Special Report: Selling to SMBs

Fierce competition at the enterprise end of the market has driven many suppliers to look at selling into the SMB space &mdash usually with mixed results. Numerous attempts by enterprise software makers to scale down have also failed, as companies have ‘dumbed-down’ their products to make them easier to implement, but failed to consider that SMBs are often as complex in operation as much larger companies. Some larger technology suppliers have also found that the cost of selling to SMBs is simply too high in comparison to the revenues that each sale generates.

Many of the biggest players in Australia’s technology industry, including IBM, SAP, Oracle, Microsoft and Sun Microsystems, have recently retooled parts of the operation to better meet the needs of SMB customers. They are running headlong into a strong group of contenders that were born in the small and mid-sized markets, ranging from MYOB and Sage in the software realm through to white-box PC makers and Dell in the hardware space.

But Annonier says there is a strong opportunity for vendors that can package their software in a very standardised way with little customisation. The key for larger vendors is in reducing customisation costs, and having a low-involvement reseller network, so servicing the needs of SMBs remains the province of smaller resellers and integrators.

"It is a very new behaviour for vendors, because until now this segment of the market has been somewhat ignored. The critical part will be the design of the channel network. Nobody at this stage has been able to design something really successful. They don’t know the space. They are used to having named accounts and going and talking directly to the customers. When it comes to talking to thousands of businesses they are able to design a marketing campaign, but they do not have the proper channel to fulfil it," Annonier says.

Selling to SMBs

Adrian Coote, CEO at listed integrator Commander, says the triggers that prompt a small business to acquire technology are not so different from those of larger businesses. Commander services both small and large companies. Coote says, however, there can be a lag of between two and three years for some technologies to filter their way down.

"That’s mainly because of cost," Coote says. "The technology starts being quite expensive, and gradually decays in price over time. The stuff that corporates are buying today will be absolutely required by small business in due course."

The sister companies Brennan IT and SecureTel have a sweet spot that lies at the higher end of the SMB market, selling to companies with between 200 and 250 users, but service clients down to 50 seats.

"Below 50 seats the business that you are talking to either does not understand about IT at all, and they see it as just purely being a cost to the business," says general manager for sales and marketing, Matthew Lovegrove. "And so you need to spend time educating them on why they should be interested in IT. And that takes time, effort and dollars. And if they do understand what you are saying, they may not have the money to invest in that. If it is security, for example, they may say they are willing to take a risk."

Lovegrove says companies at this level generally have no dedicated IT resources, or have one overworked technical support person. Decisions are most likely to be made by the business owner, or perhaps a general manager.

"That can be a positive and a negative," Lovegrove says. "On the plus side, there tends to be shorter sales cycles and you get access to the ultimate decision maker early on. But on the other side you need to spend a fair bit of time convincing that person that they have a need for IT and communication services."

Should that issue be overcome, Lovegrove says the rewards can be lucrative, as SMBs are often much more interested in partnering for the long term than their larger cousins. "You tend to get more loyalty in the SME space," Lovegrove says. "It’s a cliché, but if you can help a business out, then they will tend to regard you as a trusted adviser.

"We’ve had clients that have been with us since we first started operating. They are not as willing to put you out to tender and conduct a Dutch auction for your services. In the corporate world, from my experience, loyalty is a difficult thing to achieve. Corporate governance dictates that you need to get three quotes and go to tender."

Similarly, Coote says that Commander does not necessarily have to sacrifice profitability when chasing smaller clients. "Small businesses don’t mind paying appropriate pricing," Coote says. "They pay for value. There is an urban myth about small business wanting something cheap. That’s not true. What they are looking for is a value proposition where they can be more effective at what they do. I think small business is very aware of the difference between price and value."

Coote says that small business are also becoming more sophisticated in terms of choosing their suppliers, looking for subject matter experts rather than generalists.

"It might have something to do with the internet and information is more freely available, or because more small business are in networking groups and talk to each other and attend shows. But I think there is an increasing intellectual property within small business as to what options are available. And because small business tends to be experts in their own field, they feel comfortable dealing with someone who is an expert in their own field. They really respect expertise because that is how they stay in business themselves."

Craig Dower, managing director at reseller Harris Technology, agrees that SMBs are becoming far more tech-savvy than at any time before. "If you think of a small business today versus six to eight years ago, previously they may have had a few PCs, probably networked, and maybe a mobile phone or two," Dower says. "Today they have a website — often hosted — they use email, they are connected to broadband, they do their quarterly BAS statements and accounts online, they use notebooks and PDAs, wireless networking, have BPay facilities in place, and often transact online.

"SMBs are becoming more selective in terms of wanting better-priced hardware and software to do more. As prices drop, there is an expectation that the specifications remain high. We see more and more small businesses using wireless and broadband, and continuing to look for innovative ways to use technology. This includes looking at cost reduction opportunities through things such as VoIP."

However, Dower does expect to see fewer SMBs upgrading their desktop PCs, as they continue to move towards more sophisticated convergent devices and wireless technology that provides greater flexibility.