While the traditional media react to falling fortunes, one of the news business’ smartest startups is thinking expansion — in staff and in revenues.

Talking Points Memo has ambitious plans to expand its base of advertisers in 2009, hoping to capitalize on the popularity of its campaign coverage at a time when analysts are predicting a decline in online advertising sales. The scrappy political news site has a number of strategies to weather the downturn, but the most intriguing move is this: selling ad space to lobbyists and other influence-seekers who want to reach the site’s large audience in Washington.

Those ads would be geo-targeted specifically to readers in the D.C. metro area, where TPM says it is widely read by Democratic staffers and others who will control the White House and Congress in an Obama administration. “There’s a huge advertising market that is trying to reach D.C. eyeballs right now,” Andrew Golis, deputy publisher of TPM Media, told me in a phone interview. “And certainly we can charge a premium to reach those eyeballs.”

The strategy takes a page from newspapers like Roll Call and The Hill, which have small but highly valuable circulations in the capital. More recently, Politico has found success, though not yet profitability, by distributing a print edition that pays the bills for its popular website.

TPM is online-only, of course, but they hope to create similar advertising value for lobbying firms and others involved in issue advocacy by targeting only those readers who reach the site from the metro D.C. Golis wouldn’t say how much TPM will charge for such ads but said their cost per thousand impressions (CPM) is “significantly lower” than Politico’s:

Both our surveys and our analytics show that we actually have a higher penetration among the people who are going to be running the White House and the Hill than many of the D.C. newspapers. The challenge for us is getting in there and kind of transitioning people from looking at those old-fashioned brands to understanding that we can offer a better product for a lower price.

Since first accepting ads in 2003, when founder and publisher Josh Marshall was the only employee, TPM has relied on advertising revenue as its primary source of income. The site has also held audience fundraisers for new projects as recently as 2006, but Golis said there are no current plans for future fundraisers.

TPM now employs 12 people, including Marshall and his wife, Millet Israeli, who left Dow Jones this year to become TPM’s general manager and general counsel. The site is hiring two new reporters to cover Congress and the White House from Washington (one of whom was announced yesterday). And Marshall recently floated the possibility of hiring a financial reporter as well.

The expansion is risky, since most people expect advertising, in print and online, to decline amid the economic downturn. Gawker Media publisher Nick Denton grabbed headlines by laying off staff and forecasting a 40 percent drop, and Blogads CEO Henry Copeland recently concurred with the doom-mongering. (TPM sells some of its advertising through Blogads.) Golis said TPM is “certainly expecting a general market advertising downturn,” but he hopes their new strategies will offset the decline:

Despite what Denton and the rest of the folks are saying about the ad market going down, we think we have so much room to grow in terms of just selling out our inventory. And we think the Democratic ascendancy and our eyeballs in D.C. are valuable enough, when we crack into that market, that I think that we have kind of countertrends to the general market.

In another attempt at stemming the downturn, TPM is in talks with several so-called “premium” advertisers, including HBO, Showtime, and Comedy Central. Golis said TPM has reached the “critical mass of readership” necessary to negotiate large-scale advertising deals, and he is also touting the site’s impressive demographics: 47% of TPM readers have an advanced degree, and 60% make over $75,000 a year, which means I’m dragging down the site’s CPM.

TPM Media LLC, which incorporated in New York in 2005, is a profitable company, though Golis wouldn’t discuss their finances in any detail. Marshall takes a portion of the company’s profits as salary. “Josh is a very conservative businessman,” Golis said. “We’re not terribly worried.”

[Click here for a larger graphic illustrating TPM’s growth in paid employees since its founding in 2000.]