TECH TALK: Software SMEs: Software for SMEs

Larger companies have many options for software to manage and automate parts of their business. Small and Medium enterprises (SMEs) have fewer options, since they are also harder to reach. Yet, their need for such e-business software is no less – they too would like to be cost efficient and grow revenue. This sub-G2K (sub-Global 2000 companies) market is therefore an interesting, diverse and possibly rich target market.

What are SMEs? Definitions vary, but a reasonable definition is the following: small enterprises are those that employ 2-99 people; medium enterprises are those that employ 100-1000 people. Going by the above, in the US, there are about 8 million SMEs. Extrapolating, we can expect a global market of over 25 million SMEs.

SMEs typically lag big business in adoption of technology by at least 2 years. By this reckoning, the next few years should see an dramatic increase in the usage of technology by SMEs. In fact, one of IDC’s predictions for 2001 states that Small Business will emerge as a hot business segment.

Writes John Ince in Upside (November 2000):

One of the fundamental axioms of b-to-b is that the highest levels of value-added services come in highly fragmented industries. If there were ever a sector that is highly fragmented, it’s the small business sector. Small business ranges from the mom-and-pop grocer to the local dentist, to the flower shop, to construction companies and a whole host of services.

Perhaps the most compelling reason for all the interest in small business is that the small-business customer has always been difficult to identify and reach. Because the market is so geographically and functionally diverse, the cost of customer acquisition has been highSmall business owners seldom have either the resources or time to invest heavily in building in-house capabilities.

Suddenly, the Internet provides a cost-effective channel for reaching small businesses. Tim Minahan, analyst with Aberdeen Group, sums up the situation: “The SMB (small/midsize enterprise) is definitely a hot area. The initial thrust in e-commerce was focused on larger companies. The challenge now is how to productize cost-justified solutions and deliver the benefits of enterprise productivity-type solutions to small businesses.”

But for all the interest in small business, one is well advised to keep in mind one important fact: Although there are notable exceptions, small business owners tend to be risk-averse and wedded to old ways of doing business. Melissa Shore of Jupiter Communications speaks to this point: “The value proposition has to be very dramatic and clearly articulated to get them to change their ways.”

The challenge therefore is to provide an SME with the building blocks which are needed to run the business – the same blocks which a larger organization would have access to, but at a fraction of the price. These building blocks comprise CRM, SCM, ERP and eCommerce. An SME cannot hire expensive consultants to customize these building blocks. What is needed is the ability to provide Lego-like software components which an SME can customize to model its business process. The challenge therefore is to create a solution which addresses the need of this hard-to-reach market, and then actually sell it to this audience.

Published by

Rajesh Jain

An Entrepreneur based in Mumbai, India.