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By | Dale Vile 27th July 2006 09:44

The SMB hype cycle

'Here we go again'

Every few years, we hear a surge in the talk about "the SMB opportunity" and what IT vendors can do to exploit it. Yet smaller organisations have been using IT for a long time now, and there is a well established community of suppliers that has been servicing their needs for many years.

So what's behind all this recent attention?

Largely it is to do with traditionally enterprise-focused IT vendors periodically waking up and thinking "there's a whole new untapped market out there that we should be paying more attention to". Of course, by "untapped" they generally mean "by them", rather than in the absolute sense.

Meanwhile, the rest of us look on, thinking "here we go again", knowing that it will all blow over as most of the pretenders discover that working the small and medium-sized business (SMB) space is too much of a long-term play to fit with the cut and thrust of immediate quarterly revenue targets and aggressive market creation initiatives. The stalwarts are then left to get on with it as usual and the cycle starts over again a few years later.

To understand what's behind this, it is worth taking time to consider some motives and practicalities.

Let's start with the IT vendors themselves, i.e. software authors and equipment manufacturers. The core business of these players is to make money from their R&D investment in new and enhanced technologies. Unless they drive new offerings out into the market frequently enough, they go out of business. Even so-called "cash cow" products offer limited protection from this market reality, as they must be refreshed from time to time to avoid slipping into the land of legacy.

In the enterprise market, provided we are not in a downturn, the constant need to drive out new technology offerings is manageable. With the potential opportunity to provide solutions for large numbers of users within corporate accounts, suppliers can afford to train up specialist teams then spend time in the sales cycle educating, evangelising and hand holding.

From the buyer perspective, things tend to work pretty well too. It is normal for larger organisations with big IT departments and an extensive range of skills to allocate resource to exploring new technologies. This allows them to make an early assessment of the value and risk of significant proposed upgrades to existing systems, as well as to check out opportunities relating to novel solutions that are just emerging. Lab tests, benchmarks, proof of concept studies and experimental pilots are the vehicles used to achieve this.

The problem is that none of this works very well in the SMB space. IT investment activity among smaller companies is almost completely driven by the "need/solution" mindset - i.e. the customer is generally looking for safe, hassle-free and cost-effective offerings that address immediate problems and opportunities. There are exceptions, but typically smaller businesses don't have the time, resources, breadth of skills or inclination to get involved in the same speculative or exploratory activities as their larger cousins.

Confidence to invest therefore comes from two main sources - obvious market acceptance of whatever is being proposed (at a brand, product and/or solution category level) or a clear ability for the supplier, typically a reseller or dealer, to provide solid and predictable services.

On the whole, SMB-focused resellers and dealers in the channel fall into line with this mindset. Most know from experience that trying to drive unfamiliar ideas, products and technologies into their customer base before general market acceptance can be very challenging from a commercial perspective. The average cost of sale is high as a result of both the low initial conversion rates and the extra skills/effort needed to educate and evangelise during the sales cycle.

There is then the disincentive that if they do invest in educating the market, there is a limited time to reap the rewards before competitors step in to capitalise on all of their good work.

This underlines the stark contrast in motivation between vendors and the channel, with the latter certainly not sharing the former’s sense of passion and urgency to push out new solutions in advance of the market beginning to pull.

SMB-savvy vendors appreciate these channel concerns and realities, and further realise that the proposition to the channel is at least as important as the proposition to the end customer. When you look at their channel development programmes, they encompass elements that take full account of the need for motivation, training and various types of support, including marketing.

There is an underlying assumption that it takes patience, persistence and long-term investment to build the critical mass required for sustainable success with new offerings. Cisco's well thought out and supportive approach to working with partners to create the SMB market for unified communications over the coming years is a good example of this.

The less savvy vendors are relatively easy to spot. They are the ones who expect to sign up armies of resellers for their new downsized or repackaged product with a view to getting rich quickly in SMB through brute force. This is a recipe for failure and a source of potential grief for customers who run the risk of ending up with half-baked solutions based on crude repackaging of enterprise level applications backed up with half-hearted support arrangements.

That's why, as a customer, it is always worth spending some time qualifying the level of commitment the vendor has to servicing the needs of smaller businesses, especially for more strategic purchases. If whoever is fronting the sale cannot give convincing answers to questions on implementation and support for a company like yours, then beware.

Meanwhile, we must not forget that most IT procurements in the small business space are actually quite dull and boring as SMEs purchase commodity or low complexity kit and software on a piecemeal basis as part of the routine maintenance and everyday growth of IT systems - a PC here, a server there.

So, let's not fall into the trap of focusing on the latest bleeding-edge ideas and "strategic" procurements. In the real world, SMEs are collectively spending huge sums every hour on things resellers and dealers know how to sell and support. The opportunity for vendors is therefore significant, but only if they approach the market in the right way.

Copyright © 2006,

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