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Friday, September 09, 2011

SMEs and Technology

1:13 AM Posted by Deepak Nayal , No comments
Small and Medium Enterprises (SMEs) are an integral part of the global economy. They contribute a large percentage - in many cases even more than large enterprises - towards the employment and GDP in various countries. With such impact on the global economy, any provider ignoring SMEs as a market will be missing out on a huge opportunity. 

Technology can be a great enabler for SMEs helping them to reach out to [potential] customers, manage customer relationships, vendor relationships, human resources, accounting, etc. However, as far as getting them to use technology is concerned, their size and resource constraints mean that they cannot be approached as larger enterprises are, and their commercial orientation means that they should not be treated as consumers either. 

Adoption Sweet Spots 
SMEs vary a lot in the nature of their business and operations, however, two points are applicable to almost all of them throughout the world, 1) they are always short of resources (time, money and skilled employees) and 2) they are always looking for more business (more customers or more revenue per customer). This is true for many large corporations as well, but a key differentiator here is that large companies undertake many technology initiatives that may or may not directly contribute towards top- or bottom-line, whereas for SMEs there has to be a clear correlation. A key point to note while selling to SMEs is that the value proposition has to be clear. SMEs will use your services only if the money and/or time they invest is offset significantly by the returns (or gives the perception of doing so). In order for SMEs to buy/use your service or product, the offering should fall into one of the following buckets - 
  • Help focus on core offering (save time) - SMEs are always short of time, especially if their founders/owners have growth aspirations. As much as these companies would like to focus on their core offerings, they have a lot of other chores to manage, such as IT, accounts and legal. Products and services that help SMEs save time and allow them to focus on their core offerings, with minimal investment are always in demand. This is a crowded space with a lot of big and small players, specially services companies. Productivity applications can present a good selling proposition in this space. 
  • Raise finances for funding their business (raise funds) - SMEs always need money, to fund their operations, to sell their products and to expand their business. They can raise this money from banks, VCs, individual investors or general public. This is where crowdsourcing platforms and social networking platforms that connect entrepreneurs with VCs and investors (such as AngelList) can help SMEs.  
  • Reduce costs - Technology offerings can help SMEs reduce their cost of running the business. This area has historically been covered by ERP solutions. Technology providers can help SMEs reduce their IT investment, hiring costs, cost of operations (by streamlining processes), procurement costs, marketing costs and customer service costs. Though there are a lot of providers currently out there with solutions that provide these benefits, a lot of them do not have strong enough ROI (or a perception of it) for people to invest. This is where SaaS providers, with their subscription based pricing model, can gain ground by charging customers based on usage, converting capital expenses to operational. It is a tough market to compete as it is difficult for small players to cover all depth and breadth of operations in the SMEs, which is why partnering and integrating with other providers can help software players provide larger set of services.  
  • Acquire more customers (increase revenue) - This maps to marketing solutions. Historically, internet-based marketing has involved search-engine optimization, display ads, search ads and trade forums. Recently, a lot of new players have jumped into this space with coupons and social media marketing based offerings. This is a crowded and competitive market; however, the new mega trend of SoLoMo has created new opportunities for software companies to bring SMEs closer to [potential] customers.  
  • Increase sales per customer (increase revenue) - This is an exciting area which looks into improving relations between SMEs and their customers, in order to increase average revenue per customer. This requires deeper understanding of the customers, and is an area where analytics and CRM tools can prove to be very beneficial.  
  • Just give it for free - There is a good chance that the value proposition you provide is not clearly visible initially, and that your product is the kind that people will find useful once they start using it. In such cases, it will be very hard to make the customers pay for the product upfront, and going "Freemium" is probably the best option here. Blogging sites such as Wordpress and Tumblr are good examples of such offerings.  

Size Does Not Matter 
It is not that big companies are ignoring SMEs. Enterprise software giants, such as SAP and Oracle, already have product suites targeted towards SMEs. However, they have not been able to repeat their success with larger enterprises in the SME market, because they bring along the baggage of large enterprise suites. Generally, SMEs do not like to invest heavily in technology and huge investments upfront are a big NO. New players are trying to swoop in SME markets with clear and targeted offerings, lightweight [hosted] solutions, usage-based pricing and responsive product development teams. Being small themselves, they can relate to the problems and constraints of SMEs. If big players have the resources and experience, small ones have the agility and focused approach. In fact, SME technology market is one of those areas where size [of the players] really does not matter.


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