SME Resellers

WSJ writes about the challenges selling to small- and meidum-size enterprises (SMEs):

while many small and midsize businesses constitute a ripe market, selling to these companies can be a difficult game that demands just as much sweat as big-company sales, but with a far smaller payoff. Steadily falling prices of software, stiff competition among resellers, and highly cost-conscious buyers make the business tough. And it’s resellers which act as middlemen of sorts, that are doing the sweating.

In 2003, the 8.1 million U.S. small and midsize businesses spent $75 billion on information technology, a 4.1% increase from the previous year, while overall IT spending in the U.S. grew just 0.7% over the same period, according to IDC, a market-research firm based in Framingham, Mass. IDC predicts that in 2004 investment from small and midsize businesses will rise 6.2%, outpacing the 4% expected increase overall.

[The resellers are] the entrepreneurial worker bees of the industry that handles the details of selling, installing and maintaining software for the big technology companies. Often geographically focused, [they] are the only way many big tech companies can reach the mass of smaller companies without employing armies of sales and support staff.

Still, there are some challenges for resellers. Many of those stem from the ever-falling price of software. Microsoft and other software makers use lower pricing to attract smaller businesses to their technology. But resellers feel the brunt of that strategy, since even as prices fall, their costs don’t, making it increasingly difficult to earn a profit.

The pressure becomes particularly acute as customers, with their own financial concerns, often take far more time than in the past to mull what software to buy. To make the sale, resellers have to stick with those customers — preparing demonstrations and answering questions — which raises their costs.

The selling process can be even more prolonged at the smallest companies, many of which are operated by owners who know they need new technology but are particularly sensitive to its cost. “As they’re writing the check they clutch onto the checkbook thinking, in effect, ‘It’s coming out of my own pocket,'” says Ray Boggs, an analyst who covers small and midsize businesses at IDC.

Then there’s the middleman. Smaller businesses often don’t have technology expertise in-house or standard processes for choosing a technology vendor. That places extra demands on the reseller to educate and hand-hold — often at no charge and with little promise of any return. Other times, the businesses hire consultants to guide them through the process.

Published by

Rajesh Jain

An Entrepreneur based in Mumbai, India.