To many companies, the small and medium business (SMB) market represents the golden vein of market opportunity. Compared to the Fortune 1000 with–that’s right, still 1000 companies–SMB is a huge market with 8 million traditional businesses (plus another 32.5 million home-based businesses). The market is so big and seemingly inviting that the long string of previous failures just adds to the appeal. With so many big software and hardware companies targeting the SMB market, including some of our clients, this is a great time to take a look at some of the popular myths surrounding it.
Source: IDC
Myth #1 – The SMB market is an enormous opportunity that will shift market power when someone (me) finally gets it right
Companies are drawn to the SMB market because they think all SMB companies all look alike. But the SMB market isn’t a single, homogeneous market. It’s a group of segments that represent lots of vertical markets, regions, sizes and levels of ambition. It’s a microcosm of our diverse economy. While each of the segments is addressable, the aggregate SMB market is not. In fact, it’s so diverse that it’s hard to make useful generalizations.
Myth #2 – They want specially targeted small business offers
Don’t call companies with ambitions for growth “small.” They resent it. They see themselves competing against the big guys. Call them small and you’re dissing them. They spend their days trying to project an image that’s bigger than they (currently) are, so applications tailored for small business sound like something they’ll quickly outgrow. Offer them something for “medium or midsized businesses” and they see themselves in the picture immediately.
We recently tested a variety of product names with SMBs and found that “Enterprise Edition” generated net positives (those with a strong willingness to consider minus those with a strong unwillingness to consider) of nearly 40%. It’s not a surprise that “Small Business Edition,” “Express Edition,” and “Starter Edition” all generated net negatives of 30-40%.
Myth #3 – Treat them like enterprises–everyone wants to be big someday!
Not so fast. While many small organizations aspire to be large, some (especially those with fewer than 100 employees) like being the size they are. Growth is stressful. Not everyone wants to grow up to be IBM or AT&T.
Infrastructure requirements and pricing make it tough to scale down enterprise apps. When it comes to technology, scaling up can be easier than scaling down. Cisco shrewdly plays both ends with the Cisco brand becoming more available to SMB while the Linksys brand moves up. Maybe the rest of us should take a page from Cisco’s playbook.
Myth #4 – Small businesses are technology laggards
Lose the generalities. Small does not equate to Neanderthal. Companies vary in their desire to be early adopters of technology. Engineering, scientific and technology companies tend to be early adopters regardless of company size. Services, health care, and other industries? Not so much. The important lesson here is, know your market.
Myth #5 – SMB buyers look like consumers
True and false. In companies with 100 or fewer staff, the user is often the buyer. Dedicated IT resources often don’t kick in at that level. Once there’s an IT team, they drive the process.
Is there a better model?
If “SMB” is not a segment, is there another way of slicing the market into large, addressable segments? It looks like Cisco thinks so. As it moves down-market from its large enterprise roots, it appears to grow more conscious of the IT buying method used. This is similar to the model proposed by AMI-Partners which categorizes SMB companies as one of four types:
- “Enterprise adopters” who view IT solutions similarly to large enterprise counterparts and drive the lion’s share of IT spending.
- “Early adopters” who embrace new IT solutions to optimize productivity, but lack the resources needed to deploy full-scale solutions.
- “Value adopters” who implement IT solutions after others have done so with a relentless focus on costs.
- “Needs help adopters” who employ IT solutions only at the threat of losing customers or suppliers.
According to AMI-Partners, enterprise adopter and early adopter SMBs account for more than three-quarters of the CRM and ERP investments in the SMB market, although enterprise buyers represent only six percent of the SMB market.
This approach will help focus your marketing effort. The benefit is limited in that it rehashes the work of Geoffrey Moore (Innovators, Early Adopters, Mainstream, and Laggards), and can leave you with the impression that all “enterprise adopters” or “early adopters” look the same. If you’re Cisco with a very horizontal offering, or if you’ve only one cut of the market, this approach beats simply looking at the number of employees. Let’s be real–a 20-person financial services firm will require different technology than a car wash with 200 employees. Solutions are important for smaller businesses–often, even more important than for big companies with huge resources at their disposal.
Don’t give up on finding that illusive vein of gold. When it comes to making smart marketing investments, success still requires a deep understanding of specific market segments. SMB businesses aren’t part of the Fortune 1000, but they want great service. Where a larger company may see an opportunity for a generalized offer, a small company sees an opportunity to better serve customers. Line up the product, value proposition, go-to-market mechanism, and all the stuff you Rubicon Insight readers will have heard us share before. Align the different pieces across the disciplines of your business and hitting the bullseye of the SMB market will be as easy as pie.
