The Great Un-Cracked Opportunity: Small and Medium-Sized Businesses

July 26, 2010 by Ben Yoskovitz 19 Comments

Sebastien Provencher (from Praized Media) tweeted recently:

The great un-cracked opportunity: small and medium-sized businesses. #geoloco

He was at an event; not sure if someone said that or if there was a group discussing it. But it’s something I’ve been thinking about for awhile.

And there’s certainly a lot of truth to the statement. Most B2B startups immediately target small and medium-sized businesses. It looks so appealing; after all, most companies are small and medium-sized businesses. The SMB market (or SME – small & medium size enterprises) is conceptually easy to target – with such big numbers of companies, startups only need a very small percentage of them to have a real business, right?

Generally, here are the problems I’ve seen targeting SMBs:

They’re often overwhelmed, unsophisticated and squeezed for cash. SMBs are getting bombarded with tons of opportunities to leverage social media, SEO, and now location-based technology to help their business. How are they supposed to understand it all and figure out what’s best?
Small companies aren’t necessarily any easier to close than big ones. And if that’s the case – if your sales cycle is too long but the price of what you’re selling is low (because you’re selling to SMBs) – then you’re in serious trouble.
It’s not as easy to get leverage between customers. Close a giant enterprise deal and you hope to get a case study, press release, public coverage and generate buzz. Close a deal with a mom & pop shop and no one cares. Plus, that mom & pop shop doesn’t know any other businesses for referrals. There are ways of getting leverage between small businesses (think: virality built into your app between businesses) but it takes new, creative thinking.
Startups don’t sub-target into the SMB space effectively enough. Really, there’s no such thing as an “SMB market”, unless you’re providing something that they all absolutely need (for example, credit card transaction services, payroll, etc.) Most startups aren’t selling products or services that are applicable across all SMBs. So it’s critical to target very specific markets within the great masses of small and medium size companies.

There have most definitely been companies that have had huge success targeting SMBs. Freshbooks, for example. 37Signals (although they went even smaller to individual consultants/contractors to start). But the sheer size of the market gives too many startups a false sense of security that it will be easy to access lots of prospects and punch a hole in the marketplace. And this makes startups lazy when defining their target market and how they’ll access that market successfully.

D. Matthew Landry

My first instinct is to ask, what are the keys to capturing this market? But, you already pointed out that it is lazy to consider SMB “a market.” SMB is a descriptor, comprising many different businesses with a wide range of scale.

Perhaps the scariest part is the possibility that the acquisition cost of an SMB customer can be comparable to that of an enterprise customer — so a higher volume of smaller deals wouldn't be very efficient.

What are some unique attributes of these types of businesses that an entrepreneur can leverage?

–> They may not be as numbers-oriented. A problem that causes almost physical pain — to which you can offer a solution — is far more persuasive than a spreadsheet.

–> Due to smaller size and flatter organization, don't be shy to ask to deal with someone higher in the company than you would expect to get at an enterprise.

–> A corollary to that: relationships matter even more. But everyone already knows relationships are important, right?

What other points of leverage can we think of?
Anne Howard

“So it’s critical to target very specific markets within the great masses of small and medium size companies” words of wisdom spoken by Ben.

I couldn't agree more with you. In our case, at RushPRtools and News, we specifically target small and mid-size PR/Marketing agencies, and it has worked quite well for us.
Anne Howard
CEO
RushPRnews.com
RushPRtools.com
startupcfo

The last point is the key one. SMB is not a market. Web designers are. Architects are. Its all about segmentation. I work with many startups that have had great success targeting segments within SMB. I think they are great markets. And I do believe that when well served businesses as small as one person provide word of mouth leverage. Freshbooks is a perfect example of that
startupcfo

The last point is the key one. SMB is not a market. Web designers are. Architects are. Its all about segmentation. I work with many startups that have had great success targeting segments within SMB. I think they are great markets. And I do believe that when well served businesses as small as one person provide word of mouth leverage. Freshbooks is a perfect example of that
Susannah

One benefit of targeting SMBs is that it allows you to have a greater effect more quickly. Big businesses tend to move more slowly. We work with small businesses at our company, and it allows us to really make an impact because there are fewer levels of bureaucracy.
Loic

SMBs have been my obsession for while (still is actually) and I have already tried to crack this market with a startup targeted at local retailers – I failed. I had underestimated the acquisition cost and the time it takes to get one client to use my product. One important lesson that I learned, which was not mentioned here, is the fact local SMBs do not spend too much time online and this makes it very hard to reach and pitch them. Some of them (especially the older generation) do not even care whether your startup will bring them new clients, ambition seems to fade off after a few years running in business. As long as they have enough revenue to cover their costs and earn a small profit is sufficient for many of them – bothering with SEO, SEM, Social Media is way over their heads. So my advice to any entrepreneur is to build a product where SMB's customers will help you generate enough buzz for other SMBs to pay attention. Just like Freshbook did, I use it on a regular basis and my customers ask me about it in order to refer it to their network. Nice post Ben.
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WBS

Great points! There is definitely a premise that Targeting SMB=More Opportunity, but as you point out, closing a project is often just as intense as with a large business and the work load is pretty similar; the only thing smaller is often times the pay…
Aaron Evans

bingo.
jefftala

I think another distinction to make is how you capture whatever SMB segment you're going after. I'm thinking here it terms of Push vs Pull marketing.

As Ben mentions, SMBs tend to be overwhelmed. They don't appreciate sales reps calling, emailing, or dropping by. (Who does?!) But when they prioritize solving a specific problem, and then jump onto the web to find a solution to that problem, they are ready to hear your value proposition. So put yourself there.
Benjamin Yoskovitz

You definitely need to be findable.

But there's something to be said for more aggressively reaching out. Take cold calling for example – it's about as blunt force an instrument as you can use (slightly less so than door-to-door I guess). You might not close a lot of deals, but you WILL get a ton of feedback.
freelance web page designer

ya right i have my example , i am a freelanc web designer and i am also targeting small and medium size business owners .. because in thsi my and the opposite person both are happy … if i run after big business owners they will not appriciate our efforts as what the small and medium business owners will do . I am happy with what i earn ..
army costumes

So true. Im in the online costume market and find being a small business very tough. I found generating revenue at the beginning the biggest challenge as you often dont have a lot to burn getting your product going etc.
Orhun kubat

Thanks to great content.
Orhun kubat

Thanks .
rental mobil

great post i really like it.
keep posting stuff like this
Kwirk

very good article. thanks!
Angela

This has been a very significant blog indeed. I've acquired a lot of helpful information from your article. Thank you for sharing such relevant topic with us.
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