Small and medium businesses have similar broad needs when it comes to IT and growth, but the specifics are not so close; considering them one group may be a mistake.
Posted Feb 26, 2007
Security, disaster recovery, and bandwidth are the top IT concerns facing SMBs, but they aren't the ones hindering business growth. According to "2006-2007 U.S. SMB Applications & Solutions Market Overview and Assessment," a new AMI-Partners report for the business applications and solutions sector, the causes of slow growth are different for small businesses and medium ones, creating opportunities for software and service providers to fill important gaps and differentiate themselves.
Small businesses find that uncertain economic growth, insufficient cash flow, and uncertain industry growth are their top hindrances, according to the report. Medium businesses also cite uncertain economic growth, but name rising operating costs and uncertain industry conditions as the other two main growth retardants.
IT personnel at both ends of the segment are struggling with myriad demands on their time and resources, according to AMI. The average small business has 1.2 full-time IT staffers supporting 10 employees, for an employee-to-staff ratio of 8.3. They must deal with desktop and laptop computer issues, handheld devices, and telecommuting problems for which they may lack expertise. "Due to the lack of full-time IT staff, SBs are taking a wait and see attitude towards adopting more advanced applications such as CRM and ERP," says Sau Lam, an industry analyst with AMI-Partners. "However, companies such as NetSuite and Entellium are addressing this issue by making CRM and ERP easier to implement and use."
Medium businesses by contrast typically employ 4 full timers, but they must serve an average 267.2 employees, a 66.8 ratio. The companies are spread across more locations and branches, use multiple servers, and have more complex business processes. As with small businesses, this creates a need for technology that is easy to deploy and maintain, with flexible deployment and delivery options, and outsourcing of business processes and even IT support.
The AMI-Partners report names three waves of IT adoption, which Lam describes in detail:
Building the Infrastructure: "Smaller companies fall into this category. It's where you're choosing the computing platform and selecting which productivity applications to use. You have Internet access and possibly a Web site. The focus is on protecting individual PCs."
Connectivity: "At this stage, you have a LAN, maybe you've added e-commerce, broadband Internet, and you're running collaborative applications, meaning your employees access the applications from a server instead of from their individual PCs. You run server-based antivirus and firewall. The focus shifts from protecting the individual PC to protecting the server."
Extend the Enterprise: "At this point, you're reaching beyond the scope of your office. You have remote access, intranets and/or extranets. This is where VPN can come in, or managed security services. The focus is on multidimensional security layers with a firewall on the network but also on mobile workers laptops. There's a lot more to protect. Increased technological sophistication equals an increased need for protection."
Differentiation is also a matter among small and medium businesses themselves. "It's time to stop thinking of small businesses and medium businesses in the same thought," Lam says. She cites a number of traits common within each group but distinct from the other. Small businesses tend to have limited or no IT staff, operate a single-division (no multiple locations), use shrink wrapped software for CRM and other functions, and look for easy and fast implementation through VAR channels; medium businesses, however, typically have multiple locations and divisions, require vertical expertise and more customization/integration for mission-critical applications, and have very different drivers for technology adoption. "They are totally different segments of the market."
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