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Locationary chief executive officer Grant Ritchie, left, and chief operating officer Dan Servos (Jeff Beardall/MaRS Discovery District)
Locationary chief executive officer Grant Ritchie, left, and chief operating officer Dan Servos (Jeff Beardall/MaRS Discovery District)

Case Study

How a small startup can attract a big partner Add to ...

THE CHALLENGE

Founded in 2009 and launched late in 2010, Locationary Inc. is a Toronto-based company that synchronizes local business information from many different sources and broadcasts it to diverse kinds of customers. Its mission is “managing the world’s local data.”

By 2011, Locationary had already started to develop a 2.0 version of its innovative technology platform, and had strong customer relationships in the Fortune 500 marketplace, as well as an effective channel sales force. It had also been named one of “Canada's hottest innovative companies” at the 2010 CIX Awards, and received $2.8-million in financing.

However, in order to meet their growth objectives, chief executive officer Grant Ritchie and chief operating officer Dan Servos knew that they needed to play in the U.S. market in a bigger way. As Mr. Ritchie puts it, there were two options: “We could do it one customer at a time, living on planes, or we [could]find a partner who would help us get there …and live in Toronto.”

They preferred the partnership route, but knew that it would be challenge to find one that would take a chance on a small Canadian startup.

THE BACKGROUND

Three years ago, Mr. Ritchie was on a train in England. Looking at all of the ads for mobile devices around him, he thought to himself: “In 10 years from now, our mobile phones are going to know everything being sold around us – what’s on sale and where, how much it costs, what’s available in stock and where.” He pondered briefly how the information was going to get inside the phone, and naturally thought “Google.”

But with two successful startups behind him, the serial entrepreneur wasn’t about to let a potential opportunity disappear. He decided to investigate further. When he got home, he started to read Google’s legal filings and noticed that it was buying business-location data for its maps from a company called Infogroup.

Delving even deeper, he discovered that Infogroup collected this information by sending Yellow Page books to an information-processing facility where they would be copied into a database. There, someone would telephone each business to check if it was still open, and delete any they couldn’t reach.

“This was an electrifying moment for me,” Mr. Ritchie recalls, “finding out that such a high-tech company as Google was getting data for one of their key platforms from Yellow Pages directories that had been printed many months before.”

He believed that he could build a business to do it better, and persuaded Mr. Servos, another serial entrepreneur, to help him.

The challenge was that information on local businesses is collected in many different formats by many parties, from Yellow Pages directories to the businesses themselves to community residents to review websites such as Yelp.

“It’s like the Tower of Babel,” Mr. Ritchie says, “and we needed to build a platform to be the universal translator.”

Locationary’s platform, called Saturn allows companies to share data, and to retrieve data from others, while maintaining their own data format.

Target customers are publishers that need information on local business for their own mobile applications, such as Google and Garmin, and also digital agencies that are helping local businesses update those publishers.

Some companies, like Foursquare, fit into both categories. These are growing and very dynamic companies. How could a Canadian startup get their attention without a one-to-one sales process?

THE SOLUTION

Mr. Ritchie and Mr. Servos knew they shouldn’t attempt to target these customers on their own, and started to look for a partner that would be able to leverage their technological platform in its own business.

“We found Neustar early on,” Mr. Ritchie says. “Neustar is a perfect match for us because it is a multibillion-dollar company that is positioned as a critical player in the ecosystem of Web data and telecom. They want to be a neutral player: the technology behind the technology. That’s what we could offer them with Saturn.”

The 2011 partnership agreement states that Neustar and its business units have the right to resell Locationary’s Saturn service under the Neustar brand, through their many sales channels. In other words, Locationary wholesales Saturn services to Neustar, and Neustar, in turn, integrates Saturn with its other data services to offer total data solutions to the market.

Neustar is a huge player – approaching it and setting up a partnership agreement wasn’t straightforward.

From their experience, the two founders offer some useful advice to those who are contemplating partnering with a savvy, established company:

1. Do your homework and understand the value of what you bring to the table.

You’re wasting everyone’s time if you can’t help a potential partner achieve its most important business objectives.

“After about four months of discussion, we were invited to do a presentation to the senior executive team at Neustar,” Mr. Ritchie recalls. “We made sure that we hit all the hot buttons on what we thought they were looking for, and emphasized how we could help to advance their mission and vision.”

2. Leverage your personal networks in the industry.

One of Mr. Servos’s previous startups was bought by AOL and Mr. Servos stayed working with AOL for seven years afterwards. The AOL president he worked with is now the chief executive officer of Neustar. This relationship provided a level of trust that a cold call wouldn’t.

3. Expect a very long sales cycle.

Even with a personal link to the CEO, companies aren’t going to make partnership agreements lightly. This was the first partnership for both companies, so there were no templates they could use for the contract, and it took a long three months until it was finalized.

4. Expect delays in decision-making.

“As a startup, you work at light speed because you have to, but large. public companies are different,” Mr. Ritchie says. “One day to them is like one week to you.” There will be other issues competing for their attention; for example, while Locationary’s contract was being negotiated, Neustar was making a $650-million acquisition.

5. Manage the delays.

“Find patient investors,” Mr. Ritchie laughs. More seriously, he emphasizes the need to educate investors about time frames and the company’s progress. He also emphasizes the importance of managing momentum with the larger partner. “Keep finding good reasons to go back to executives so you’re always top of mind. You don’t want to get dropped in their priority queue.”

6. Manage the partnership’s operations.

Strategic fit is important to the establishment of a partnership, but operational fit is important to its success. Neustar and Locationary have had to learn how to integrate Saturn into different aspect of Neustar’s business – its technology, its own contracts with customers, and its sales strategy.

THE RESULT

The partnership with Neustar has been a big win for Locationary. This week, there was an announcement that Neustar’s Localeze business unit is using Saturn in the service it offers. The Localeze sales force, which is a highly trained, specialized channel to the market, is bundling and selling their local business data along with the Saturn service to the 200-plus Web publishers that are Localeze customers today.

Such partnerships tell the world that Locationary is able to scale big and broad. The company is attracting attention from large U.S. and Canadian venture capitalists interested in investing in a Series B round.

Special to The Globe and Mail

Becky Reuber is a professor of strategic management in the Rotman School of Management of the University of Toronto.

This is the latest in a regular series of case studies by a rotating group of business professors from across the country. They appear every Friday on the Your Business website.

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