There was good discussion about this segment (if we can call it that). I’ve worked now with a couple of clients who sell to SMBs and I want to share some thoughts with you based on this talk and my own experience. Tell me if this resonates.

The fundamental challenge of this space is rooted in the fact that SMB is far from a monolithic entity. In fact it’s a diverse group that can be segmented in as many ways as there are dimensions. I wonder sometimes if the whole SMB terminology is based in an enterprise paradigm of “there is us — enterprise — and then there is the rest of the world all of who can be lumped together into SMB”. Even from an overly simplified “company size” perspective, the very small business segment (1-5 employees) behaves very differently from the SB vs. the SM vs. the MB. In fact the larger MBs take on the characteristics of an enterprise and often lose all resemblance to a small business.

A few observations and principles that I’ve found to be helpful are outlined below. These stem from my work with clients targeting this group, from interviews I’ve done of target customers in this segment, analysis of market research I’ve done for clients and some excellent discussions I’ve had with inside sales teams (who are a wealth of knowledge in this space):

i) Finding the true Target Audience: Break down the SMB into smaller segments. Who is your true target, sweet spot? This is dependent on many questions (criteria) such as:

a. What are some of the pain points your solution alleviates?
b. For which segment is the pain point(s) most relevant? Most acute?
c. How much are they willing to spend to alleviate it?
d. How does that map to your offering? Your price point? COGS? Margins?

ii) Cost-effectively Reaching them: Think broadly — VARs, direct-online, inside sales, wholesale, discount warehouse, retail, etc.

a. Can your products align with VARs offering to create value (margin) for them?
b. What kind of support will your offering need? Will you offer this or should/can this be a value add offering the VAR can provide?
c. If you are going the VAR route you better make sure you can support them AND not compete with them.

iii) Solutions to Business problems – not Technology, not Products, not Features: We often make the mistake of selling our products. But SMB like all smart buyers are not interested in products, they are interested in a solution for their problems. So sell them on the business benefits they will derive — time saved, money saved, faster/better customer service they can deliver, and greater revenue, etc. — from your solution. Higher order benefits such as “peace of mind” can also work as long as they’re rooted in business-related benefits.

iv) A true SMB solution: Often large companies think they can take their enterprise solutions, strip them of a few key features and put them out there at a lower price and the SMBs will come. Not so. For example I found that “ease of use” and “ease and speed of setup and maintenance” were overwhelmingly important and an enterprise-based solution simply could not deliver on this front no matter how stripped down it was. Talking to your target audience and conceiving and developing the product from scratch is sometimes the best answer. As Drew mentioned, acquiring a true small business solutions company is another way to get a head start especially for a larger enterprise trying to get into this space.

v) More than Competition: You may think your competitor is that other company that is selling something similar. The bad news is there’s a lot more to consider. Think of all the ways in which your target audience can alleviate their business pain e.g., can they limp along without doing anything for a while i.e., do nothing? Can they hire two more people to do it? We may think of the problem in terms of the lack of product capability we are offering but the real problem is cost increase or revenue suppression or lack of a business function. For example a VoIP company may think they compete with another VoIP provider that can also offer efficient call response, etc. However from the customer’s point of view, can they solve this problem by simply having two receptionists?

vi) Value is everything – but not Everything: Small businesses are stingy. They want good value for money and want the lowest price. I understand this – I am one. But they don’t shop just on price. They are great at measuring value – and over time. So sell them on the immediate and the long term benefits. Show them how your solution will scale easily – up when they grow AND down when they are going through a rough patch. Offer them “pay for what you use” if you can. And don’t forget to talk about the “total cost of ownership” of your offering and your competitor’s (see 5 above). They will understand — and warm to — that.

Have you found these to ring true? Please write back if you’ve had similar — or different — experiences.