Software for SMEs

WSJ writes about the efforts of the big software companies to target small and medium-sized businesses (SMBs):

France is a good example of the potential for these software giants – there are around 2.9 million companies with less than 500 people in the country – but also the pitfalls.

One indication of the potential is a segment like the accounting profession, where more than half of French SMBs have software providers whose share of the market is less than 1%, typically small companies themselves lacking the resources and domestic, let alone international, reach to give them a competitive edge.

But there’s plenty of competition too. Take a company like the U.K.’s Sage, which is hoping to replicate its success in tapping the middlemarket at home and in the U.S. through local acquisitions, and now stands as France’s leading supplier of software to small accounting firms.

These second-string software companies, focused on the middlemarket in France, like Sage, privately held CCMX, or Cegid (F.CEG) won’t necessarily be quaking in their feet at the looming competition from their bigger brethren.

The reason: the critical importance of local knowledge, expertise in particular sectors and proximity to the customer that allows the many second-tier companies to provide tailor-made products to SMBs.

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Intuit and SMEs

Business 2.0 calls Intuit’s CEO Steve Bennett as “the hottest CEO in tech”.

“When Steve came in, he said the QuickBooks group was a slow-growing unit and a giant opportunity, and we should be growing much faster,” Cook recalls. The evidence, as it happened, had been staring Intuit in its customer-focused face: The standard version of QuickBooks is designed for companies with fewer than 20 employees, yet 5 to 10 percent of its most loyal users were larger — some had as many as 200 employees. In fact, more of them used QuickBooks than brands of software intended for companies their size.

As Bennett looked closer, he realized there was room for more than just an expanded version of QuickBooks. Many small businesses still run with pencil and paper, and of those that embrace PCs, few have moved beyond spreadsheets or simple accounting programs. Intuit estimates that North American small businesses, which it defines as companies with fewer than 250 employees, will buy $7 billion in business software and $11 billion in related services this year. Analysts expect double-digit growth for years to come. In an era when corporate IT budgets have been squeezed dry, this was a rare thing: an expanding market for business software.

Bennett went looking for a replacement to run the group. He soon found one in a former colleague, 20-year GE veteran Lorrie Norrington, whom he lured away with the help of a $750,000 signing bonus and a $5 million interest-free relocation loan.

In her new job, Norrington took all of a month to announce, essentially, that Intuit intended to become the SAP or Oracle of small business. The company would offer software and services for a wide variety of enterprises, from the smallest shops to those with a couple hundred employees. Intuit would help not just with accounting but also with payroll and benefits, keeping track of customers, and managing computer systems. It would also customize its software for specific kinds of businesses, like accountancies or construction firms. The initiative, she explained, would be called “Right for My Business.”

Norrington first turned her attention to QuickBooks. With nearly 3 million users, the accounting program was the obvious beachhead for a push deeper into the small-business market. Bennett had already ordered up a new version — QuickBooks Enterprise Solutions — for businesses with more than 20 employees. Within 18 months, Norrington added 13 more “flavors,” and by the end of this year, QuickBooks will have sliced the accounting market 25 ways, with special editions for the smallest small companies and larger small companies, and specific versions for retailers, distributors, contractors, and nonprofits.

In another example of bullet-train thought, Intuit agreed to open QuickBooks’s source code to independent software developers. The developers write highly specialized applications for specific businesses; with an open interface, they can easily tie their programs into QuickBooks and other Intuit software, creating a kind of small-business enterprise-resource-planning package. To recruit developers, Bennett, Norrington, and Cook have been stumping conferences, including Intuit’s first-ever QuickBooks developers conference, held in November near San Francisco. One of the roughly 6,500 companies actively developing applications is Clip Software in Ijamsville, Md. Some 8,000 landscape maintenance outfits use Clip to streamline tasks such as scheduling fertilizing and making estimates on new jobs. CEO Dave Tucker explains his partnership with Intuit this way: “We don’t want to write general ledger or payroll applications. Intuit can do that.”

To serve the largest and richest companies in their target audience, Bennett and Norrington have begun acquiring small companies that make fully integrated suites of business applications for specific industries. The packages, which Intuit sells for as much as $100,000 per customer, now cover property management, the public sector, construction, and distribution, and there are plans to buy as many as six more in different industries.

Intuit is worth a close study because we too want to be the “SAP or Oracle of small businesses” – only, that out focus is on the emerging markets.

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Startups have the Edge

Phil Wainewright quotes Ray Lane in an interview about startups and established companies: “Typically, if the challenge is a discontinuous change in the status quo, startups have the advantage. Microsoft didn’t invent browsers; Netscape did. IBM didn’t invent the PC; Apple did, and so on. The RTE [real-time enterprise] is a discontinuity with 100 years of status quo, so I think startups have an advantage … Well established companies … will provide the massive infrastructure the RTE will require – operating systems, databases, application systems, etc – but the new tools and apps will likely come from the startup world.”

Even as the software industry consolidates (or is being forced to), the opportunities continue to exist for startups. It would be interesting to look not at the big companies, but at the SMEs. The way to do it: leverage Linux. Here’s a point made by Dana Blankenhorn: “In the case of enterprise software, Linux represents that radical change. Linux removes the power to alter big systems from vendors, and puts it firmly in the hands of customers. After all, with Linux, customers can make changes on their schedule, by themselves. Before Linux, change could only happen when vendors allowed it to happen, because customers could not see the underlying code. Absent such access customers could only nibble around the edges of major change, fiddling with minor upgrades, or changing procedures.”

Marketing Trap

How do SMEs grow their business? Its a question I’ve been pondering because we find ourselves in what I am calling a “marketing trap”. SMEs spend limited money on marketing (ads, PR, etc.) which limits their reach to potential buyers which in turn limits their new business. The biggest challenge for SMEs is not cost control (they already have a good handle on all that they are spending) but new business opportunities. The products and solutions are there, what is missing is the knowledge of who it can be useful (the prospects).

So far, the options are few – build a direct sales team or set up a channel. And then, perhaps back it up with some advertising – which is very expensive. Of course, if there was enough business being generated due to the ads, it would be another story, but in most cases, that does not happen because SMEs typically do not indulge in repeated advertising. The other possible options: direct marketing via post or by email (spam).

How does one get out of this marketing trap?

The Internet plays a very limited role in the marketing efforts for most SMEs. What is needed is an “information marketplace” – buyers should be able to say what they want, sellers should be able to talk about what they have to sell, and they should be able to find each other. Information needs to flow two-way between the smaller companies. Most are in each other’s neighbourhood, but don’t even know of each other’s existence. How can we solve this problem?

A few ideas I was thinking of:

– get SMEs to create a wiki and a weblog: the wiki could be a single page that they update whenever they want describing who they are, while the weblog has a mix of what is new and content/ideas related to their business, thus showcasing their “intellectual capital” and helping others differentiate. Yes, a website could do this too, but most websites are just not easily updateable.

– as SMEs publish their buy/sell needs, this can become an RSS feed which others could subscribe to. Feeds can be based on product category or by company. The RSS feeds could be delivered via an Info Aggregator-like service to a separate mailbox to the subscribers. The RSS feeds could link to the appropriate post on the SME’s blog which describes the need, and a link to the wiki page to find out more about the SME.

– the issue here one could face is “tragedy of the commons”. There would be an incentive to “spam” the process. These companies could be filtered out. One could use ideas from eBay’s rating system here.

– what this allows is for SMEs to find companies locally. So or example, if I am looking to buy a knowledge management software, Google is not very helpful – I need vendors locally, who will understand my requirements and show me a demo.

There’s still a lot more to be thought, but I am beginning to think that if we can create such a solution, it could not only help us generate more business, but also showcase some of the newer technologies (blogs, RSS) to the SMEs. Of course, the first challenge would be to get enough SMEs to start using the system to make it useful. This is a co-ordination problem: enough SMEs have to come in simultaneously, and they would then all be better off than they were.

Dan Bricklin and Small Businesses

A Once and Present Innovator, Still Pushing Buttons is the title of an NYTimes story on Dan Bricklin, CTO of Interland and co-creator of VisiCalc, the first spreadsheet and killer app for the computer in 1979.

Mr. Bricklin said that the real challenge was to figure out how to reach a portion of the 20 million businesses in the United States with 10 employees or fewer and ease their entry onto the Internet.

“This is the mass market for small business,” he said. “Cracking this market is the holy grail.”

The Internet, Mr. Bricklin said, is best viewed as an important but supplemental tool for business. “It is a medium of business that you have to understand, just like doing business over the telephone or face-to-face selling are mediums of business,” he said.

As a medium, the Internet enables even a small business to present a lot of information about itself and allows customers and suppliers to interact through a Web site or e-mail. Even if the information is as simple as store hours, it helps.”The person who wants to drop by your store on the way to work wants to know if you’re going to be open at 8 a.m., and he wants to know that at 10:30 p.m. the night before,” Mr. Bricklin said.

For most small businesses, he added, a reasonable goal for an online presence is to increase sales by 10 percent without having to add more employees.

“That is huge — it means a better vacation,” he said. “Remember, for these companies the bottom line is their pocketbook.”

SMEs are also what we are looking at. Our focus is on the emerging markets.

SMBmeta Initiative

Dan Bricklin has a very interesting idea to make it easier for SMEs “to communicate information such as the physical location of the business and the area it serves, as well at the type of business, to search engines and other services.”

One of the major drivers of the US economy are small and medium businesses (which we’ll call “SMBs”). These range from restaurants, machine shops, lumber yards, advertising agencies and law offices, to carpenters, musicians, and locksmiths, to weekend DJs and grandmothers selling their knitting. This document describes a data file format and associated services designed to help those businesses in their use of the Internet.

One of the concerns of businesses is having their web site found by customers. One of the concerns of customers is being able to find an appropriate set of businesses from which to choose to meet their needs. Web sites and normal search engines meet some of these needs. Unfortunately, it has been difficult for search engines to ascertain specific information such as the particular locale served by a business, the type of the business, the languages spoken by the staff, etc. A human being can often find out this and a wide variety of other information by reading a web site, but it can be hard to automatically find it out for constructing a reliable database. The goal of this “SMBmeta” project is to provide a way to amass this additional data to aid in searching. It is not to provide the data that you would find on the web site itself, just the data you use in searching.

The way we do this is with an “smbmeta.xml” file.

The smbmeta.xml file is an XML file stored at the top level of a domain that contains machine readable information about the business the web site is connected to. It is an open, distributed way for small and medium businesses to communicate information such as the physical location of the business and the area it serves, as well at the type of business, to search engines and other services. Hopefully, it will open up innovation that will result in a wide variety of new services that will benefit the SMBs and their customers.

I like the idea – it can, for example, plug right into an RSS aggregator, so I could subscribe to SMEs in my area of interest or even in my neighbourhood. Getting SMEs to interact with other SMEs and end-users is the next big challenge.

Going After SMEs

The last few days have seen a flurry of announcements on the small business services front:

  • Yahoo announced “a new three-tier Web hosting service aimed at small businesses with 100 employees or less.” From Line 56:

    Rich Riley, vice president and general manager of Yahoo Small Business says the hosting market on this scale in the U.S. is greater than $1 billion, and addresses as many as 20 million businesses, most of which have no online strategy. “The key driver will be businesses coming online for the first time or upgrading their online presence to be a mission-critical part of their business,” Riley says. “We want to be the leader of the market which is highly fragmented with no clear leader.”

    Yahoo employed a Harris Interactive poll to discern five key customer criteria for a small business portal: reliability; cost; customer service; trust; and brand. “We already operate the world’s most heavily-trafficked website,” Riley says, “and we’ve been in the hosting business for five years.” Yahoo says 24-hour mail and telephone support is part of the service level agreement for mid and top-tier customers.

    Yahoo’s three service tiers are:

    Business Starter, which offers 10 personal address email accounts 50 megabytes of storage and 20 gigabytes of data transfer for $11.95 per month;

    Business Standard, which provides 25 business edition email accounts, 100 meg storage and 25 gig data transfer for $19.95 per month and;

    Business Professional, with 35 email accounts, 350 meg storage and 35 gig data transfer for $39.95 per month.

    Adds News.com: “Called Yahoo Web Hosting, the product brings together tools and services to allow small businesses have a Web presence. All subscribers will get 24-7 customer service, domain name registration, a business version of Yahoo Mail, access to Yahoo’s e-commerce storefronts and the ability to be promoted on Yahoo. Subscribers also get Web site publishing tools, design templates for different types of businesses, PHP scripting and MySQL database services.”

  • Dell announced “new services to make it easier for small businesses to purchase and get computer networks up and running.” The three sets of services, according to ServerWatch, are:

    Network Design — assesses the customer’s hardware and software needs, as well as technician time required to build a network. With a starting price of $199 this package includes an on-site assessment from a technical expert who will review what’s in place and determine what is required to design a well-rounded network or to deploy a specific hardware configuration

    Installation — available for Dell’s entire product line, including OptiPlex and Dimension desktops, Latitude and Inspiron notebooks, Dell Precision workstations, PowerConnect switches, PowerEdge servers, PowerVault storage, and a variety of software and peripherals. For desktop, notebook and workstations, Dell said it will transfer data from the old systems to the new, as well as install the customer’s software on each system

    Dell’s Business Professional Training — targeted at customers with zero IT staff, this package includes online courses for more than 340 applications. With this $99-per-year package, enterprises with a technical staff can tap Dell for industry certification programs or schedule time with technical experts to provide more training

    Adds San Jose Mercury News on the Dell announcement:

    An estimated 70 percent of small businesses don’t have IT departments, according to a report by AMI Partners Inc.

    Businesses like mom-and-pop stores, beauty parlors and other small operations have been craving this kind of package, said Michele Hudnall, a Meta Group analyst who tracks technology service and support.

    “They don’t have the funding to bring in the folks who would have the expertise, so the more out-of-the-box, plug-and-play that Dell can make that, the better,” she said. “It has to be very canned.”

    Hudnall said the tricky part for Dell could be figuring out how to offer proper support to customers once the products are designed and sold because Dell doesn’t have a physical presence at the business.

  • Interland acquired Trellix. From the press release:

    “We believe that the addition of Trellix provides our company with, hands-down, the industry’s best technology foundation necessary to attack this huge mass-market opportunity,” said Joel J. Kocher, Interland chief executive officer.

    “Through our mass-market strategy we are creating an opportunity to reach a much broader audience of small businesses — and one that no one else is reaching effectively. Interland will be able to offer a unique blend of service and technology by combining its market leadership and revolutionary blueHALO hosting platform with Trellix’s technology and significant distribution relationships,” said Kocher.

    The current Web hosting market can be characterized as early adopter, generally more technically savvy than the average small-business owner, according to Yankee Group research analyst Helen Chan. “There is a very large market opportunity as most small businesses and home offices do not have a Web site,” said Chan. “By acquiring Trellix, Interland is poised to be a leader in both the early adopter market and the small-business mass market. This move will help broaden Interland from a Web hosting service company to a Web solutions provider for SMEs.”

    “This merger is a wonderful combination,” said Trellix founder and chief technology officer Dan Bricklin. “Small businesses must have access to all of the online aspects of doing business today to find and serve their customers. Unlike big businesses, they have no data centers and no dedicated IT staff. They need someone else to do all this on their behalf. Together, we can provide software tailored to small-business needs, tightly integrated with facilities manned 24×7.”

  • Small Businesses Online

    Portals See Big Cash In Small Businesses (WSJ) talks about the efforts being made by Yahoo, AOL and MSN to woo small businesses and get them to set up storefronts on the Internet:

    Hungry for subscribers, and the recurring revenue they provide, these three giants of the Internet world have re-energized their longstanding efforts to take America’s millions of small businesses online. All are now honing and promoting tailored products and services for small companies, with a particular emphasis on the smallest of the small. Next year, independent Internet-service provider EarthLink Inc. will join in, too, with a refreshed service package for this market.

    Small businesses are an attractive target because they are more likely to spend money on premium services such as broadband access and Web-site hosting than are consumers, the portals’ core market. Research firm Yankee Group estimates the U.S. small- and medium-business shared-hosting market alone will reach $1.3 billion next year. Moreover, proprietors of companies with just a few employees tend to shop like consumers, which means the portals can reach them fairly easily with their existing mass-market infrastructures.

    The portals have long tried to sell to this market. But small firms are a cautious lot, and they didn’t jump on the Internet bandwagon during the boom years the way many pundits predicted. The diverse needs of this market, which includes everyone from plumbers to florists to lawyers, many of whom lack technological sophistication, have made it hard to crack, analysts and portals say.

    Have been thinking of an SME marketplace for emerging markets, along with related services in content, community and software. These are some of my oldest ideas and it may be time to revisit them.

    Esther Dyson on New Markets

    In a discussion with Fortune [part of the Brainstorm 2002 series], Esther Dyson says:

    Most marketing represents investment in customers who already exist. In other words, we’re only hunting and gathering current customers, rather than coming up with new ones.

    How can you create new customers? By turning people into effective producers, who can then earn enough money to become potential customers for the products of several companies. That’s the thinking that drove Henry Ford when he doubled his workers’ salaries early last century. He created customers not for himself but for the US economy, which in turn produced customers for Ford Motor. Keep in mind that usually only large companies can afford this kind of investment. Smaller companies still need to work like hunter-gatherers, investing in R&D or production. But they’re counting on these larger companies and employers. These firms are big enough to benefit from the growth of an overall economy and too big to grow much if the economy around them is not. In practical terms, the biggest supply of potential customers is in emerging markets. Take Russia, my favorite example. Right now, I’m working with a group of companies on the US-Russia Information Technology Roundtable. The group is led by the American Chamber of Commerce in Russia, the US-Russia Business Council and Russian counterparts, and will hold its kickoff meeting during the Bush-Putin summit meeting in Moscow later this month. The companies involved are all trying to build the Russian IT market. That, in turn, will make Russian business more efficient, Russian workers more productive, and Russian consumers better able to afford new products.

    Although it’s not explicit, this joint approach addresses one of the basic issues of spending in developing markets: How can you ensure that you can capture those customers you create? You can’t. The trick is to join with other companies and invest in an entire economy rather than just a single company’s work force. Although this particular event is just an IT roundtable, the Chamber of Commerce has more than 650 members, and the presence (and investments!) of each of them benefits them all. That’s why AmCham in Russia–and indeed Chambers of Commerce around the world–are so active in many developing economies. Although they may not be thinking consciously of the ideas I’ve outlined, their efforts to improve conditions for producers also enrich the workers who become one another’s customers. More and more, I’m running into companies who are not simply selling abroad, but building markets. ITC, an Indian company, is putting Internet kiosks into soybean-farming villages, enabling its suppliers to operate independently of middlemen who control prices. BchinaB is helping Chinese plastics producers to reach markets in the West–and to buy other products from those same markets. BusyInternet Cafe in Ghana is selling Internet access not just to consumers, but to small businesses who use its wired offices to make their businesses more effective. These are just a few examples.

    Instead of focusing on market share in mostly mature markets, companies need to focus on developing new markets. They can do that with new products, which are my regular focus. But they can also create those new markets–and whole lot more–by helping to create new consumers.

    These are the ideas on which we need to build Emergic. Our new markets are the world’s emerging markets.