How to Fit Your Product Strategy to Small & Medium-Sized Businesses
From President George W. Bush’s proposed 2007 budget that would give the nation’s 25 million small business owners the tools they need to continue to grow, to the U.S. Census Bureau’s citing that 60 to 80% of net new jobs in America over the last decade came from small companies, the indicators are strong that the mid-market—small and medium-sized businesses (SMBs)—will continue to drive the U.S. economy. As this market looks to take advantage of increased growth opportunities, and enterprise IT budgets dry up, product managers are in a unique position to strategize how their technology offerings can be developed and adapted to meet SMBs’ needs and leverage new business opportunities for products.
Now more than ever, opportunities abound for the SMB market to adopt technologies that will advance their operations and expand their sales capabilities. From information access management to storage to security, SMBs are focused on broadening the role of technology within their organizations. However, obstacles such as affordability, high implementation time, lack of IT staff and the ripple effect of technology upgrades continue to plague this market and stall its ability to realize the full potential of technology.
One of the key problems SMBs face is trying to use the “one-size fits all” offerings of many current technology products on the market. The underlying problem being that since technology’s inception on the business market, as early as Microsoft® Windows® hitting the office in the mid ‘80s, how products are created, marketed, packaged, priced, implemented, utilized and evaluated as successful, are based on the business
challenges that need to be solved on a corporate or enterprise level. Product managers that change that focus and respond specifically to challenges faced by SMBs will help close the technology gap between the mid-market and large enterprises.
The following suggested approaches will help product managers understand what steps to take and attribute to their own invention, manufacturing and marketing processes to successfully move their product line from the enterprise to SMBs.
The enterprise vs. the SMB owner: key differences
Before you can design or adapt an enterprise-level solution for the mid-market, you first need to understand the key differences in buying power between the two organizational sizes. Enterprise solutions are large in scale, budget and implementation time and require high-level expertise. Enterprise solutions are also often purchased to complement a wide, complex range of other business applications. SMBs, on the other hand, have limited IT resources and will most readily seek out the partners that can help them realize the full potential of technology investments across their entire organization, even if they start with smaller, departmental deployments for proof of concept.
Another market challenge to address is the number of differences between SMBs themselves. For some small business owners and singular departments in mid-sized organizations, hardware or software may be purchased to solve one specific business issue, such as automating accounting and financial tasks. However, the real benefits of a technology and the return- on-investment (ROI) occur when a technology can be multi-tasked across every process as a comprehensive solution to enhance all aspects of the business.
Other mid-sized organizations find an end-to-end solution by embracing software-as-a-service (SaaS) or outsourcing their needs via application service providers (ASPs). For SMBs whose leaders specialize in business matters outside IT, having a software company that provides maintenance, daily technical operation and support for the software provides a one-stop-shop answer to their IT needs. According to the Yankee Group, a leader in technology research and strategic consulting, more than 60% of SMBs attribute lower expense rates and increases in productivity as driving factors for adopting SaaS.
Enterprises & small business: the similarities
In just as many ways as SMBs are different from enterprises, product managers can more successfully move products from enterprise to SMBs by recognizing similar ways in which business challenges can be solved in both organizational sizes and simplifying them. For example, a large corporation buys Business Process Management or BPM. There are key benefits from such a solution that could help a small business.
The conflict occurs in the two different versions of this product that are offered to SMBs. They’re either upsold the expensive enterprise version by an overeager sales person who doesn’t have their best interest in mind. Or, they’re underserved by the bare bones version that only offers a BPM solution for SMBs as workflow. A smart product manager, however, will take the key benefits from the enterprise BPM system, evaluate it against the needs and requirements of an SMB and offer it as a sizable solution appropriate to the market—versus force-fitting the enterprise solution or offering just a watered-down version that won’t produce a positive ROI for the business.
In a like manner, market influences impacting both enterprises and SMBs, such as globalization, increased competition, rising fuel and health care costs, far-flung workforces and telecommuters, are forcing companies to embrace technologies that will give them a competitive advantage, save time and money, and increase information accessibility and the value of their organization. While technologies have existed for some time to solve these challenges for enterprises, the same approach that led to the development of those products can be beneficial to re-sizing the solutions to solve SMBs’ challenges. Product managers who can get more creative and are willing to educate SMBs’ customers to take more responsibility for the implementation of new technology solutions that align with their business goals will help them stay one step ahead of an evolving curve.
Selling to SMBs is not just a trend
The traditional go-to-market strategy by software providers was to initially sell their technology to enterprises, and then work their way down to the middle market. It involved a long, well-thought out process of positioning analysis. This level of positioning sophistication was reserved exclusively for enterprise solutions. Until recently, the mid-market has not been regarded as tech-savvy or relevant enough to have a significant portion of the technology software market paying attention to it, much less figuring out how to market solutions specifically to their needs.
Selling to the SMB market is not a short-lived trend and should not be construed as a step down. SMBs are a considerable, marketed-to segment of the business population that’s only
grown in numbers, influence and purchasing power in the last decade— and should be recognized as a legitimate, prospective segment of the business market. One factor driving the market significance of SMBs is size. There are more SMBs now than ever before. They are a major growth engine of the economy today with more than one million SMBs in North America that collectively employ 75% of the workforce.
As a result of the mid-market’s force in the tech-buying landscape, product managers who may have only handled enterprise solutions in the past should not consider it a step down to sell to smaller organizations. According to a recent report by Forrester Research, an independent technology and market research company, the SMB IT spending outlook for 2006 is positive, with IT budgets expected to increase by 7.2%, up from 4.8% going into 20051. Changes in marketing, communication and perception among product managers need to also reflect the increased significance of this market. SMBs no longer need to be spoon-fed watered-down technology terms. They understand the complexities of technology. It has become entrenched within their organizations and their reliance on and comfort with technology has evolved. The market is too crowded with generic-sounding, similar solutions that demand differentiation.
Making products that fit the changing SMB landscape
Product managers will also have a better time successfully moving their product line from the enterprise to SMBs if they recognize the changes that have impacted the SMB market and made it into the new tech-buying power player it has become today. In the last several years, SMBs have seen a number of changes that increased their knowledge and use of technology, buying power and technology resources.
Perhaps the biggest market change is the Internet. From an informational to a transactional force, the Internet has fueled the growth of companies of all sizes, especially the SMB. Given its reach, the Internet makes an online business global in an instant: eBay® in itself has launched thousands of new online one-person companies. It also makes information easily accessible to SMBs. Technology is considered a necessity and an integral part of a business versus a luxury or an expense that won’t pay-off.
Additionally, compliance standards regulating larger corporations are starting to affect smaller-sized businesses. To effectively comply, SMBs are turning to technology solutions. Technology also plays a role in keeping products and services sold by SMBs competitively priced.
Product creation: fitting mid-market business needs
While some may say the Internet now makes the technology world go round, in the business of product management and marketing, it’s still money that keeps product development going round and round. While enterprise deals discuss millions of dollars, SMBs talk dollars and cents. So how, you ask, do you make a comparable enough profit shifting from enterprises to the mid-market? The answer can be found in how your new target audience succeeds as a business class: positioning, expertise, simplification.
Positioning. Change how your product is positioned in its marketing, as well as how its importance as a business necessity is perceived by the market. The steps you took to reach the royal-caliber enterprise IT decision-maker about your product may have involved expensive analyst expert reports, long research and development cycles, and costly marketing campaigns. Those steps and investment were necessary to break through the clutter, get past the umpteen gate keepers, close the million-dollar deals and complete the year-long implementation processes. While the sale price may have had seven digits, the cost of investment to get the sale may have had six, so the overall profit is, in scale, comparable to what can also be achieved with smaller-sized organizations.
One of the reasons product companies fight tooth and nail to compete for the enterprise dollar is because there are a limited number of enterprises. SMBs, on the other hand, are a dime a dozen, and they all need technology. And, the good news for product managers is that they are a much easier crowd to please, and while they require marketing and development to get the products that will help their businesses grow, the start-to-finish cycles are a 10-to-1 ratio from SMBs to enterprises in terms of turnaround time between product purchase and product managers moving onto the next customer.
Expertise. Many SMBs are successful because they focus on providing one solution, product or service, and are the best at their game and have the expertise to consult in specific communities for that resource. SMB owners will respect and seek out experts like themselves when making technology purchases that can improve their businesses. For that reason, product managers who are experts on what SMBs need as a business size and class (regardless of niche markets or verticals—from mechanics to small healthcare clinics to restaurants, etc.) will succeed in reaching this audience.
For example, across all business types, all companies have files, retain data and records and need a way to organize their information; or a way to manage their finances or meet compliance standards. A product manager aiming to succeed with SMBs should keep their specific tech-buying criteria in mind. Solutions for this market should carry all the following characteristics:
Affordability. Solutions should be affordable based on the number of users, consultancy fees, customer service, and upgrades for that particular market. SMBs may also want to evaluate off-the-shelf software vs. costly, more expensive customized solutions.
Flexibility. Solutions should be able to be used by a variety of industries and departments. Small businesses should also seek out technology solutions that are horizontal and are not limited to one particular industry.
Scalability. A solution should work for companies of all sizes, within many departments or in just one department within an organization.
Configurability. The software should offer SMBs the flexibility to create functions based on processes unique to each business’ industry, office and employees. It should also be easy to configure overall according to the size, needs and requirements of each organization by individual users.
Integration. The technology should integrate seamlessly with other business processes and enhance overall productivity and workflow within an organization.
Simplification. Enterprises may have required complex solutions for their complex problems because they were paying the high price tag. SMBs are the opposite. The simpler a solution is, in terms of not being convoluted or hard to understand how it will deliver business change or be implemented, the more cost effective it will be for the SMB budget, the more products will be sold, and the greater the ROI will result for both the vendor and the SMB customer.
For this reason, product managers should offer solutions that SMBs need to streamline their business and cut costs. This is the bottom line. Any factors that impede upon their business will result in negative buying factors, smaller deals and ultimately lost sales. Don’t introduce more pain points for this market such as complicated configurations and pricey installations. SMBs don’t take well to loss of time due to ramp-up and long implementation cycles. Product managers shouldn’t cut corners to save time or money, but realistic goals should be kept in scope by remembering that SMB owners look for cost-effective technology that is up and running in less than a month.
Understanding the unique needs of the SMB market will help product managers appropriately and effectively tweak product strategy, ensuring this growing market will continue to embrace technology and the business world can continue to be inspired as SMBs become the new innovators.
 “2006 IT Spending In The SMB Sector,” Michael Speyer, Tom Pohlmann and Katherine Brown, Business Technographics® North America, Forrester Research, April 11, 2006.
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