Milestone Group Quarterly: April 2004
Articles
Milestone PoV:
Jim Hogan on Successfully Selling To SME's
According to the most recent US Census Bureau data (2001) there were over 5.6 million SME private sector enterprises in the United States. Collectively, they represent over 99% of US firms and employ 51% of the total workforce. This compares to 17,300 large enterprises (LE) which employ the other 49% of the US workforce.
While an adverse economic climate, brutal competition and industry consolidation have contributed to slower growth in the number of small-to-medium enterprises (SME) and SME employment over the last several years, SMEs may prove to be an attractive, and underserved opportunity for young, developing technology companies if they can tangibly demonstrate an understanding of the unique requirements of SMEs, which tend to vary dramatically within the SME community.
What are some of the general SME requirements and how should a smart marketing and sales executive address them?
SMEs Want Proven, Tailored Solutions. In general, SMEs adopt new technology-based solutions only after a technology has been demonstrated as being viable, stable and has been thoroughly vetted in production environments. SMEs seek solutions that solve business problems related to their industry. They want solutions that are easily implemented and require little or no support because of their lack of IT resources and skills.
Positioning a solution as “Best of Breed” or “The Next Great Thing” may well result in failure. A better approach is to focus on SME IT buying priorities and position the solution as proven, and tailored for relevant vertical markets and SME size.
The last point is important. A homogeneous SME product offering that does not fit the specific requirements of an SME that are driven by enterprise size and vertical market has little chance of success. Solutions must initially be customized for enterprise size and vertical markets, then packaged and resold through the segment in order generate profits in the relatively low margin world of SMEs. Do not, repeat do not, provide highly customized solutions for each customer.
And of course, the solution has to work with other solutions and deliver economic return.
Package Total Solutions, Don’t Sell Individual Products. SMEs will pay for an integrated total solution that is easy to deploy. They lack the resources and skills to integrate products together into a total solution. They will quickly lose interest in buying a particular product if forced to do the integration themselves.
SMEs reward technology companies that put the necessary energy into packaging total solutions, including communications, products and services that are easy to understand, deploy, manage and support. As a young company it is very important to take the time to put together and market a total solution so that the SME will not be forced to work with a competitor who has.
SMEs Buy Business Value not Technology Value. SMEs, by their very nature, are more acutely aware of their business challenges than they are of technology challenges and opportunities. They live in an intensely competitive world that requires a constant focus on their business in order to ensure survival. Marketing technology value using jargon and product feature checklists (what we used to call “speeds and feeds” at IBM) does not resonate with SMEs.
Instead, focus marketing and sales efforts on selling business value. Talking about increased productivity, improved customer relationship or satisfaction, revenue opportunities, economic return and other payback measures, while logically tying business value to the technology underpinnings of the solution, will get the attention of the buyers who write the check.
Total Cost of Ownership (TCO) is More Important than Price. While most SMEs do not have the access to capital that their larger competitors enjoy, their primary motivation for acquiring a solution is rarely price alone unless, of course, the solution is a commodity. Analyst surveys have consistently shown that SMEs place a lot of emphasis on TCO and other factors that affect cost, including the resources required to implement and maintain a solution, customer and technical support, unanticipated upgrade costs to maintain compatibility with new development, up and down scalability, and the cost of managing new vendor relationships.
The message here is straightforward. While price is important to SMEs, it is critical that developing technology companies understand and sell reductions in TCO derived from deploying their solution in order to differentiate themselves from commodity offerings and to obtain acceptable profit margins from their SME efforts.
Big is Not Always Better. Surveys indicate that brand ranks as one of the least important vendor selection criteria for SMEs. Indeed, brands associated with large enterprise solutions connote higher implementation, maintenance, support and acquisition costs which are four factors that consistently rank among the top impediments to investment for SMEs. Can you say “too big and too expensive”?
Young technology companies enjoy quite an advantage here. They do not have to overcome the perceptions discussed above, which can cost quite a bit more than building and polishing a unique SME brand identity. One important factor that young companies have to work on here is building alliances with large enterprises in a way that validates the Company’s SME brand, positioning and solutions without tarnishing their image with the SME community.
Pick the Right Channel to Sell to SMEs. Many SMEs, like all enterprises, prefer to make their IT expenditures with their long-established, well trusted advisors. Unlike large enterprises, SMEs are more attuned to the cost of establishing and maintaining vendor relationships because of their relatively limited resources. As a result, SMEs have developed preferences for buying from channels that are based on complexity of the solution, the solution’s maturity and fit with SME requirements. They are unlikely to entertain buying from new channels without a clear business rationale for doing so.
Developing companies should carefully investigate the fit of existing sales channels for selling their solutions to SMEs based on the complexity of their solution, its maturity and fit with SME requirements. Once the investigation is complete, marketing and sales expense should be tightly focused on developing the channel(s) and pre-empting competitive encroachment. Young companies may find it easier to work with channels serving SMEs because they, necessarily, “have to put all of their wood behind one ball” when going to market, while larger vendors tend to dilute their relationships with channel partners.
SMEs may be an attractive market opportunity or entry point for young, developing technology companies if they can demonstrate that they understand SME requirements. Get the Go-to-Market Plan down and enjoy the success..
Jim Hogan is a Partner with Milestone Group. He has over 20 years experience in technology marketing, business development and sales, including senior roles at IBM, CompuServe, PlaceWare and several early stage tech companies. Jim may be reached at jim@milestone-group.com. |
