If you have time to expend the effort into it, there are plenty of great ways to target a local audience and thrive VERY well, but you have to be savvy and dedicated.
Here is my suggestion.
First, if it is possible, offer more than just a hosting option. That's the way to get into the local scene. If you can, offer to design the customer's page for them at varied price ranges depending on quality. Also offer technical support that extends past normal hosting responsibilities, but make sure your customer understand you charge an additional amount for such. Finally, offer all customers with 6-month or greater packages that includes basic live system clean-up for their personal computer (antivirus, spyware removal, defrag, etc) twice a year that comes included in the plan.
Here's how to set it up:
1. Target specific organizations that will have good customers interested in being hosted. One thing that works well is to target the computer clubs of all your local golf courses, most of the time if you pitch the idea right the club will buy a bulk rate for all its members to have one website hosted apiece. Also target campus-rich areas.
2. For web design that you are capable and able to do, consider doing so. For all else, find trusted designers and commission them to do so. Even if you end up not making profit off of the web design end, you will make it up in hosting sales.
3. For technical support that you are unable or unwilling to do, such as going to a customer's home twice a year as part of the package to defrag and remove spyware, work out a deal with a trusted tech company to do the work for you. Be sure that your ToS explicitly details what is covered in the package, and who is liable for what, and the pricing structure of additional work not usually covered. Make sure your customer knows that they can call you for any tech issue, even though it may mean you calling someone you work with to come out and fix the issue. Most locals will go to whoever appears to be their one-stop computer shop, as much of your business will be coming from those not technically-savvy themselves and they need one source they can trust to juggle things for them. They do not want to be overwhelmed by trying to keep up with calling person A for web design issues, person B for host issues, person C for network issues, person D for home computer issues, and etcetera. Most local people in your target audience group work that is related to computers all in one generic category because they do not understand as much as others do about computers, and if you don't have resolutions for any general computer issue for them, they will start looking elsewhere.
You can also look into offering free samples of your product by sponsoring contests on TV and radio in your area. The best option starting off is to find another business that relates to your business that is already planning or involved in local contests, and then buy into the promotion to add your name to the list of sponsors in exchange for a small percentile cost of the venture along with your product as part of any prize packages.
Hope this helped and good luck.
