This is part 1 of a series on the challenge of targeting SMB markets and how the use of target buyer modeling and buyer-based marketing help organizations to grow their SMB customer base.
As we continue to come out of the deep freeze over the last few years, we are beginning to see encouraging signs of an economic recovery. However, the purse strings are still drawn tight and new patterns of buying has created an atmosphere of even more exacting pricing pressures from enterprise-wide level buyers and accounts. This means less room for revenue growth to come directly from the fabled 20-30 percent of large customers who typically have made up 70-80 percent of total revenues. This is how a VP of Sales in the software industry put it to me recently in my research:
“Here is what it looks like…we are actually selling more of our product into our larger accounts than ever before….but…over the last three years we’ve faced stiffer competition that has driven our pricing down. So the net-net has been that we are just holding on as best we can to these larger accounts. Another words, we are not getting significant real revenue growth from them.”
It is highly likely that this refrain is being repeated across many Fortune 1000, Global 2000, and even Inc. 500 listed companies across the globe. With revenue growth opportunities shrinking among their large accounts, senior leaders in these organizations are turning a focused eye towards the highly sought after small and mid-size business segment. For instance, in the highly compettive world of IT Products and Services, both HP and IBM made substantial investments and strategic moves in 2011 to target the SMB segment. Challenging Dell and its’ low cost entry strategy for small to mid-size businesses.
A New Challenge And A New Frontier
There is good reason for Fortune 1000 or Global 2000 companies to target revenue growth from the SMB segment. It is one of the fastest growing segments and traditionally has been coming out of a recession. It also has proven to be lucrative when you consider that actual contribution margin percentages are much richer per sale when compared to large accounts. It is little surprise that senior executives have shifted at least one eye towards expanding their SMB customer base and tapping into the revenue growth potential that can exists.
While targeting or at least accounting for the SMB segment is not a new idea to larger enterprises, this time around they are waking up to new buyer realities. Buyer behaviors continue to change rapidly and these new behaviors are associated with largely buyer-driven changes. What is confronting those wanting to achieve revenue growth from SMB buyers and companies is that they may know very little about these buyers and companies. How to market to SMB buyers and companies becoming one of the hot priority items showing up on the agenda of many large enterprise management meetings being held daily, weekly, or monthly. As one Senior VP of Sales and Markerting in IT pointed out to me recently:
“I am almost afraid to admit that we may have taken the SME (my notation: some executives refer to SMB as SME – small and mid-size enterprises) businesses for granted all these years. We never really moved beyond segmenting by employee size and revenue so we really don’t know a lot about SME’s as we should. It’s easy say you want to target them but planning how to target them is basically a whole new ball game for us.”
Because little knowledge may exist about SMB businesses and buyers, there are perhaps more assumptions being made about SMB than for larger accounts. Generalized perceptions and preconceived notions run rampant in the halls and meeting rooms of larger enterprises attempting to figure out how to market to SMB segments. There is what I call a “definition churn” that can happen when knowledge is found wanting – new definitions, classifications, segmentations, and etc. begin to appear every 3, 6, 9, or 12 months. Moving around 1,000’s of accounts and prospects in virtual databases to new buckets created for employee size, revenue size, product targets, and verticals.
Unprecedented Transformation Occurring
In the past, working with these definitions may have been sufficient. Looking ahead into the future – and the near future at that – these definitions alone will no doubt prove to be limiting and even detrimental to growth. We are experiencing an unprecedented transformation in the world of business with new buyer-driven economies, ecosystems, networks, and communications emerging constantly – making understanding of SMB buyers and companies that may have been attained even as little 3 to 5 years ago nearly obsolete.
For many large enterprise organizations that show up on the famed Fortune 1000 or Global 2000 lists, growing the SMB customer base may be their number one, or at least in the top five, priority. It is also, as a result of new buyer realities that are emerging, their number one challenge. To tackle both angles of this two-sided coin, gaining deeper layers of understanding about SMB buyers and companies will need to get on these same priority lists.
Next Up: Understanding New Buyer Realities In SMB
