SUPERIOR – One year after forming Social Media Group, or SMG, in May 2006, CEO Dennis Yu and two business partners, Lucas Howell and Ryan Roth, decided to dissolve it and form DashLocal.com to resonate better with small businesses.

“We’ve seen more of a demand for search engine marketing and optimization within small businesses, so we put SMG’s mission on the backburner,” Yu said.

SMG developed pro-bono online community development and search engine marketing campaigns for nonprofits. It was also serving paying customers, but the nonprofit demand overshadowed commercial clients, and it wasn’t working as a business model.

The company’s 11 employees got severance packages, while Plentyoffish.com CEO Markus Frind and Track Entertainment’s Andrew Fox – both initial investors in SMG – were repaid an undisclosed amount of their initial funding.

“We still maintain those relationships in slightly different capacities. We’ve grown our board of advisers to primarily Internet marketing experts, reflecting our focus on local businesses,” Yu said.

The Kelsey Group, a Princeton, N.J.-based strategic research firm, reported there are 23 million small businesses in the U.S., 80 percent of which are hiring companies like DashLocal to bring consumers to their Web sites. These businesses spent $3.4 billion on local online ads last year, which is projected to grow 400 percent by 2010.

DashLocal is capitalizing on that by using its core strengths – understanding how to drive visitors to sites through large-scale search engine optimization and marketing (known as SEO and SEM), pay-per-click ads and keyword-based traffic.

It has added Google and Yahoo! as search engine partners to get better rates.

“We have a couple dozen new clients, and we’re already profitable,” Yu said, declining to reveal revenue or customers. He noted they are managing more than $100,000 in “ad spend” for dentists, attorneys, movers, plumbers, auto mechanics and others in specific geographical regions.

“We chose ‘Dash’ to indicate speed and effectiveness, and ‘Local’ to emphasize our ability to target customers who live and work near our clients. So if you’re a dentist in Boulder you’ll want to show your ad to folks living in Boulder who search for ‘dentist’ as opposed to folks searching from Los Angeles,” Yu said.

DashLocal prides itself on performance marketing.

“Companies want to see results. We show you what keywords you’re buying, the click-through rates, the visitors and quality of traffic,” Yu said. “We write and target the ads specifically for a service. Small businesses have marketing budgets allocated among media, and we can give them the most cost-effective results for the price.”

For a $100 setup fee, monthly costs cover keyword research, targeted ad copy, SEO and SEM management, click-through ads, 24/7 support, daily reports and more.

“We are lean and mean. We don’t charge a lot of overhead, as our competitors do. We operate on a razor-thin margin. We don’t need to pay salespeople. We may not grow as fast, but our customers are not hit with as high margins. They don’t have to pay up front, and they stick with us,” Yu said.

The company’s immediate plans are to recruit and train resellers to become Internet-marketing experts who help some of DashLocal’s small business clients effectively advertise on the Web. The resellers license DashLocal’s technology and pay a share of the revenue to them – the resellers keep the rest.

“With our training they learn the tools and how to evaluate Web sites, customize proposals, and build search and marketing campaigns,” Yu said. “They find the customers and are the main point of business contact. It’s great for us.”