Small businesses offer a rich market for high tech companies.
Nearly every company wants to sell to the “enterprise market,” which comprises the largest companies in the world. As a result, the competition is fierce and buyer’s standards are very high.
If you enter the enterprise market with a real innovation, especially one that may create a new category, you can find success. But late entries into a market segment and early stage companies without an established brand often have a very tough go of it in the enterprise space. In these situations, their attention often turns to the “small and medium-size business,” or SMB, market.
And why wouldn’t they? At first blush, the SMB market always appears to be huge, as well as underserved. It appears to be a perfect haven for an early stage company with a solid product, but not quite enough differentiation, brand name, or marketing muscle to push out the big boys. So the decision is made to be a company focused on SMBs.
What’s wrong with this approach?
There is nothing wrong with this decision — as long as it’s done with eyes open, for the right reasons. Too often, it is running away from a problem (the inability to penetrate enterprises), rather than running to an opportunity.
Often the SMB market is seen as easier turf; simply a large and less competitive space than the enterprise market. Major issues usually result from this type of mentality. Companies that enter the SMB market with this perspective aren’t prepared to do what it takes to succeed, in what is a different type of market than they may be familiar with.
So where specifically are the land mines in the SMB marketplace?
Subtleties of marketing to SMBs
The first thing is that customer needs are often quite different. Much of this depends upon what technology and market segments you are in, and whether your product fits in the “S” (small) segment, or the “M” (medium) segment of the SMB space.
As an example, if you are selling a single-user productivity tool useful to staff accountants, you may not see much difference. If on the other hand you are marketing a company wide, networked application of high complexity, the differences may be huge. Like most things in software or technology marketing–the devil’s in the details.
Every situation needs to be evaluated on its individual merits. The most important thing is to not assume that things are the same between SMBs and enterprises in your vertical category. Assumptions without verification are what get you burned in the transition your focus from enterprises to SMBs. Here is a list of some of the major differences in the SMB market:
Small IT departments — IT Departments are small & less of a factor–if they exist at all. In enterprises you often are dealing with persnickety CIOs that want thing just so. In SMBs, if there is a CIO, he will be looking for an off the shelf solution that will just “get the job done” within his budget. Or you may struggle to figure out how you can sell your IT productivity solution to a company that has no IT department at all.
Less money to spend – It’s harder to make money with big ticket hardware and software, let alone customization and expensive services. Your product better have value and high ROI out of the box.
Ease-of-Use is critical — There probably is no training department or other corporate staff, and people are spread thinner overall. If they can’t figure out how to use it immediately, selling it will be very tough.
Much less time available for purchase decisions — The sales process is compressed in terms of the time the prospect spends reviewing your marketing literature, or talking to your sales people. The actual sales cycle could be even longer due to this lack of time, but the intensity of the purchasing engagement is usually lower.
How to structure your offering and organization differently
Lower prices are required – SMBs just can’t, and won’t pay the same prices that you can get in the Enterprise space, in most cases. So come into this segment with a value proposition that makes sense to these price-sensitive customers.
Sales vs. Marketing – The SMB market is a more marketing intensive, relative to sales, than the Enterprise market. There are many more customers; the average sale is much lower, and much less face time available for direct sales. While in many respects Enterprises are the most demanding customers in the world, you’ve got to be a better marketer to succeed in the SMB space than you may need to in the enterprise world.
Low cost sales infrastructure – With much lower average deal sizes, and much less time available with the customer, it is usually impractical to have a large, high-cost field sales force. Inside sales forces are far more common in this market. The more your reps are taking orders generated from marketing and the less they are cold calling prospects, the better off you’ll be.
Better reliability — You’ll need many more SMB units sold to get to a comparable level of Enterprise revenue. And this will be across a much larger customer base, with less (if any) maintenance revenue to fund a large support staff. Your product better work when it’s installed, and it must be very easy to use over time.
Very little IT support — The good news is that there is no prickly IT committee or staff that you have to “go through” to sell to the real users. This can really speed up your sales cycle. The bad news is that if the smallest thing goes wrong, there’s no one at the customer to pick up the slack–you’re going to hear about the problem directly from the user.
Phil Morettini specializes in high tech industry issues.
The SMB market is actually a simplistic catch-all phrase for a large, heterogeneous group of markets. Care must be taken not to over-generalize the SMB market as a “segment.” But it is a useful abstraction as a starting point for understanding how to penetrate and succeed in marketing to the vast universe of smaller companies.
I hope this short introduction is useful–feel free to pitch in and post a comment adding your thoughts to this topic.
Phil Morettini is President of PJM Consulting, a management consulting firm providing general management, marketing and business development services and advice to software and technology companies worldwide.
Tags: SDNN
Comment by: Sonal Maheshwari Posted: June 18, 2009, 9:44 pm
@Phil
That is good introduction on how SMB market can be turned into profit and can be a revenue booster. The sorry part being SMB’s are quite reluctant on doing business with new partners and outsourcing their needs. This is a primary reason why Companies don’t focus on SMBs directly. But with new trends setting in SMBs need to be more open to achieve competitive edge and growth.
check this useful link for further details for both SMBs and service providers.
http://tinyurl.com/mhfmuw
Comment by: Want to sell to Small Businesses? « Sieber Consulting Blog Posted: June 25, 2009, 8:29 am
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Comment by: Luosheng peng Posted: June 25, 2009, 9:55 am
Not just startups, there are so many companies, large and small, are looking to engage with SMBs more effectively and productively. Do you see there is a value of providing a service that connects companies at all sizes to SMBs so they can communicate more effectively and follow up with SMBs closely?