Quocirca's Straight Talking: How small businesses buy IT

IT vendors hoping to target small organisations can't treat them like large enterprises. Quocirca's Bob Tarzey explains how the size of an organisation determines how they procure technology.

How different are small and medium-sized enterprises (SMEs) from large businesses when it comes to IT procurement? Quocirca researched just this issue late in 2005 and whilst there are some similarities in how both groups gain their knowledge about IT, they are fundamentally different when it comes to making their actual purchases.

For the would-be vendor to the SME market, the first question to ask is, who should you be selling to? One thing is for sure, whether it is SMEs or enterprises there is one person that should not be left out of the sales process: the finance director (FD). The FD is always involved in approving IT purchases more than 90 per cent of the time (see Quocirca's free report on the topic).

The FD might be able to scupper an IT proposal by saying no but he is less likely to be the person who takes the initiative in the first place. This is where SMEs start to differ from enterprises. It will, of course, vary depending on the nature of the purchase - acquisitions of business applications will be initiated by the business whilst IT infrastructure acquisitions are more likely to be kicked off by those with responsibility for IT, for example.

The key is to remember that SMEs often do not have an IT director and/or IT department. In many cases it will be the managing director (MD) or FD who oversees the IT requirements of a SME. In some ways this makes SMEs more efficient to sell to because the person initiating and approving this request will be one and the same. No flights of fancy by the IT department to waste the seller's time and deals should be more numerous but, of course, deals will also be smaller.

This is where the would-be suppliers to the SME market struggle. The prospect of thousands of small deals adding up to a big number sounds attractive and is inherently less risky than one or two very large enterprise deals. But managing lots of small deals can make the overall sales effort very inefficient. How do you get around this?

A single large proposition for an enterprise is the stuff of corporate sales executives who spend their time getting to know their market place and the companies that operate within it. They might spend months or even years nurturing a large IT procurement of a single business application. Such people are just too expensive to target the SME market, where the margin on one deal wouldn't pay the corporate sales executive's commission for one week.

Vendors transitioning their offerings to the SME market are often coming at it with an enterprise sales culture that does not translate. They are used to owning the sales process and are often loath to share it. But share it they must - with resellers. As nearly all the most successful vendors to the SME market will tell you, resellers are the key and they want a slice of the profit.

Many resellers are specialists in selling to and servicing the SMEs that operate in their geographic region. They accumulate a portfolio of products from many vendors that they pull together to comprise a functional IT system for their customers - for example, an accounting system based on HP hardware, running Microsoft Small Business Server and Sage's accounting software.

For the reseller the margin they make on the three components adds up to a worthwhile deal and once they have pulled the offering together they can sell it over and over again to other SMEs. None of the individual vendors could sell their own components as efficiently to such a localised market.

Of course, for any seller, be it an IT vendor or a reseller representing them, it helps when propositions fall on receptive ears. Good public relations mean the potential purchaser will look more favourably on the proposition in question. When it comes to PR it is more efficient for the vendors to lead the action, creating a favourable atmosphere for the resellers to sell in. But to influence the SME, which media should be targeted?

Here SMEs start to look more like enterprises again. They both recognise the importance of keeping up-to-date with IT in equal measure.

Managers of enterprises do see the daily broadsheets as more useful for keeping up-to-date with IT than SMEs (maybe they have more time to read them) but when it comes to the IT-specific press, their views are similar - they see it as quite useful. The overall order with which both enterprises and SMEs view the importance of the various media is pretty similar - with one notable exception: SMEs are considerably less likely to purchase reports or services from analysts. This is because these are just too expensive relative to the investment they are making.

But SMEs are as likely as anyone else to spend time searching the web for free information to aid their IT procurement decision-making. And if their searching takes them to the right places they will find plenty of free analytical material.

To succeed in the SME market vendors have to create a positive image of their product through their own marketing and PR efforts by working with the communities that influence SMEs. Those that achieve this will create a favourable climate for their resellers to operate in - they can share the bounty between them.