How to Sell: SMEs - The small print

In the first of five features looking at the SME space, Martin Lynch reports on how resellers should approach this lucrative but sometimes tricky market.

Ever since the corporate sector apparently outlawed spending on anything that did not relate directly to survival, all eyes have turned to small businesses. It's not that IT companies did not have SME plans before the spending freeze; they did, but nothing that couldn't wait.

However, since their corporate business dropped off a cliff, panic has fuelled a zealous renewal in their SME efforts.

All of this has been good news for the channel, since it is widely accepted that the best route into tiny businesses is via local resellers. Big IT firms are not equipped to deal with small accounts that need a lot of advice and hand-holding before and after the sale, but resellers are.

There is a world of difference between dealing with big companies with established IT infrastructures and IT staff to little businesses with no real technology strategy or in-house expertise. For a long time, many IT companies overlooked the tiny business customer because they were not deemed to be worth all the extra effort.

Since the bottom fell out of the hi-tech economy, that attitude has been reversed, since it became clear that SMEs were among the very few sectors that continued to spend on technology. Their size and ability to adapt quickly to change insulated a large proportion of them from the economic downturn. And, let's face it, the UK is an SME goldmine.

The Department of Trade and Industry (DTI) estimates that 99 per cent of all UK enterprises are small businesses, and they account for half of the UK's £1 trillion turnover. Of the 22.7 million people working in UK companies, 44 per cent of them are employed in SMEs.

This amounts to a big business opportunity, despite it being fragmented across hundreds of thousands of smaller companies.

"We have seen a big growth in the low end of the market," claims Oliver Carter, UK sales manager at security specialist Sophos.

"Historically, we have catered for the mid-sized and larger companies, but what we've been doing over the past three years is building a very pro-channel approach to win business in the SME sector."

Jeremy Davies, senior partner at research firm Context, explains: "The large vendors are desperately trying to get into the SME sector through the channel.

"Just look at the main vendors and you can see that because the enterprise market has been so flat they have had no choice but to move into the SME sector. As a result, they have created a lot of reseller programmes. There's a lot more support for resellers to tackle the SME arena than ever before."

Alistair Brett, sales director at Computer 2000 (C2000) in the UK and Ireland, says: "It's a good sector because, frankly, there are so many [companies in it]. One of the trends we have seen is that some of the bigger resellers that wouldn't have touched this sector have set up dedicated SME divisions.

"Corporate resellers are afraid of the growing number of large companies that are opting to work directly with vendors and are concerned about their long-term futures. Also, SMEs - especially those with little or no technology - are very interested in IT now because it is a lot cheaper, more reliable and easier to use and understand."

Ian Kilpatrick, chairman of Wick Hill Group, says: "Resellers should push into the SME market because it is currently hot and the enterprise sector is flat. The growth area in the market is still in the SME sector and everyone wants to be there.

"The 'SME' market is a misnomer, since it encompasses a multiplicity of industries, company sizes and market sectors, as well as a plethora of resellers delivering different solutions, combined with a significant range of different skills. SMEs aren't just thinned down enterprises; they are a different market, and successful resellers understand that."

So, where do you start? The trick is not in just attracting their business, it is about finding them first. Small enterprises, more so than their medium-sized cousins, often operate under the radar of most IT companies, which is why most vendors targeting SMEs use channel partners.

Once found, you have to find the right person to speak to, because most likely there is no IT manager to hear your pitch. The pitch itself has to be completely overhauled to take into account the fact that the audience is not very IT-literate, so there goes all the fancy IT jargon.

They might also need a lot of advice from the start since, while they might have an idea of what they want, it's likely they will not know how to get there. They have to be offered a tailored SME solution, not some stripped down enterprise product that they don't need/want/understand and won't pay for anyway.

The business benefits of any IT solution have to be easily understood, must take effect immediately and the whole thing has to be aggressively priced. Once you've got that far, it's likely the solution will have to be installed and key staff trained on its use.

Even then, technical support can expect to be inundated with calls about every little thing the user doesn't understand.

And after that, you have to work hard on maintaining the relationship because SMEs can be a disloyal bunch, prone to bouts of complete amnesia about your tireless efforts when they find a bargain online.

Equally different
Obviously not all SMEs are created equal. It doesn't help that no one can agree on what exactly an SME is. Not surprisingly, the DTI and the European Union (EU) are on a different page here. The DTI classifies a small company as one with 249 employees or fewer and a medium-sized business as one with 250 or more.

The EU, however, recognises micro businesses as those with 10 people or fewer, small enterprises with up to 50 staff and medium-sized enterprises with up to 250 staff. Obviously, the European classification is more accurate when you consider the horde of micro companies in the UK.

Within those groupings there are the sprinters, joggers and snails, in reference to their take-up of new technology. All of the above should indicate that the SME sector is not a cohesive group, but one made up of vastly different businesses, not just by size but by need, attitudes to IT and in-house skills.

"Different-sized companies have different needs," explains Kate Hembury, sales director at WStore, the web-based corporate IT reseller. "Larger companies will come knowing exactly what they want and with timescales, whereas SMEs will come with an issue and want a solution. They are very price conscious and are not loyal. If you demonstrate good service they will come back."

Brett adds: "In many respects SMEs can be more demanding because there are a lot of owner-managers that are spending their own money. They are not spending an allocated IT budget like you get in larger companies.

"When dealing with SMEs you will nearly always be selling to someone who is an owner, a senior partner or a shareholder, and their concerns are not just about getting the technology right, but about getting the business right. They also tend to need more advice and they expect to see immediate results."

One thing that binds them all, though, is the need for a partner that will go the extra mile in terms of hand-holding. Good advice, support and services will go a lot further with an SME than just a keen price.

In fact, the whole value-added argument that has become so important for resellers surviving in the corporate and public sectors also holds true in the SME sector. However, here it is a requirement for making a sale, not a luxury.

Davies says: "It may sound cliched, but you just cannot make money on selling a box. Resellers know that services and adding value is the way to go. Hand-holding is an area where they can make money. The key advantage for resellers in the SME arena is that they are local players in a local environment with specialist knowledge.

"Exploiting their local contacts and environment is where they need to focus. Everyone likes to do business with someone they know, and they are also comforted by the idea of buying from somewhere they can go if things go wrong. These are the advantages that resellers should be making more of."

Kilpatrick comments: "SMEs need service and support. They often need more hand-holding than an enterprise customer, because of the lack of IT skills. Their needs are also typically more solution-focused than technology-focused."

The other thing making the route to SMEs a smoother ride is the arrival of shrink-wrapped solutions, designed to tackle a particular need. These are often made up of numerous products, sometimes from different vendors, but always sold as a solution to a problem.

Common examples are security solutions that bundle anti-virus and firewall software, Lan hardware bundled with network monitoring software, easy-to-set-up wireless office networks, IP telephony solutions and broadband packages.

However, it is only relatively recently that many vendors actually bothered to create SME-specific versions of products, often opting for cannibalising their enterprise products instead.

Much of that changed when it became clear that SMEs wanted SME solutions, and when they realised that, rather than temporarily targeting the SME arena until the corporate sector recovered, they could actually make a lot of money with the right offerings.

Easy does it
"For a long time the SME market didn't get much respect from vendors, and IT solutions sold into that space were just stripped-down corporate products," recalls Neal Tilley, solutions manager for northern Europe at Alcatel.

"What you need is a portfolio of solutions just for them. Nine times out of 10 in SMEs the IT guy is also the financial director. SMEs will not pay for functionality they do not need. Extra functionality in products has to come at no extra cost. If you up the price they will move to a cheaper offering."

Hembury agrees: "SMEs often don't have an IT manager, so products need to be positioned in the right way and easy to use. Shrink-wrapped product sets are far easier for customers to understand. SMEs like out-of-the-box solutions, but you must be careful not to give them over-specified solutions as they have limited budgets."

Carter says: "We are splitting our products into two: a small-business edition and the enterprise suite. We have seen big growth in the low end and have had feedback that our products needed to be easier to use and more aggressively priced. The small-business edition, due in April, is aimed at firms with five to 50 employees who have few IT skills."

Brett advises VARs: "Talk to customers about solutions, not the technology. The idea of a shrink-wrapped solution that works straight out of the box is popular. The mindset of SMEs is one of, 'If I spend this today, I want an impact tomorrow'."

The SME opportunity is there for resellers but it is by no means a guaranteed sale. E-tailers are making their mark, and while this might be only with very small companies with up to 10 employees, their price-led approach suits companies with simple needs.

Some are even trying their hand at attracting business from larger SMEs by offering bundles and boosting their technical support offerings. Even the retail sector, long the king of consumer IT, has started to impact on the channel.

In a recent Context survey of 500 large European resellers, two-thirds voiced their concerns over the way that retail chains were affecting their sales to business customers. They rated the effect of SME sales initiatives from retailers, such as Dixons's PC Business World, as being either 'slight' or 'serious'. Understandably, UK resellers voiced the most concern.

Tilley says: "PC Business World is a massive threat to the reseller. It has recently branched out to having people on the road, selling to customers like resellers."

With competition on all sides, resellers should be doing what they do best: taking the fear out of IT for the smaller business through advice, installation and ongoing support. Concentrating on the long-term gains, even with small customers, is the only way to build a strong SME customer base.

Government and the SME
If success were judged on positive announcements, then the government's SME efforts would merit pats on the back all around. Since it is not, the actual success of government SME initiatives has, ironically, been outweighed by the spin factor.

Back in 2000, when many of the schemes listed below where launched, Patricia Hewitt, minister for technology, claimed that SMEs were the "lifeblood of the UK economy".

The goal of all of these programmes was to get UK SMEs to embrace technology to improve their business competitiveness. Not everything has gone to plan, but there has been some success. So what's out there?

Set up by the Department of Trade and Industry (DTI) in 2000, the Online for Business initiative had the ambitious goal of getting one million SMEs online and doing business online by 2003.

By the deadline, it had only managed to do so for 450,000 firms, and in January this year it was announced that the scheme was to be shelved. Many felt the scheme had tried to get SMEs running before they could walk, and that more emphasis and cash should have been spent on getting basic technology infrastructures in place.

Technology Means Business
Run under the Online for Business scheme, the Technology Means Business (TMB) initiative - in concert with leading IT vendors - also started in 2000, and set out to help resellers get into the lucrative SME space.

Using centres of excellence throughout the UK, the first phase saw individuals attain a TMB-accredited advisor logo that guaranteed SMEs a good standard of technical advice. The second stage in 2002 set out to accredit resellers as Approved Centres, which meant having at least two accredited advisors.

Many in the channel feel that TMB is more useful than Online for Business but that it needs more publicity.

Becta
The British Educational Communications and Technology Agency (Becta) leads the charge for IT in education, approving a select group of vendors and resellers that educational establishments can buy from. While not strictly an SME initiative, schools and universities are essentially SMEs.

And thanks to a lot of government money, they are SMEs with ever-increasing IT budgets. Over the past few years, the cash-rich education sector has proved a vital lifeline to many in the channel. The Laptops for Teachers scheme alone has had £400m to spend over the past few years.

CONTACTS:

Alcatel (0870) 241 7267
www.alcatel.co.uk

Computer 2000 (0870) 060 3344
www.c2000.co.uk

Context (020) 8394 7700
www.context1.com

Sophos (01235) 559 935
www.sophos.com

Wick Hill (01483) 227 600
www.wickhill.com

WStore (08700) 113 310
www.wstore.co.uk