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They say one of the traits of a successful entrepreneur is persistence, the ability to keep pounding away on your original idea until you can shape it into something viable. That’s what Ben Smith has been doing with MerchantCircle, and it may pay off.

When Smith first told us about MerchantCircle over a year ago, it had something to do with local merchants and newsletters. We nodded politely and walked away scratching our heads. Today, MerchantCircle, based in Los Altos, is something much different. It’s a place where local merchants can build online profiles, network with each other and get help placing ads on Google, Yahoo and other search engines.

Smith doesn’t view MerchantCircle as a destination site for users. Most people won’t go here looking for a local bike shop, although you could. Instead, they’ll find MerchantCircle profiles when they’re Googling for Palo Alto bike shops, for example.

The “circle” in the company’s name comes from the idea that merchants will create networks of affiliated businesses by adding their names to their profile pages and swapping ads with each other. The idea is to give merchants an incentive to invite other merchants into MerchantCircle. Indeed, Smith is relying on this type of viral marketing to build his business because he doesn’t have a cadre of salespeople to recruit business owners. Word-of-mouth is key here. If Smith can make this part work, he hits a home run. If not, he’s back in the same boat as so many other companies that are trying in vain to tap into the local merchants market.

MerchantCircle has pre-populated its database with generic business listings. Business owners can then sign in to claim their profile pages.

MerchantCircle has three tiers of service, from free up through $99 a month. As with with many online services these days, Smith is hoping he can lure merchants with the free service and then upsell them to a paid account.

One thing we’d like to see is more customization features for the profile pages. For now, the somewhat bland profile pages include a merchant blog, a recommendations section and not much else in the way of unique content. Ideally, merchants would be able to personalize their pages ala a MySpace account with templates and widgets. It’s a tricky balance to strike, because some merchants will be motivated and savvy enough to want to do a lot with their pages. They’ll want powerful tools, along the lines of what they can get through a Yahoo Small Business account. Others will want ease and simplicity.

Nonetheless, it’s a start. And if Smith can keep pounding away and listening to what merchants want, MerchantCircle might go somewhere.

MerchantCircle was incubated out of Rustic Canyon Ventures and has eight employees. It’s taken $4.3 million in funding so far.

Related: See this Local Onliner post for more.

Bonus: Listen to our Inside Silicon Valley podcast with MerchantCircle founder Ben Smith.