Schafer: Minneapolis start-up hopes to tap power of referrals

  • Article by: LEE SCHAFER , Star Tribune
  • Updated: April 9, 2013 - 8:59 PM

This week Heroic Inc. is launching its online service for people to refer friends and neighbors to a favorite car repair shop, roofer or house cleaner.

Heroic is a start-up you want to cheer on, as all of us feel the pain of shopping for the right provider and not quite trusting what we read online.

One of the good things about having real in-the-flesh friends and neighbors is getting the straight dope on who can really be trusted to fix a Volvo or a replace an aging roof, and it’d be great to get their thoughts without having to place a phone call or send an e-mail.

As of early this week, Minneapolis-based Heroic had about 1,000 registered users on www.beheroic.com, many using their Facebook accounts to sign up, and come Friday the business really launches its referral service. A user will be asked to invite three friends, make three business recommendations and will receive two hours of free house cleaning.

Heroic co-founder and CEO Justin Barrett said the origins of Heroic go back to when he and partner Dan Linstroth were working with a simple online marketplace for consumers to request a service they might need. They kept hearing that consumers really wanted information they could genuinely trust.

It’s because these household services have a high cost of failure, much higher than paying the check for one bad meal. Consider the expense of a botched roofing job, or cleaners who steal your iPad on the way out of your house.

And the Heroic founders knew from their first experience with an online market that reviews and ratings can’t be as trusted as personal referrals.

User reviews themselves were a big innovation from the earliest days of mainstream adoption of the Internet. Angie’s List is a subscription-based ratings site with about 1.8 million paid members at the end of 2012. Yelp.com, which has reviews on restaurants and other places its urban clientele want to go to, broke through the 100 million unique visitors a month level earlier this year.

With the rise of these sites, our collective sense of who was an expert got turned on its head. Skip the restaurant review in the magazine; just go on Yelp. Throw away the travel guidebook and pick your hotel from scrolling through Trip­Advisor.

There were a few issues with credibility on sites like Yelp, but it seems most of the reason we don’t fully trust such reviews is that we really only want to hear from people just like us, with similar income and tastes. A TripAdvisor pan of an Embassy Suites hotel means little if you suspect it came from a traveler who usually stays in a Ritz-Carlton suite.

The psychology involved

John Tedesco, a partner with the Minneapolis consulting firm Ovative/Group who has been an unpaid adviser to Heroic, called moving to referral a “normal evolution” of a market. The reason why we trust what our friend says, he explained, is that any friend will have an emotional commitment to the referral.

“If I go out of my way to say that Lee’s Plumbing is the best, that is a little bit different than saying Lee’s Plumbing gets a three out of five stars,” Tedesco said. “There’s a little psychology to it, when you are willing to tell others to use them, because then you have that guilt when something goes wrong.”

Internet entrepreneurs have had a good grasp on this reality for a long time, but exactly how to go about creating a profitable referral business hasn’t been as clear. Gene Munster, a research analyst who follows the industry for Piper Jaffray & Co., said “the Internet has transformed lots of things, but local is ripe for innovation.”

Heroic has raised about $200,000 so far, and its other two founders joined Barrett and Linstroth in early 2012. They decided to keep the business free to the user. The service companies that receive a referral will get a small profile on the site. The service provider can upgrade its profile, and that’s how Heroic gets its revenue, at $29.99 per month.

‘Chicken and egg’ problem

Heroic’s challenge, of course, is getting enough users to make that $360 annual expense for the small business worth it, and getting more users when the provider base is pretty thin. As Barrett put it, “it’s that chicken-and-egg business problem, and we are 100 percent focused on the chickens,” meaning users.

Their plan for gathering users is a “blend of offline and online,” Barrett said, and will include such old-fashioned marketing methods as a promotional campaign through a local restaurant, an official launch party in May and even direct mail.

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