According to all the reports, the SME market is a massive opportunitys, so why do resellers still have little idea of how to cater for their needs? for resellers. SMEs make up 99 per cent of all UK businesses, employ more than 80 per cent of the workforce and account for more than 40 per cent of the total spend on IT in the UK. This spending is estimated at #12 billion and to be growing by 14 per cent annually. At that rate it will reach #22 billion by 2002.
Microsoft, Hewlett Packard, Compaq, IBM, Cisco, Novell, APC, Lotus - all of these vendors and more, as well as just about all the main distributors, are trying to address the SME market. But has anyone got it right yet?
The jury is still out on that one, but everyone at least knows where to start - identifying customer needs.
Ian Brooks, managing director of IB Business Developments - a small south Wales dealership specialising in the SME market - says the needs of small businesses are very simple, but the industry has failed to recognise this fact. Selling to SMEs is not always difficult: 'Demonstrate an integrated package to a SME and you're more than halfway towards making your sale.'
Typically lacking an internal manager or qualified buyer, Brooks believes most SMEs will buy on a one-stop shop basis from a local provider which can cater for a wider range of core SME-focused products and associated services.
Will Yandell, sales manager at reseller The Data Base, says it is important to address each SME as an unique business. 'Some vendors have the idea that one system fits all and fail to recognise that this market has limited skills and less resources to invest.
'Individual markets have specific requirements and particular ways of working,' he adds. 'They want to use IT as a tool without having to become specialists.'
A recent survey by Black Box found that 78 per cent of SMEs have no qualified IT staff and only nine per cent have provided training opportunities in the past 12 months. SMEs can be hard to sell to for precisely this reason, says Otto Strandvig, UK general manager at financial software specialist Damgaard. 'They often lack the in-house understanding to install anything but the most basic systems. That's a difficulty and an opportunity for resellers because many SMEs recognise they have a need, but are unsure how to fill it. If you want to sell them something, you have to make it easy and have a solid business case for it.'
'For example, if the SME wants to get into e-commerce, you need to offer them a complete package, not a bunch of technology components they have to piece together. Even some of the top software vendors fail to appreciate this, so the door is open for resellers with the right approach,' he adds.
Computer 2000 has conducted research into the needs of SME users and dealers in putting together its Business Class accreditation programme.
Nigel Judd, channel services development manager at C2000, says the SME market is extremely complex and a broad-brush approach won't work.
'The size of the SME market means it needs to be segmented if we are going to reach it cost effectively,' he adds. 'Information on resellers selling into the SME market and the users is not well researched. We have tried to identify what types of systems SMEs are seeking, what they expect from resellers and how they choose a reseller to partner with.'
But Alastair Laidlaw, managing director of The IT Network, warns that the size of this problem should not be underestimated: 'SMEs tend to be highly individualistic in their requirements, which makes them hard to handle through specialist sales channels. Their IT spend is also lower, which makes reaching them effectively a challenge for most sales organisations.'
But it will take more than good products to satisfy the needs of the SME market, says Grahame Smee, managing director of distributor Data Connectivity.
The needs of the SME are fundamentally different from the corporate and while vendors are trying hard, they are failing to deliver what's required.
'They seem to be making the oldest mistake in the book - they don't understand SME needs or how to address the customer,' he adds.
Most vendors, Smee says, are trying to adapt existing sales and marketing models to SMEs' needs. Instead, 'they should treat the SME like a new market in a foreign country'. There are language and cultural barriers in the SME market, as well as different perceptions of brands and knowledge levels.
SMEs definitely need good analysis and advice, says Paul Dunford, European vice president of the channel group Computer Associates. 'This should come from resellers that understand small businesses and the constraints under which they operate, financially and in terms of manpower. SME resellers will generally need to offer not only hardware and software, but also the consultancy services, both pre-sales and post-sales.'
But services do not come cheap and this is one of the reasons the SME market is failing to explode the way it could, says Dunford. 'Although it is possible to slash the price of hardware or software to win business, consultancy and support costs are not so simple to cut.'
But getting SMEs to pay for consultancy and services can be a problem and could hold the market back. Dunford thinks manufacturers and software developers in particular have to take some of the strain. 'Any manufacturer that is serious about developing software for the SME market will have to consider the probable manpower issues,' he says. 'The software has to be designed for the non-specialist - it has to be easy to install and use. If a software product is neither of these, it will fail.'
The software also has to be priced for SMEs, but this doesn't mean it has to be cheap. 'If the software is going to improve business, the price should be in line with the value realised by the user,' Dunford says.
'What is needed is a simple pricing model, not just for the initial purchase, but also for additions and upgrades.'
C2000 has tried to identify the services resellers addressing the SME market expect from distribution and vendors, the markets they operate in and the level of expertise within the reseller business.
Judd claims: 'SMEs require systems - not products - and vendors need to partner up to supply these packages. SMEs will go for brands but few vendors in isolation have the product width to provide a complete system.'
Brooks adds: 'The industry can only start to address the SME market when it recognises that it is a different market to corporate business. SMEs demand more for less - they want feature-rich products that are appropriately priced, downsized, yet fully scalable, and sold in smaller numbers.'
There are many more SMEs than corporates, he notes. 'They are non-technical customers in widely differing industries with diverse needs. They want complementary SME products and services that work together with the minimum of administration.'
Brooks believes the channel is blind to the needs of SMEs because it is hooked on big business. 'Vendors need to move their products outwards, not upwards, if the channel is to be able to cater for the needs of the SME. That means more streamlined products, as well as ensuring a skilled channel through which to deliver them.'
He is amazed vendors haven't yet worked out the SME market. 'I'm frequently asked by vendors and distributors which niche market I operate in. My answer is always the same: we work in a mainstream market - the SME sector.'
Brooks adds: 'My message to the industry is, stop treating SMEs as scaled-down corporates. Stop telling them what you think they need and start addressing their requirements through innovation, education and involvement.
The potential for the channel to drive this market forward is enormous, but appears to be wasted before it filters down to the Var. All the channel generally gets to see is poor margin and support.'
Tom Sloan, managing director of Industrial Computer Source, says SMEs don't want boxes, they want systems they can sell to companies like their own. 'If you were to canvass most SMEs as to who they are addressing with their own products and services, the answer would probably be other SMEs.
For dealers to become effective in the SME market, they have to either be a box shifter with a strong brand or strong value proposition, or provide systems geared to their customers' needs.'
Some vendors have turned to the retail sector to reach the wider SME market. But letting SMEs go to retail, says Brooks, is a travesty.
'Vendors, distributors and Vars should hang their heads in shame at the number of SMEs that march into retail outlets for their business packages.
I dare not think how many SMEs have initially bought in this way and then felt cheated and let down when it all fails to work together. From then on, they are eternally suspicious.'
The experience of one PR consultant is probably not untypical of the smaller type of SME. He has two desktops, a laptop, three printers, a fax and a scanner in his office and he does not think very highly of retail.
'Our experience is that the superstore-type shops are useless for our needs. The people there are highly trained in selling boxes designed primarily for the home, games and surfer sector, but seem to know less about the kit than I do.
'What I have found are a couple of small dealer operations that are comparable in size with my operation. They are prepared to shop around when I want to upgrade my PC and to come in, install it, transfer data and do the messy things which I can't be bothered to get my head around. Ongoing support is hardly an issue.'
Instead of worrying about the reach of their channel, vendors ought to focus on the specific needs of smaller businesses, says Brooks. Not all of them are getting it wrong all the time though.
'Microsoft, for example, took a complex, multi-faceted powerful suite of server software from the corporate market, stripped out the enterprise elements, took a hatchet to the price and gave us BackOffice Small Business Server. It's full BackOffice in diapers if you like, but the lesson is there for those who want to take it.'
He thinks that due to the wide diversity of needs in the SME space, the delivery channel has to broaden. 'The convergence we are seeing in associated industries such as digital copying, telephony, wire-free communications and document management will see the channel broaden still further around the standards that link the technologies and fuel the convergence. This will make the links between vendors and SME-orientated Vars key to maintaining momentum in the SME market.'
Judd also thinks distributors have a key role to play in delivering the services and support that resellers with a focus on a particular market really need. 'To penetrate a market in which there are millions of SMEs being addressed by thousands of resellers, we need to adopt a more tailored approach,' he says. 'We will only market what we can deliver, so we need to be realistic about what we provide and who we can provide it to. By adopting a two-tier approach, we can set the right expectations and levels of service and meet those objectives.'
Smee agrees. 'Dealers will need to supplement their lack of knowledge with what the distributor can offer them. Networking is an obvious area - OK, they may have put some small hubs in, but what about fast Ethernet high-speed internet access, or voice and data convergence? This is where the good distributors come in, providing access to these technologies which ultimately will be adopted wholesale by this underexploited market.'
Strandvig says packaging systems together is the way vendors should go. 'We are working with our resellers to target SMEs by offering them complete packages. In e-commerce, for example, if they are using Microsoft's technology, we can sell them a complete business management system that fits together without having to buy extra technology. That's a very attractive proposition for SME buyers and a relatively straightforward sell for the reseller.'
Laidlaw believes resellers need to take a hard look at their approach to SMEs: 'Do they give the best advice or do they promote kit on which they have a higher margin or other similar reasons for preference? There is always that temptation to make a sale rather than turn away business, even in long standing, reseller-buyer relationships.'
By understanding an individual SME's business model and market dynamics, the reseller should be able to deliver systems which will improve the efficiency of their customer, says Sloan. In other words, to address the SME market, the dealer has become a Var in the true sense of the word.
'Customers are getting more sophisticated and because the trendy label SME is attached does not mean they'll beat a path to your door whether or not you have a better product,' he says. 'This is grade one sales school stuff, but all the hype about SMEs being the universal panacea that will make us all rich without doing the marketing and selling is a bit naive.'
Jonathan Chapple, chairman of Equanet, a reseller that sells only to corporate companies, believes resellers need to make sure they stick to their own agenda when selling to SMEs.
Imagine, he says, that a sales lead for the latest notebook from a leading brand manufacturer has landed on your desk. You call the lead and discover it is a micro business operating from home and the proprietor also wants a colour printer as well.
'You groan inwardly and start talking of long and unpredictable delays on hearing this,' Chapple says. 'But then your lead comes out with the killer: "Oh, by the way, I'll need you to configure the laptop to work with a palmtop and my infra-red phone so I can get my emails and faxes uploaded directly." You know there's a #200 minimum support overhead on the last sentence and he has no intention of paying for it.' The user's next gambit might be to try to buy the hardware on credit. 'That way, he's got you,' warns Chapple. 'You also know he'll screw you for free support after he's taken the product, thrown away the boxes, can't make it work and won't pay the bill until you've solved his problem. Game, set and match to the punter - ably abetted by a top manufacturer.'
He adds: 'The moral of this story is that there may be a customer choice model, but there is also a reseller choice model, which results in most SME marketing leads being binned.'
Chapple doesn't believe manufacturers fully understand the significance of the reseller's position with regard to SMEs. 'Increasingly, smart resellers won't take on commercial credit risks, unprofitable support commitments or chase out-of-date leads from people with no buying ability.' But the customer choice model is flawed, he adds: 'The idea seems to be that the customer can choose whether he wants the manufacturer or a reseller to fulfil the order. But the manufacturer can not actually commit the reseller. When the manufacturer wants a prospective customer to place an order with a reseller, he also wants the reseller to take on a financial and technical support risk which the manufacturer doesn't want to take on.
'If a reseller invests the time and effort qualifying a manufacturer-supplied lead, only to reject it as not viable, the manufacturer won't be happy. If a customer wants the best price, a reseller might add third-party items to keep the cost down. Again, the manufacturer won't be happy. Any warranty implications of product upgrading with third-party components will be lost on the unsophisticated smaller customer.'
Chapple adds: 'In an industry awash with marketing funds, manufacturers could increase small company sales by re-directing significant marketing investment to those resellers that could report significant sales to small companies.'
BIG DISTRIBUTORS THINK SMALL
Two of the main broadline distributors are focusing on the SME market with specific accreditation plans. Computer 2000 with the Business Class schemes and Ingram Micro with its VentureTech programme aim to get SME-orientated resellers doing more business with them, in return for an extended set of services that are geared to the SME reseller.
In the Business Class scheme, resellers will be accredited as Gold or Silver Business Class resellers and receive a range of services. There will be a dedicated SME Website and all resellers will have access to online ordering.
Gold resellers will need to meet a certain set of standards and to demonstrate core competencies in networking, software applications, e-commerce or internet technology. C2000 expects to accredit between 50 and 100 Gold resellers by the end of the year and about 2,500 dealers to the Silver class.
Ingram's VentureTech Network scheme also has two levels of accreditation, Partner and Associate. The former are asked to meet a more comprehensive set of criteria and also to pay a fee of #800 per quarter. Partners have named account managers, a free Microsoft Direct Access Kit, subscription to Ingram's Technet service and a dedicated area on the Website.
To qualify, resellers must do at least half of their business with SMEs, set a quarterly sales target with the distributor and have a leading vendor authorisation and qualified staff. Associates have to meet less stringent criteria and are not charged a fee. They are given some additional support in return and must spend at least #10,000 per quarter with Ingram.
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