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If we’ve learned anything in 10 years, it’s that building SME Web sites is one tough business. There’s huge churn and heavy competition. Increasingly, there is also more focus on SEO, SEM and promotions. And “easy” paths to riches via association and chamber of commerce resell deals are never really easy. In my experience, most of them are impossible to work with.

So — maybe a free microsite from Google or Yahoo! does the trick in lieu of a full feature Web site? Or even a blog? Not according to the guys at Market Hardware, a Web site and service firm based in Bethesda, MD.

Market Hardware has 1,600 active small-business accounts, with an average spend of $1,400 — $1,100 for the Web site and $300 for management-type services (including a new listing generator that sends information to more than 20 listing sources). All in all, the company says it is grossing $2 million a year, its margins keep getting better, and it is close to break even. By the end of next year, it projects to have 5,000 businesses under contract. While some of the large Web site firms report startlingly high churn approaching 50 percent or more, Market Hardware claims its churn is less than 10 percent.

The numbers are still small, and no one is proclaiming this 30-person company a success at this point. But its leaders believe the company is well on the road to being a hit. And what’s the secret sauce? The firm’s principal approach to small business is via associations — a stinky way to do business, to be sure.

Associations tend to be slow, unmotivated, technologically clueless and driven by quick bucks. But Market Hardware says I got it wrong. In fact, it has deals with 40 associations, and they work well with the company as partners. In return, they’re either getting $100 to $150 member discounts, or small commissions.

The association pitch zeroes in on verticals. The company has developed programs for 50 verticals and expects to have 100 verticals completed by the end of 2008. Its ace in the hole is a six-week “vertical view” program that provides a research template for every vertical it adds. Consequently, it’s a perfect fit with many of the various associations it picks up. It doesn’t hurt that it’s located in the Washington, D.C., area, where many associations are headquartered.

“We don’t need to be blood brothers” with the associations, says VP Griffin Davis, who formerly led Citysearch’s expansion team. “We just need to know that the key thing for a home inspector is when his next appointment is,” and so forth. He contends that the details that come out during the six-week crash course let the company know enough to differentiate each of the sites.

Davis and CEO Brian Kraff note that the vertical approach has served them well, especially as they have focused on what they call “the ServiceMagic verticals,” including construction, home services, chimney sweeps, plumbers, etc. More recently, the company has also done well with health and white-collar services such as financial planners, lawyers, etc. “Eventually, white collar and blue collar will even out,” they say.

Looking forward, Kraff and Davis expect their focus will stay on Web sites, which they believe are more essential than ever as firms try to differentiate — something I might take issue with. But services are definitely a big part of it also. They’re looking to add directory listings and video sometime next year — although they don’t think the demand for small-business video is as strong as the hype surrounding it.

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