Sizing up small businesses

Small to medium sized enterprises (SMEs) in the UK represent a potentially huge market for resellers. They also represent the fastest-growing business PC segment in Europe, and this growth is expected to continue for at least five years.

European Union statistics show that 85 per cent of all companies in Europe employ fewer than 10 people and 14 per cent employ no more than 100. In addition, SMEs in Europe employ more than half of the total European workforce, and according to researcher IDC, they account for a quarter of the expenditure in the PC market, which is worth about $41bn (£28bn) annually.

While it is difficult to pinpoint exactly how many SMEs operate in the UK (see box), even the most conservative estimates put the number at more than 800,000. It is suggested that less than 30 per cent of these businesses make use of modern computer technology, making them a tempting target for both resellers and vendors.

However, despite the fact that many vendors and distributors have set up special programmes and initiatives to specifically target the SME market, there is very little evidence that these schemes are actually succeeding.

Part of the problem appears to be that very few resellers actually understand the market and therefore struggle to make an impact. Tim Hallac, marketing director at business-to-business reseller Altodigital, said: "Many resellers treat the SME community as a homogeneous one, when the definition of SME in fact includes micro-businesses, single operators and medium-sized companies of up to 200 people, often with demanding requirements for digital technology."

The SME market covers such a broad spectrum of different industries, trades and services, each with their own idiosyncrasies, that it is almost impossible to satisfy each and every requirement.

This view is echoed by Frank Lavery, sales director at Primary Storage. "I think it is true that most resellers have failed to grasp the complexities of the SME market," he said. "The SME sector is a broad patch covering companies of vastly differing sizes in a variety of markets with different purchasing criteria. It's no surprise that so many initiatives targeted at SMEs fail. To address the SME sector appropriately, it needs to be segmented and accurately targeted. Most vendor programmes are either too broad to achieve anything of note for the reseller, or they raise concerns about direct approaches to reseller accounts. The SME sector is more a series of sub-markets."

Cutting out the jargon
Communicating at the right level is vital when dealing with SMEs. Many are very naive when it comes to modern IT and hardly any have the benefit of employing dedicated IT staff to help sort out problems. They are often strapped for resources as well. Quite simply, they cannot afford the time to become familiar with new products and technologies, no matter what benefits could be derived from the latest developments in computer systems.

Malcolm Jones, marketing manager at Lynx Commercial Systems, said most resellers are frequently guilty of confusing their customers and failing to communicate the true business benefits of specific solutions. "Most SME organisations are trying to grow vigorously or compete in volatile, fast-changing markets. But we just bombard customers with jargon instead of value," he said.

"Small organisations want to improve their relationships with customers and suppliers, improve business processes and achieve greater efficiency, and at the same time grow without extra costs or overheads. They know that IT can often support all areas of the business as they expand, but more often than not the vendor will talk too much about the technology and not enough about the benefits," he added.

Many resellers are happy to prattle on about ecommerce, customer relationship management, enterprise resource planning or application service provision without ever bothering to explain precisely what these terms mean in a business sense, said Jones. As a result, these resellers will face an uphill battle to win business.

"An education process is needed for both parties," he said. "SMEs want to know how they can use new technology to maximise the profitability of their businesses. The responsibility is on vendors and their resellers to communicate the benefits of any new technology to SMEs."

Hallac believes the reseller needs to remember that the primary goal for most SMEs is to remain in business and continue to grow. "They are unlikely to be seduced simply by the latest 'whizz-bang' system," he said.

According to Jones, even referring to businesses as SMEs can be a stumbling block. "SME is our term, not theirs. Most vendors make a fundamental mistake. The term SME is similar to using A or B, or C1 and C2 in retailing; it's just a way of classifying businesses," he said. "The IT industry knows what a term means, but does the audience? At best, it can confuse and, at worst, offend potential customers," he said.

"What we should all be concentrating on are the characteristics of customers' businesses and identifying how the technologies that we offer address issues that affect their supply chain and market, instead of getting hung up on the physical size of an organisation. This is true of any size of customer, not just SMEs," he added.

Missing the message
Despite all their good intentions, none of the recent vendor-sponsored SME programmes have met with much success, and indeed, many resellers have become completely disenchanted with the idea of specifically targeting SMEs.

Hallac believes not enough is being done to address the breadth of the SME market's requirements. "Vendors should develop packages that take into account sector requirements, size and geography," he said.

Nick Morse, managing director at reseller and internet service provider (ISP) NetSource, is even more scathing in his criticism of vendors' SME programmes. "In general, these sort of schemes fail to deliver. They promise a lot, but for them to deliver the right level of support for small firms is tricky. Many end up trying to sell something too technical or product-focused," he said.

"SMEs need to be educated in how a technology can give them business benefits, not sold the latest piece of hardware or software, while vendors need to think about the specific needs of resellers in the SME market and put themselves in the shoes of the customer," he added. "But it's more a question of resellers and ISPs addressing customer needs through packaged services. There is only so much support that a distributor or vendor can give in this scenario, and it's down to the reseller to ensure that the offering is relevant, affordable and value-added for the customer."

Morse added: "Some of the larger ISPs are trying to target the SME market, but very few of them have appropriate services models to do so."

However, Mark Richens, group managing director at M:\Drive, a division of field marketing agency EMSChiara, recognises how difficult it is for vendors to implement successful programmes. "It is really the large vendors that have the budgets to introduce SME programmes on a wide scale," he said.

"There is an opportunity for a number of complementary vendors to collaborate their SME effort to promote solutions instead of isolated products. Some distributors are well placed to take this approach, but others find it hard to get such initiatives off the ground. The problem is one of appealing to a wide audience without alienating anybody through lack of focus. Still, the potential rewards from such programmes are high," he added.

Peter Colledge, IT partner at chartered accountant Cooper-Parry, said: "SMEs move faster, don't have the crippling politics of corporates, and are beginning to take advantage of the highly functional, moderately priced computer systems which are now available."

"The barriers are coming down and SMEs can afford functionally rich software systems that in the past only large companies have been able to install. The functionality in some lower-cost software is now on a par with some of the most expensive accounting systems on the market. In addition, the internet is changing the shape of business and business partnerships, and is opening up communication for SMEs," he added.

Getting SMEs on board
Morse said the difficulty is that access to technology is not as simple as it seems. "Integrated services has to be the way forward. The technology that underpins the services has to be made invisible to the user, as they really don't care as long as the service functions effectively. In future, ISPs and resellers will need to build flexible, specific packages for the SME customer base and build business within their existing clients, as well as taking on new accounts," he said.

Lavery believes vendors need to liaise better with resellers so that SME schemes are tailored more towards the specific requirements of the market. "This sector is understood by the reseller channel which knows how to reach this market, and vendors that work with dealers that already have a strong SME customer base are more likely to be successful," he said.

Andrew Wicking, deputy chairman at ebusiness provider IntroNet Group, believes a more fundamental approach is required to succeed with SMEs. "In our experience, what works best in the SME market is recommendation," he said. "SMEs are very conservative and don't want to try anything new. They want to get as near as they can to tried and trusted suppliers. So our objective in every job is to be recommended by the people we are working for to other companies. That's what we do now and it's what we will continue to do in the future."

"However, many SMEs, by their very nature, need the highest level of support and also demand the highest levels of equipment, but sadly they do not necessarily have the budgets to match their demands," he added. "The real challenge is finding the right solution for the right price. We address their demands by recommending two different solutions. The first is to find the ideal system for them with a price to match that is not too scary. The second is a solution worked out on current needs which they can afford now and build on as their business develops. This works really well for both parties."

Until vendors recognise that the SME business is a completely different animal from the corporate one - and adjust their marketing efforts accordingly - then this market, with its huge potential, will always remain untapped. Most observers would agree that this is a shame because SMEs need help to capitalise on the use of modern technology, and vendors are in an ideal position to provide these much-needed solutions.

Conclusions:

• While the SME market is not exactly being ignored, many vendor initiatives and reseller programmes are not having the desired impact.
• The sector is far more diverse than is imagined and cannot be tackled in the same way that resellers target enterprise-level or corporate markets.
• Most vendors fail to appreciate the complexities of the SME market.
• SMEs want solutions to business problems, rather than technology for its own sake.
• Vendor programmes need to be targeted accurately. A general approach simply does not work.
• More collaboration between vendors and resellers can improve the chances of success in the market.