Business Models in the SMB Market

The SMB market is often a popular topic for hardware and software companies. Of course, first and foremost everyone wants to sell to the Enterprise market. But as a result, competition is fierce and standards are very high for these select large companies. If you get to the Enterprise market early with an innovation that creates a new category, you can find success if you are TRULY making a contribution to the market.

But late entries into a large vertical Enterprise market segment, as well as early stage companies competing with larger established companies often have a very tough go of it. In these situations, companies having difficulty getting traction in the enterprise market often turn their attention  to the Small and Medium-Size Business (SMB) portion of the market.

And why not? At first blush, the SMB market appears to be huge as well as generally under-served. It looks like a perfect haven for an early stage startup or turnaround company with a solid product, but not quite enough differentiation, brand name, or marketing muscle to push out the big boys in the Enterprise space. So a decision is made to focus on SMBs.

What’s Wrong With This Decision?

There is nothing wrong with this decision, per se–if it’s done with eyes wide open and for the right reasons. But too often, it is done to run away from a problem (the inability to penetrate enterprises), rather than run to a great opportunity. A lot of times, companies see the SMB market as easier turf; simply a less competitive market with more targets than the Enterprise market. Major problems can result from this type of mentality and I see it quite often in my consulting practice. Companies that enter the SMB market from this perspective usually aren’t fully prepared to do what it takes to be successful, in what is a very different type of market than what they may be familiar with. So where are the land mines in the SMB marketplace?

What’s Not Obvious in Marketing to SMBs

The first thing to consider is that customer needs are often quite different in the SMB market vs. the enterprise. A lot of this depends upon what technology and market segment you are in, and whether your product is aimed more at the “S” (small) segment, or the “M” (medium) segment of the SMB space. For example, if you are selling a single-user downloadable or SaaS productivity tool which is useful to staff accountants, you may not see much difference from selling into a different company size when you move from enterprise to SMBs. If on the other hand you are marketing a company wide, networked application of some complexity, the differences may be huge. Like everything in technology marketing–the devil’s in the details. Every situation needs to be evaluated closely and treated differently on its individual merits. The most important thing is TO NOT ASSUME THAT THINGS ARE THE SAME BETWEEN SMBs AND ENTERPRISES IN YOUR PARTICULAR CATEGORY. Do the work, evaluate the situation–don’t assume. Assumptions, without verification, are what get you burned in this transition. Below is a list of some of the major differences in the SMB market relative to the Enterprise:

IT Departments are small and less of a factor–if they exist at all. In Enterprises you may be dealing with persnickety CIOs that want things just so. In SMBs, if there is a CIO at all, he will be looking for a cost-effective, off the shelf SOLUTION that will “just get the job done”. These days probably SaaS. Or you may end up struggling to figure out how you can sell your complex solution to a company that has NO IT DEPARTMENT AT ALL.

There is less money to spend–It’s harder to make money with big ticket hardware and software, let alone customization and expensive add-on services. Your products better have value – and margin – right out of the box.

Ease-of-use is even more critical–There probably is no training department or other corporate staff and people are busier overall. If they can’t figure out how to use it quickly, you’re going to have a hard time even selling it, let alone get it used.

There is much less time available to purchase products–Even the sales process may be compressed, in terms of how much time the prospect has to dedicate to reviewing your marketing literature or talking to your sales people. But the actual TIME ELAPSED during the sales cycle could be EVEN LONGER due to lack of time available for the prospect to consider your product, while the INTENSITY of the purchasing engagement can much less.

How Do You Need To Structure Your Business Model Differently?

Lower prices– SMB’s just won’t pay the same prices that you can get in the Enterprise space in most cases. So you’d better come into this segment with a price and value proposition that makes sense to these price-sensitive customers.

Marketing vs. sales–The SMB market must be penetrated with a more marketing intensive approach with respect to marketing/sales ratios than the Enterprise market. There are many more customers and the average sale amount is much lower as well as 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 need to be in the Enterprise world, where success is often highly sales-intensive. So think self-service SaaS in software, maybe VARs or retail in hardware.

Low cost sales force— With much lower average sales amounts and much less time available on the customer’s side, it is usually impractical to have a large, high-cost field sales force. Self-service or at a maximum an inside sales force is the general rule in this market. If you have a product that demands customization and hands-on support, VARs are a good adjunct to an internal sales operation to consider. The more your sales force is taking orders generated from marketing and the less they are cold calling prospects, the better.

Better usability and reliability— You’ll need many more units being sold to get to the same level of revenue as you would in the Enterprise space. This will be across a much larger customer base with much less (if any) maintenance revenue to fund a large support staff. Your product better work when it’s installed and better be very easy to use over time. Unless you have a highly customization solution and are using VARs as a channel, SaaS is a great platform for delivering software to this market.

Little or No IT support–The good news is that there is no often no prickly IT committee or staff that act as gatekeepers in your efforts to sell to the real end users. The bad news is that if even the littlest thing goes wrong, there’s no one internally at the customer to pick up the slack–you’re going to hear about it directly from the user–over an over again.

SMB Market Summary

The SMB market is actually a simplistic catch-all phrase for a large, heterogeneous group of markets. But it is a useful abstraction as a starting point for understanding how to penetrate and thrive in B2B marketing/sales to smaller companies. I hope this short introduction is useful–feel free to pitch in and post a comment adding your two cents to this important topic.

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