Many entrepreneurs would cut off their right arm to build their business up to $20 million in annual revenues.And, in 2011, New York startup Yext got there, building a pay-per-call online advertising business up to 15,000 advertisers. The company was, at that point, worth a couple hundred million dollars.
But then Yext CEO Howard Lerman decided he could do better.
Risking pretty much everything, he pivoted Yext into a new line of business.
Now Yext is selling a product called “power listings” to local businesses. For $500/year per location, Yext will keep a business’s information up to date with thousands of products across the Internet, from Facebook to Foursquare to Yelp.
Why’d Lerman do it?
We sat down with him, and Yext chairman Mike Walrath – famous for building and selling Right Media to Yahoo for hundreds of millions of dollars – to find out.
What follows is a lightly edited transcription of that conversation.
SAI: Yext was doing very well in pay-per-call advertising. Why would you change it up and do something else?
Howard: Yext had, and still has, a pay-per-call advertising business with 15,000 advertisers and 20 verticals with $20 million in annual revenue. That company works with Yahoo and AT&T and CitySearch and dozens of others to promote those businesses and get them phone calls.
That is a good business…but, we saw something that would fundamentally transform the local information ecosystem and the market opportunity 100 times as big as pay-per-call.
Google, Yahoo, Bing, Yelp, Foursquare, Facebook Places, and hundreds of different services, they all have their own database of local information that contains business name, address, and phone number. That database is totally disconnected and that’s causing this problem where whenever business information changes, all those databases fall out of sync really fast.
Our product is a hub for local information and it syncs listings everywhere. We basically saw that there was a way to build a product and solve a huge local information problem for 20 million business locations in the U.S.
SAI: 20 million businesses must mean a pretty big market.
Howard: Our annual pricing is $500 dollars a year per location…
SAI: Run me the numbers again?
Howard: …If you’re trying to do that maths I don’t even want to say what that comes out to, but I think it might be $100 billion. Big maths
SAI: Big maths. Now Mike, you created an ad exchange called Right Media and then sold it to Yahoo for hundreds of millions of dollars. How is Yext a natural follow-up?
Mike: Industrial disruption usually comes from within and it comes from usually a company with an interesting vantage point as to where the big opportunity and the white spaces in the market are.
At Right Media we had a thriving ad network business that was doing tens of millions of dollars a year of revenue but we felt the exchange model was a much bigger opportunity and no one was pursuing it. In this case Yext had a $20+ million dollar pay-per-call business which was clearly valued by the market in the hundreds of millions of dollars. Then, in one of the ballsiest moves I’ve ever seen, Howard decided that the much larger market opportunity for power listings was worth the risk. Had power listings not succeeded it’s very unlikely that the company recovers to the type of ambition that created power listing. I really credit Howard with having the guts to pretty much drag everybody down that path.
SAI: Speaking of Howard, Mike, he isn’t your typical blue shirt and Khaki’s entrepreneur. How did you meet such a guy and become the chairman and put your own money into his company?
Howard: Nick, I am going to send you a pair of blue shirts and khakis and watch you put them on.
Mike: I will not do that.
Howard and I initially met when I was at Right Media and Howard was at Datran and the companies were attempting to do some business together. Then he approached me after I sold the company to Yahoo. He approached me to get involved with Yext as an investor, which unfortunately I was prohibited from doing at the time because it was a conflict of issues or theoretical conflict.
The only bad thing that’s happened in this relationship with Yext is that I wish I had gotten into the company a lot earlier. Nevertheless as I was leaving Yahoo we kept in touch and it became clear that Yext was continuing to innovate and I really wanted to get involved. So I invested, joined the board, then ultimately that conversation turned to me taking a little bit more active role, which I was honored to do and invested a couple more times and became the chairman. Now Howard lets me hang out one day a week and I do my best not to get in the way.
Howard: And lets be clear. When I was attempting to get Mike to come to the company I did put on my best blue shirt and ironed my khaki pants every time the meeting was coming and didn’t actually show him my true colours until he got involved.