "But the magical thing was that it was simple for clients to sign up."

Indeed, within a matter of days, the new salespeople were bringing in dozens of new customers. By December, two longtime salespeople had departed and the entire sales and marketing team at Loan Bright was selling the new plan, averaging 15 new clients each month compared with a previous average of five. "The type of salesperson we have now is a little different now that the sales cycle is shorter," Horrocks says. And there is a separate customer service department whereas the salespeople used to service their own clients.

Granted, the new ease of sign-up means that some of these small customers make an impulse purchase and then bail on the service soon afterward. "We know our service doesn't work for everyone," Straub says. "We tend to take all comers. Sometimes they get it and have success, others go away unhappy." He sees opportunity in developing training programs to help new clients come up to speed.

To get through the transition period, Loan Bright needed more money, and Straub found it among his management team. "The first thing everyone said was that they would love to invest but just didn't have the money," he remembers. But by December, the three founders along with two employees and a board member begged or borrowed enough to invest a total of $500,000 in return for 20 percent of the company. All agreed to take yearlong pay cuts.

The company isn't profitable, but Straub says things are headed in that direction. In 2005, it had $3.8 million in revenue, but this year it's taking in half a million each month. Previously it had about 300 customers, 80 percent big clients and 20 percent small. Now it has closer to 800 clients, 80 percent of whom are on the small side. For now, the retooling appears to have provided a new opportunity for the struggling company. "This plan," Straub says, "takes us back to our roots."

The experts weigh in

A great idea

Going downmarket is a great idea. I'd much rather have a million customers paying me a dollar-- it's a lot more stable. But these guys really need to come into the 21st century and automate as much as possible. Why should a customer have to talk to a salesperson to subscribe? These clients want to pay as little as possible and they want to test it. Give them the first 100 leads with a money-back guarantee.

Don Peppers
Founding partner
Peppers and Rogers Group
Norwalk, Connecticut

Some problems ahead

Loan Bright's strategy is viable only as long as its bigger competitors prefer not to deal with small customers. Another problem is the company's dependency on mortgages. With interest rates on the rise, there is less refinancing activity and it becomes more difficult to generate sales leads. And the company's competitors typically offer consumers other products, like credit card comparisons.

Asaf Buchner
Online financial services analyst
Jupiter Research
New York City

A smart choice

This was a smart choice, but there are still some issues. Loan Bright must be more selective in who it sells to and focus on lenders who can ultimately close a sale. If they can't close, they won't come back to buy more leads. The real problem here is that Loan Bright is generating too few leads, which means too few lenders, massive coverage gaps, inefficient and expensive marketing, and then too few leads. It's a cyclical, and typical, problem that aggregators face.

Bryan Chupp
Vice president of marketing
LendingTree
Charlotte, North Carolina

What do you think? Was heading downmarket the right move for Loan Bright? Let us know at casestudy@inc.com.