What is an SMB? Having spent a decade conducting business-to-business (B2B) market research across a variety of industries, I’ve learned that if you asked ten clients to define a small and medium-sized business (SMB), you’re very likely to get ten different answers. For some it’s defined by the number of full-time employees (in which case what should the lower limit be – 1, 5, or 10? – and where is the upper limit – 50, 100, 250, 500, even 1000?)? Others define it by revenue, a growing trend as the Internet and globalization open up huge markets to single site businesses with only a few employees. The truth is there are many factors which contribute to defining an SMB, and there’s no universal answer.
Whatever the definition, SMBs are unarguably a vital source of revenue to the vast majority of B2B vendors; in most markets globally they make up in excess of 90% of all businesses. It is therefore essential these vendors understand SMB decision making processes and effectively target this group. However, understanding SMBs is even more of a challenge than defining them. In comparison to larger businesses they are often less mature, faster moving, and show greater differentiation in their behavior, making marketing and selling to them a complex process.
There are a number of significant challenges to overcome when selling to SMBs; we outline the key considerations:
– Rationality – SMBs often act less rationally than larger businesses in their decision making. Their size, and sometimes their nature if they are a local or family run business, means they are more likely to make decisions based on a sense of shared values with their supplier, or loyalty to that supplier. They show a greater inclination to purchase from local or long-term suppliers who they believe have their best interests at heart and for whom they are an important customer. Strong relationships matter to SMBs, it’s often how they survive against their resource-rich larger competitors, and it’s what they expect from their suppliers.
– Structure – the structure of an SMB can vary wildly depending on which functions are mission critical to the business. It’s not uncommon to find owners or other senior employees wearing multiple hats as part of their role, sometimes combining Finance, IT, and HR. However, for other businesses of a similar size IT may be a mission critical function which demands a focused individual with specific expertise. This makes it challenging to find out who the buyer of a specific B2B service is, and highlights the importance of taking the time to get to know your B2B customers individually.
– Expertise – the knock-on effect of individuals wearing many hats is that SMB buyers can lack specific relevant category expertise, be reliant on education from vendors to understand the business case for a particular product or service, and require help with integration and post-sales support. This often necessitates the tailoring of a solution to meet their needs and a consultancy-based approach to selling. It also means that a strong presence in non-branded online search results for a product or service category is important for vendors to ensure they are considered at the outset.
– Return on investment (ROI) – SMBs are more likely than larger businesses to be focused on the short to medium-term, they have less capital and require a quicker return on their investment. It is essential for any vendor to communicate what the return on investment is for their product or service. The key elements which can drive investment in a new product and service are the potential for increased sales, increased employee productivity, lowering of cost or increasing of efficiencies/profit, development of new products and services, or improved customer service; these will be the key factors considered by any SMB when purchase decisions are being made.
– Competitive advantage – SMBs face a constant battle for survival, both against other businesses of a similar size and the looming shadow of their larger competitors. In order to appeal and encourage investment a product or service greatly benefits from being shown to offer them an external competitive advantage, without this it may be difficult to persuade them to part with their valuable capital.
In order to meet these challenges it’s vital for B2B vendors to have a deep understanding of their SMB customer needs, attitudes, and behaviors; to understand who their buyer is, the benefits they are looking for from their product or service, the SMB business case for their product or service and the ROI they can expect, the relationship they want from their supplier, and the direction their markets are taking in the future.
It sounds complex, and it is, but understanding SMB customers can open up huge revenue potential and provide B2B vendors with long-lasting and highly profitable relationships with growing and often cutting-edge businesses. Investing the time and money to do this can bring significant rewards.
For more information on our SMB market research expertise, contact Andy Stillwell at andrew.stillwell@gfk.com.
