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, 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.

The Decision

The four managers found seats as Straub led the discussion through an analysis of the market and the company's strengths and weaknesses. During breaks, the team took brisk walks through the woods and at the end of each day headed out to dinner together. By Friday, the walls were covered with notes jotted on index cards. Straub had a list of about 20 suggested market strategies. Among them: "Focus on big customers and give them what they want," "Enhance the product better than our competitors," "Target the little guys."

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
Charlotte, North Carolina

What do you think? Was heading downmarket the right move for Loan Bright? Let us know at