SME / SMB’s–once the Holy Grail of the industry–appear to be a highly coveted group. Moving from being an enterprise player to play in the mid-market is incredibly challenging. We’ve worked with a few companies of late who have asked us to come in and help them achieve this new market summit. Having done this a bunch with some Silicon Valley blue chip names, I can see the common pitfalls they face and want to tell you how to avoid them.
Is it really that different? I mean, come on, financial services is financial services, right? Yes, and no is my short answer. But the longer answer is going to take a bit to explain. Before diving in, let me share a different framework and some key differences regarding what is needed to drive growth in the SMB market.
As a gross generalization, the enterprise market is largely about one-on-one relationships between a sales person and an account’s key contact. Think storage solutions and there are about 100 accounts that buy enough volume to be considered enterprise. They tend to be in insurance, finance, or other data intensive markets. The market is not so much simple as well-defined and targeted.
But the SMB market is by its very nature broader–it’s a larger base with different needs and almost always the key to success in selling to SMB involves a move from customized solutions to pre-set solutions. Therefore, it is nearly impossible to address the SMB market by taking the “same old” offer into the new market segment.
There are three fundamental pieces of the go-to-market mix that need to be addressed differently:
- Creating the complete Product and Right Fit.
- Support to scale the business.
- The Buying Process requires a different mix of activities.
Let’s dig into these in detail.
- A complete product offer with the right fit
It may seem really obvious but the most overlooked piece of moving from the enterprise is really knowing what offer is needed. Different from high-touch customized solutions, as is typical in enterprise sales, SMB solutions must have the correct bundled offers right from the start.
You need to know what it is (features and functions) that your SMB customer needs, how it’s packaged together, and what the core value proposition or offer really is. Note that in the SMB more than any other market segment, it’s the combination of services, hardware, software, and integration that creates the full value proposition. If the product needs high integration into existing systems, then the channel is considered part of the “whole product” as Geoffrey Moore’s Chasm model has taught us.
Another thing is to make sure what you’re offering is differentiated against the competition and offers enough value for them to justify buying it. It is easier and more likely for an SMB to do comparisons and make sure that they are getting good value. One mistake I’ve seen clients make is to “bundle” solutions that are readily available in the market with their hardware and then position that as a “solution.” I hate to point this out, but it’s really not a solution–it’s a bundle. Which is typically not adding enough value for the customer. Adding more value would mean making sure that the product can be woven into the customer environment seamlessly. Or making sure the pricing model provides a benefit that compels the customer to buy two things together. It could also mean making sure the channel knows how to do good integration services with other commonly-used tools in the SMB environment.
These are the five questions I want companies to think about as they prepare to serve the SMB market:
- What customer research has been done recently to define the value proposition?
- Are you ready to make necessary product changes?
- What solution areas are the right ones?
- Have you tied-out the product roadmap to revenue expectations?
- Have you completed the product by adding ease of installation, features, and interfaces?
- Support to scale the business
One company we’re working with lately has historically had about 100 accounts, and they’ll have about as many transactions each year. That same business as it moves to the SME market must handle 30x the volume of transactions in the first year. This is quite common. Any firm going into SMB must make sure their “support” infrastructure allows them to service the accounts and process the orders cost effectively. You must make sure you can manage the scale of the business while maintaining high levels of quality and service. If you don’t, you risk working waaaay too hard to process an order. The smaller sale price in SMB requires developing economies of scale. Creating a licensing program, a price list for the channel that they can use without coming back to you for volume discounts, or making sure a deal desk model is in place to handle exceptions in the field are all examples of what is needed.
So here’s the critical insight when it comes to developing support to scale: design and document the pricing model with some thought. When I see firms doing a lot (50+% of their transactions) of deal exceptions, then I know that the salesforce is working way too hard, and the back-end infrastructure is not in place to make sure the offer is right at the beginning. The chance for error is also increased because most of your deals are one-offs–not process-driven. Yes, it’s true you want flexibility, but what you also want is volume. Volume cannot happen when you make the price list difficult to interpret or when the way that volume discounting happens is a call into corporate.
Policies, programs and planning are involved in making sure the business is ready to scale. Questions you can ask include:
- To what degree are supporting functions meeting channel and customer expectations and or industry benchmarks?
- What systems investments will be required to support necessary changes?
- What behavior changes need to be made by management to lead in the market?
- What metrics are in place? How will you know you are achieving success (besides revenue, which is a lagging indicator)?
- The buying process is about marketing AND sales
Enterprise companies are predominately sales-focused. And consumer companies are nearly always marketing-focused. But the SMB is a blend of both. With too many sales resources, you are not creating leverage. With too much emphasis on marketing, you are not closing business.
So the interesting thing about the word “marketing” is that it has many, many meanings. What your experience has been, what industry you’re a part of–even the organizations you’ve been part of–will all inform and interpret your perception of marketing. It can be inbound product management–defining the right solutions. It can also include product marketing and making sure you are priced and positioned well. I also mean corporate marketing, which creates “air cover” in the form of branding and PR work, or it could be field marketing where leads are generated from things like seminars and direct mail. For the purpose of this dialogue, I’m going to use the big “M” Marketing, and suggest that it is all of the above.
When you are selling into the enterprise, the ratio of sales activity to marketing activity is relatively high. Most companies involved in enterprise sales don’t need as many “awareness” activities to get known or considered.
When a company moves to mid-market, the question is really, “What is the right model to affordably target the potential customer?” What you don’t want to do is run a mid-market business like an enterprise business, because using the enterprise model on mid-market opportunities is entirely too expensive. A typical rep selling to mid-market can do 9x what a quota-carrying enterprise sales person can. Why? Because a bunch of that mid-market activity is generated in the channel and with related resources that are volume focused. At another recent client engagement, we saw a lot of the buying cycle being driven entirely by sales people. And that’s the same model Salesforce.com uses when competing with Oracle. But that’s not scaling the mid-market correctly. You must use a more economical model. And because many companies don’t get this, they think the SMB is unprofitable. (Have I beaten the horse enough?)
In the SMB space, there must be a different marketing mix to make sure your spend to revenue growth is achieved. The SMB has a nuance to it–getting a “share of voice” is key to even being heard. Without it, your sales people are walking into what feels like a losing situation. SMBs are incredibly appealing and there’s some value to the new models (user influencer marketing, SaaS deployment, SEO strategies, etc.) that enable reach to a broader group in cost effective ways.
The “marketing pipeline” typically drives awareness, brand consideration, product consideration, preference and leads. Think about this as the corollary to “sales pipeline” and you’ll see that, in each pipeline, you have a series of steps to use to identify, qualify and move along a prospect.
Here are some final questions I want you to ask of your firm:
- What usages are you targeting within the SMB focus?
- What is the right marketing / sales mix?
- Are you doing the right kinds of promotional activities to raise awareness to the category buyers, (awareness consideration, brand preference and leads)?
- Have you hired an inside sales team (lower priced sales people) to drum up leads?
- Have you selected the right channel partners given your product and market readiness?
Now that the SMBs can be reached, do it and keep making profits. Targeting and reaching the SMB cost-effectively is one very important part of the puzzle. But the key is knowing that the things that worked in the enterprise space will need to be adjusted to make sure your SMB push is both profitable and successful: