The SMB Market- Difficult To Win, But Too Large Not To Try

Quick quiz to start things off: Who is the market leader in the enterprise software space? If you guessed Oracle, IBM and SAP, you got 5 points and a bonus. Question 2: who rules the consumer space? 5 points if you guessed Google and an extra 1 if you added Microsoft. Question number 3: who is the market leader in SMB? If “let me think” is your answer, you are in good company (and you got 2 points for having a brain…). So how come such a large market doesn’t have a market leader?

Let’s start with some facts: based on Forrester Research (and many others), total IT spending by SMBs is almost equal to large enterprise spending. The “almost” is not going to be relevant in just a few years, since IT spending in the SMB space grows 50% faster than the large enterprise spending. One example? Fully one-third of the total IT investment in the retail industry is spent by the little retailers with less than 100 employees. Add medium-size companies and you’ve crossed the 50% bar.

“Follow the money” said the old man to his son. “Look for the money where the others don’t” added the old man’s wife. Why don’t we see more people listening to this advice?

  • SMB is gray, and people like black and white—there is a whole science on how to sell to large enterprises. You build complex processes, an expensive and professional sales force, and you do whatever it takes to keep your customers happy. Want to sell to consumers? Do the opposite: build volume processes, invest in marketing and ignore the individual consumer. Win the SMBs? It is a little bit of both, and mixing is hard. You need to innovate to win the SMB market and blend both approaches. It is much easier to copy than to invent, so fewer companies really try.
  • SMBs are not visible—if you are the CEO of an enterprise software company and you have few hours to see a customer while visiting the Bay Area: would you visit Joe’s Cycles or Chevron? Now you are in France, would it be Peugeot or Francois’ bakery? When the focus of the CEO is on the large customers, it is difficult to devote the resources needed to win the SMB market.
  • SMBs want the same service as large enterprises but are not willing to pay—this is a cliché. For a $10M company, buying and implementing a business software can cost 100K easily. This is 1% of its revenue and perhaps 10% of its profit. Do you think that Chevron, with $210 billion in revenue a year, pays two billion on ERP? It could make SAP investors happy… All SMBs want is to get a solution that will fit their needs and be priced reasonably. It requires more creativity, but it is doable.
  • We tried, but it did not work—this is true. Many large enterprise players tried to go down-market by making a simpler version of the enterprise package. Nevertheless, since everything in the original package was designed for large enterprises, most of the SMBs could not afford or sustain the offering. Even if the product was simplified enough, the services around it were complex and expensive, repelling busy SMBs. Simply put: if you want to sell to SMBs, build for SMBs. Yes, from scratch. And yes, including new types of services.


  • We built a new SMB package but it did not fly—as I’ve written in SMB- redefined, there is no one SMB market. There are a few. While consumer experts are the kings of segmentation and the enterprise guys rule the one-by-one attention, when it comes to SMB, people think they are like Matryoshka dolls, small but identical replicas of large enterprises. . . They are not. They differ by size, geography and industry, and require a portfolio of solutions and not one that fits all.

What’s next? Some useful ideas to follow the money… stay tuned.

Gadi Shamia

The SMB Market- Difficult To Win, But Too Large Not To Try

5 thoughts on “The SMB Market- Difficult To Win, But Too Large Not To Try

  1. Garima says:


    I am working on a project. I need some information regarding SMB space for that.
    I want to know the IT spend of SMBs in North America.

    Many Thanks,

  2. Hi Garima

    The numbers changes between analyst firms but here is one for your reference:
    For US SMBs under 1000 employees the IT spending is about 380B$. SMB IT spending grow faster than the enterprise (7%-8% a year).

  3. sanjeevaggarwal says:

    Hi Garima,

    The 2009 US SMB spending on IT products and services (including Telecom products, excluding telecom services) for the 6.45 million SMBs with commercial locations is around $190 Billion. This number is based on the current economic conditions.

    Sanjeev Aggarwal, partner
    Hurwitz & Associates

  4. mthurmancredible says:

    This sector is also where the recovery will begin. SMB’s with the right tech/business tools will emerge faster and stronger from the recession. They should be better positioned to grab market share relinquished by their closest larger competitors who may still be on a downward path.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s