This was to be a golden age of information technology for small and medium businesses.
Industry gurus decreed the time had come for smaller businesses that had been purchasing IT as individual products to start thinking in terms of buying “solutions,” as their larger counterparts had been doing for years. Such solutions would comprise a complete package of hardware, software and services, collectively applied to building powerful and efficient computing infrastructures. They would enable processes designed to support the strategic growth and ensuing requirements of a changing business.
From the perspective of IT vendors, particularly for those focused on large business customers, small and medium businesses (SMBs) were the new frontier. Big deals with large businesses were increasingly scarce, it was becoming clear that IT vendors needed to cultivate new sources of revenue, and SMBs were a relatively untapped resource.
Many of these vendors had proven track records delivering technology that helped businesses become more efficient and competitive. So with an eye towards the next wave of opportunity, they figured on parlaying that successful big business know-how by likewise serving the somewhat ignored smaller business customer. The fact that more than 99 per cent of Canadian businesses are companies with fewer than 500 employees spoke to the magnitude of the potential opportunity.
And the customers seemed willing. The landscape of Canadian business and the use of IT had changed dramatically over the years. Computing in one form or another now exists in nearly every company – large and small – through the use of PCs, networked servers and printers, all sorts of data-gathering mobile devices, and a diverse range of software for every business process and function imaginable. Today’s smaller businesses want to realize the same benefits of information technology that have been achieved by large ones. IT vendors successfully applied the power of computing as a means to drive unprecedented productivity and efficiency for big customers, and they seemed ready to do likewise with SMBs.
So what’s happened?
Not much. The effort to bring advanced information technology to small and medium businesses remains a work-in-progress. There’s a discouraging realization that the business model that has proved so extremely effective when IT vendor deals are large and customers few simply doesn’t work when customers are many and deals are much smaller.
Two approaches that were expected to drive mid-market success are at the root of the strategies most vendors have used to tackle the small and medium-sized business market. They’re also at the root of the problem.
The first is to build IT solutions for SMBs that are basically scaled-down variations of large business offerings. The problem here is that these systems have to meet the needs of a range of diverse smaller businesses, yet they must be kept fairly generic in order to achieve the economies of scale that make them both affordable for customers and profitable for vendors. But customers don’t seem to like this approach much, since it often means the systems are too, well, generic.
In other words, the real benefit to customers comes from IT packages that are tailored to their unique processes and strategies. Big business have traditionally received the most value from IT solutions when they were customized to a company’s specific needs, but that customization is often beyond the financial reach of a smaller customer or is not cost effective for the suppliers dealing with them.
The second strategy has been to serve smaller customers through a network of business partners. Unfortunately, not all partners are created equal. Some are a whole lot better than others, so the customer experience is apt to be hit and miss. Managing smaller customers directly, as IT companies do with their most important large business accounts, may not be as profitable for a vendor, but it means the people involved will often have a better understanding of the products, they bear a greater accountability for a project’s success, and that usually equals an overall better outcome for a customer. So smaller businesses need the direct touch of IT vendors, too.
It boils down to this: Technology companies must offer more than a basic rehash of the products they designed for larger customers, and they need to take a fundamental look at how they manage smaller customers.
But it remains to be seen whether the community of IT vendors that has been so successful in serving large businesses is now willing to invest in the creation of products and services that SMBs would readily buy – and to become specialists in serving smaller businesses. It’s not an easy transformation.
The IT vendor community recognizes products for SMB must be low cost. Beyond that, it’s not so certain what other value propositions are needed. Small and medium-sized businesses customers no doubt share the same challenges as large businesses, though – aligning their technology and business goals, achieving business efficiency through IT, improving their customer relationships, and controlling costs. Can vendors deliver the technology and hit upon the right selling formula to meet these SMB priorities?
They can’t afford not to. The SMB market is a golden opportunity for those that get IT right.
–Dan McLean is editor-in-chief of ITWorldCanada, a publisher of Canadian information technology magazines and on-line content.
This article appeared in The Globe and Mail on February 3, 2005.