The Department of Trade and Industry released statistics on the UK SME market recently. Its agency, the Small Business Service, noted that there were an estimated 4.3 million business enterprises in the UK at the start of 2005, an increase of 59,000 (1.4 per cent) compared with the start of 2004.
The figures are for the private sector, therefore they exclude government and non-profit organisations.
Almost all of these enterprises (99.3 per cent) were small (up to 49 employees). Only 27,000 (0.6 per cent) were medium-sized (50 to 249 employees) and 6,000 (0.1 per cent) were large (250 or more employees).
The number of sole proprietorships has changed little, with an increase of 22,000, or 0.8 per cent, taking the figure up to 2.7 million. Meanwhile, the number of partnerships has gone down by 24,000, or 4.4 per cent, to 520,000. So the addressable market, assuming sole proprietors and partnerships have little need for communications technology and no need for networking technology, has increased quite markedly.
The fact that most SMEs are sole-proprietors or partnerships makes a mockery of the traditional triangular diagram depicting the addressable market. A more appropriate diagram would look like a witches hat sitting in the middle of a large puddle (where the puddle represents the companies without employees).
At the start of 2005, UK enterprises employed an estimated 22 million people, and had an estimated combined annual turnover of £2,400bn. SMEs accounted for more than half of the employment (58.7 per cent) and turnover (51 per cent) in the UK. Small enterprises alone (0 to 49 employees) accounted for 46.8 per cent of employment and 36.4 per cent of turnover.
At the start of 2005, 47 per cent of business employment was in small enterprises. But this varied between industries (see graph, middle right).
In Standard Industrial Classification (SIC) 2003 sections AB (agriculture, fishing and forestry), 94 per cent of employment was in small enterprises, but in section J (financial intermediation) only 15 per cent
of employment was in small enterprises. The share of turnover in small enterprises also varies greatly between industries.
Overall, 36.4 per cent of turnover was in small enterprises. Again, there are variations by industry, ranging from 18 per cent in SIC D (manufacturing) to 89 per cent in SIC A and B (agriculture).
More than 350 resellers that address this market were interviewed, and the lack of focus on any vertical market was surprising. Only 18 per cent of resellers stated that they had a vertical sales focus. It used to be a similar pattern when the networking and systems integrators were interviewed several years ago, but the resellers ‘bigger brothers’ have matured and now know exactly the companies vertical market focus. This reflects the need to move to solution selling, rather than just supplying the network or infrastructure.
Resellers that address the SME market are therefore relying on selling horizontal solutions. If these are a technology niche, such as security or IP telephony, they may have a future. But if it is just an accounting package or a horizontal office-suite solution we should repeat the age-old mantra of ‘get niche, get big or get out’.
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