When Small is Beautiful

May 2006

Small and medium-size businesses represent trillions of dollars in opportunity. But for most would-be entrants, even well-proven models for sales force and organizational management break down. Here's a set of best practices from those who have succeeded.

Several years ago, a well-known US technology manufacturer launched an initiative to sell to the small-to-medium-size-business market, a move that quickly translated into $2 billion in new revenues for the company. Yet after only a few years, the initiative was in trouble. The company realized it had moved too quickly, without first understanding the market's segments and its clients' needs, or developing appropriate products to meet those needs. It had also failed to build sales and operations capabilities that were scalable—making it difficult for the company to serve its customers as they grew. Even though the business produced significant revenues, it was not as profitable as it should have been; worse, perhaps, management had to spend too much time fixing problems when it could have been working on new strategic initiatives.

Tackling the small-to-medium-size-business market presents a particular set of challenges. Most enterprises have come to realize that this market represents an enormous untapped opportunity, as well as their best hope for maintaining revenue-growth momentum. At the same time, however, barely a handful have successfully broken into the segment. Most entrants have stumbled badly, and at great expense.

Promise and Peril
In 2004, there were more than 78 million small-to-medium-size businesses—which Accenture defines as enterprises with 5 to 1,000 employees—in the world, a number expected to grow by 2 million every year. The year before, purchases by small and medium-size businesses just for IT and telecom hardware, software and services alone added up to $810 billion, an outlay that is projected to reach $1.15 trillion by 2009. For companies looking for significant growth opportunities, those are nearly irresistible numbers.

But these businesses are not simply smaller versions of large, complex, global organizations. For one thing, although global brands are very important, regional brands can be powerful. For another, this is a highly fragmented, expensive market to tap: The costs of customer acquisition and after-sales support are high compared with those for enterprise-scale customers.

In the face of these realities, even well-proven models for sales force and organizational management break down. Sales organizations may intuit that it is challenging to move quickly from a few hundred potential customers to a few million but then fail to scale up for day-to-day execution. As a result, customers may be disappointed by poor post-purchase support.

The fact is, the small-to-medium-size-business marketplace constitutes a fundamentally different B2B selling challenge, one that calls for deft combinations of strategy, execution and solution sourcing—all coordinated and sequentially integrated. The good news is that the obstacles to success can be overcome. Our own perspective is drawn from observing and working with companies we would characterize as leaders in this sector, companies that seem to adhere to a consistent set of best practices.

Commit, strategically and publicly. Accessing this market does not require "bet the company" decision making. At the same time, it cannot be a part-time initiative, directed from a single division or from a middle-management tier. The most successful organizations are those that have made small-to-medium-size-business penetration a priority to their investors and other stakeholder groups. By its nature, this kind of commitment calls for C-suite sponsorship, backed by significant investment—on the order of hundreds of millions of dollars.

Understand the customer. This market's leaders use customer analytics, data-integration solutions and advanced prospecting services to define and segment target customer bases. To mitigate the costs of poorly timed or inadequately planned market entry, they make sure they understand their customers' spending plans, key selection criteria, buying behavior and channel preferences.

For example, when one information integration company decided to expand its revenues in this market, it defined small-to-medium-size businesses as one of its five target segments, set up a sub-brand (with a name derived from the company's) for the market, and made the decision to sell to these enterprises exclusively through indirect channels.

Align the resource offering. To capitalize on customer insight and strategy, leaders thoroughly align their sales, marketing and support organizations to the target customer segments they have identified. Nowhere, for example, do sales and marketing functions have to be more tightly aligned than in this segment, because customer acquisition costs are significantly higher as a percent of revenues. Therefore, companies have to manage the process closely to ensure customer acquisition does not become too labor-intensive and expensive. Companies that allow the cost of acquisition to spin out of control will quickly have an enormous operational and budget issue.

When one software company began to reorganize its global efforts in this marketplace, it found 48 discrete business processes that would have to function in concert if the company were to meet its objectives—processes as wide-ranging as sales operations, systems integration, and finance and accounting.

Think organization-wide. Although this marketplace is splintered, an organization's selling efforts cannot be. Recently, a global IT hardware manufacturer had to rethink its strategy and investment in the small-to-medium-size-business market, even though it had spent 18 months building an internal organization dedicated to the initiative and even though the market accounted for a staggering $24 billion of the company's annual revenues.

The challenges of integrating its efforts—among regional and country managers, among business units, among product-line heads—raised political, cultural and P&L-accountability obstacles. The company decided to disband the cross-functional group that serviced small and medium-size businesses and give those responsibilities back to the individual product groups.

Appreciate regional differences. While success in this market rests to a considerable degree on the ability to offer standardized solutions, market-specific differences can be important in a limited set of cases. For instance, in Japan, a stringent Personal Information Protection Law became effective in April 2005 and, as a result, IT security spending among small and medium-size businesses is expected to grow at a compound annual rate of 13.3 percent through 2009. Indian companies, on the other hand, often have a strong aversion to multiple IT-vendor relationships and instead prefer a single point of contact. Companies must understand that the best way to service customers can vary significantly by region.

Emphasize business outcomes. In the small-to-medium-size-business market, affordability is important. But increasingly, successfully selling to this group means recognizing that the buying criteria are no longer just about cost but now include broader business outcomes, such as lowered operational expenses and improved revenues.

Partner, but intelligently. Making a small-to-medium-size-business model fully operational can take as much as 5 to 10 years, a daunting proposition in a segment where first-to-market advantage is critical. Accepting the fact that certain business processes may be outside their core competency, or not worth the cost of internal development, leaders in this market have been open to partnering with others that have ready-made expertise, experience and infrastructure. What seems to differentiate leaders is an insistence on going beyond patchwork networks of solution providers and finding one provider with a global infrastructure and operations they can rely on.

There is no shortage of companies that have mastered narrow slices of this market. Yet only a few are willing to, and capable of, taking a comprehensive approach to selling to this market as a whole. We suggest that tapping the small-to-medium-size-business sector can be daunting—and that those considering entering this market choose their strategies, and their partners, accordingly.

About the Authors
Kevin F. Bandy is an Atlanta-based senior executive in the Accenture Customer Relationship Management service line. As a global lead within the Sales Transformation group, he oversees the development of strategies, assets and tools that help companies in the communications, media and technology industries improve their sales capacities, pursue large-scale transformation of their sales organizations and enter new markets or geographic regions.

Robert V. Blakey is the managing director for the Accenture Communications, Media and Technology*/Customer Relationship Management group. Mr. Blakey has more than 22 years of experience leading CRM strategy and implementation projects. He helped found Accenture's global CRM group and has been extensively involved in developing large-scale CRM programs and sales transformation initiatives for major electronics and high-tech companies. He is based in San Francisco.

*formerly Communications & High Tech

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