The SMB IT and Vendor Relationship Dilemma

When most people compare enterprise IT and the small business IT markets they generally think about size and scale.  Enterprise environments are huge and small business IT often consists of just one or a few IT professionals holding a company together.  The differences between these two classes of environments are much deeper than just size.  Thinking of the small and medium business market as being small-scaled enterprises is a great way to misunderstand what this market is all about.   There are fundamental behavioral differences between these organizational types and I would put forth that this behavior is likely a far better determinant between what constitutes a small or medium business and what constitutes an enterprise business from an IT perspective.

One of the places in which this difference in behavior is most visible is in vendor relationships.  In the enterprise space, as well as in large businesses, vendors act very much as a partner with the corporate IT department.  Often vendors will have dedicated representatives who spend some or possibly all of their time at the customer site and are available to answer questions, make contact with support, provide input and guidance – whatever is needed by the IT department as it relates to that vendor’s products and in some rare cases even outside of the scope of the vendor’s own products.  In exchange the vendor has nearly constant access to the “ears” of IT and management in order to inform them and to sway their opinion in favor of said vendor’s products.  This also gives the vendor direct access, in many cases, to the “on the ground” IT people who are using their products and providing them with critical, non-management feedback.

In many ways this relationship causes “the conversation” between the vendor and the “market”, as proposed by Levine, Locke, Searls and Weinberger in their groundbreaking 1999 tome “The Cluetrain Manifesto”, to take place in-person, in real-time in a way that is very traditional and effective.  When the company wants product information it simply contacts its vendor representative and that rep will provide samples, get documentation, give a presentation, organize training sessions, obtain roadmaps and more.  If the products do not meet the company’s needs the feedback is immediate and meaningful.  The relationship is symbiotic and everyone gains from the tight communication channel that is created between the enterprise IT department and their vendors.

The small business market sees none of this.  There are many reasons for this.  The scale on which the SMB IT department operates does not allow a vendor to dedicate a sales resource, let alone a technical resource, to a single client.  This one, simple difference breaks the communication channel leaving SMB IT departments in a far different position than their enterprise counterparts.  Any conversation held between an SMB IT manager and a vendor is an ad-hoc, temporary conversation.  Vendors do not get to know their clients.  They don’t have a deep understanding of their business.  They don’t see their clients as individuals but as a pool of consumers more akin to the standard, personal consumer market than to the enterprise where each customer is well known and appreciated individually.

The differences in interaction are not solely from the vendor’s perspective.  In the enterprise the IT department typically has resources with time to dedicate to interacting with vendor representatives.  Technical support roles such as server administrators may work directly with sales and engineering resources for support issues and purchasing recommendations while architectural professionals may use vendor representatives to assist in capacity planning, system design or to establish performance metrics.  In the SMB there do not exist these dedicated internal roles and the available IT resources are often overworked and spread too thinly between many different tasks leaving little or no available time to focus on single issues such as these even if the vendors were to provide such resources.  Enterprise departments often manage to even allow regular, “in the trenches” technical staff to attend sales luncheons and other vendor-sponsored events only loosely tied to their job functions.  In the SMB space this is all but unheard of.

Another key difference between the SMB and enterprise markets is in the way that they purchase for IT.  Enterprises generally view their purchasing process in terms of services.  These may include warranty services, datacenter management, software customization, hardware leases, software customization, etc.  The small business market generally sees purchasing in terms of products – either hardware or software.  Small businesses think in terms of buying desktops, monitors, servers, software licenses, etc.  Small businesses purchase the same whether buying directly from their vendor, from the channel or from the local store.  The transactions are very simple.  Enterprises think of a server in terms of its monthly support cost and total lifespan while SMBs simply see a price tag.  This does not mean that SMBs never purchases services – only that they do so typically in a very up-front, set price sort of way although they typically purchase far fewer services than do enterprise IT departments.

Enterprise IT environments have the distinct advantage of large scale peer interaction both internally and externally.  IT professionals working in large environments are constantly learning about new products, technologies and techniques from their counterparts within their own organization as well as from peers in competing organizations in their market verticals.   This gives enterprise staff an advantage in working with their vendors because they see how these vendors interact with their peers locally and elsewhere and get feedback on how other vendors in competing areas work with their clients.  This creates a competitive market for vendors based on their level of service to their clients.  In small and medium business there is very little insight into these relationships at other, similar companies.  SMBs naturally do not get interaction with a direct peer group.  At best they can hope for peer support groups for organizations of similar size, but even that is extremely rare.  Vendor relationships with the SMB market are very much isolated from peer review and market pressures.

SMB IT professionals seldom get a chance to attend industry events like their enterprise counterparts either.  They often do attend some but few by comparison.  This provides fewer opportunities for SMBs to learn about vendors with whom they do not already have a relationship.  This is very beneficial to big vendors like HP, Dell, IBM and Microsoft who need no introduction to any IT professional, but smaller vendors, new vendors and niche vendors will often find it hard to make SMBs aware of their existence let alone find an opportunity to discuss their products and services directly with them.  Making connections between SMBs and vendors capable of meeting their needs is a significant challenge in most cases.

SMBs also suffer from not having industry publications and other vertical resources available to them in most cases.  SMB IT managers may use general resources from the IT field such as technology publications and online magazines to investigate what others in their peer group are doing, but targeted materials designed specifically for their technology needs are rare if not non-existent.

Another difference in how SMB and enterprise IT departments behave is in their driving force behind purchasing.  Enterprise customers typically purchase products strategically.  This purchasing may be driven by a desire for datacenter consolidation, power reduction, features, easing administrative burdens, market pricing advantages and more.  Careful cost analysis will often cause them to buy opportunistically and a tightly coupled vendor relationship helps to enable this.  SMBs, on the contrary, are typically tactical (demand-driven.)  They purchase new products when the old are no longer serviceable, no longer meeting demand, no longer supported or additional capacity is needed.  They will seldom buy when market pressures make purchasing most advantageous but will do so quite suddenly with relatively little research leading up to the point of spending.

The SMB market is very likely to be keenly aware of the bottom line of any purchase.  This seems obvious but in the enterprise space there is normally much more room for a technical specialist to ask for features that carry extra cost because they simply feel confident that they will be beneficial.  Enterprises are often more likely to trust the hunches of their technical staff and to pay for “soft benefits” that are not easily quantifiable.  SMBs will almost always look at the bottom line and if a feature does not meet a clear requirement or provide a rather certain return on investment then they will typically opt for the lower priced option.

The final difference that I would like to address is in how prices are determined.  Enterprise customers typically negotiate a blanket discount rate that applies to everything that they purchase from their vendor.  Getting pricing on new products or price comparing many products is easy.  Very easy.  Pricing for the enterprise is quite transparent making it very simple to do cost analysis on one solution over another.

In the SMB market prices are generally negotiated on a purchase by purchase basis.  Because of this SMB IT departments generally have only a very general idea of the price differences between two different solutions – especially if those products come from two different vendors.  Gathering enough data to do a large cost analysis study is both time prohibitive and ineffectual as prices continuously change and vendors will change discounts regularly based on other factors and behaviors.  SMB IT managers cannot simply go to a single web site and look up many different discounted prices and do a quick comparison of many different products giving them a strategic disadvantage over their enterprise counterparts.

This leaves us with a significant challenge.  Now that we see why small and medium businesses are fundamentally and behaviorally different than large enterprise businesses we have the obvious question of “how are vendors and SMB customers going to overcome their natural barriers?”

To some degree there is no simple answer.  Both vendors and small business IT managers need to be aware of how vendors and their customers behave and think so that they can begin moving toward each other in a meaningful way, but this is only the first step.

Vendors need to have dedicated small and medium business representatives who specialize in the needs of this market.  These need to be professionals who have truly studied the market and understand how very small and moderately small businesses behave, what products are generally in use, what their architectures normally look like and more.  Vendors often think that SMB IT managers spend their day thinking about ERP, CRM, rapid disaster recovery planning and datacenter consolidation problems as do enterprise CIOs but, in fact, most are concerned with desktop management, virtualization, basic security and maybe even purchasing their very first server!  Vendors need empathy with the small business market in order to service it well.  Even vendors with amazing products that are perfect for this market often fail to inform their potential customers on when these products may make sense for them or may lack the ability to support them in the configurations that make the most sense.

Most importantly vendors need to find a way to join the conversation (as put forth in “The Cluetrain Manifesto”). In the enterprise space the conversation takes place inside the organization as well as in peer groups and conferences.  It is everywhere and finding it is simple.  Small businesses struggle with joining the conversation themselves – mostly because they cannot always find it, but it is there.

A perfect example of where this conversation is beginning to emerge is in online technology social media platforms like the SpiceWorks Community.  This online community has hundreds of thousands of small and medium business IT professionals and managers online and engaged in ongoing discussions on everything from low level technical problems and architecture concerns to product selection and vendor relationship management.  A few progressive vendors have joined the community and are interfacing with their customers and potential customers in a mode that, in many ways, mimics the behavior found in the enterprise.  Suddenly vendors and customers have an opportunity for personal interaction and open dialogue.

Through this conversation between vendors and customers there is a real opportunity for vendors to learn about the needs and desires of their customers, interact with customer peers, share resources and, most importantly, simply have an open discussion where concerns and needs can be exposed and addressed.  Customers have questions, often a lot of them.  There is not time during a sales call requesting pricing for the customer and the vendor to get to know one another and become acquainted with each other’s needs and offerings.  Through ongoing conversations, not only when a customer is considering an immediate purchase but on a regular basis, the relationship between vendor and customer can be formed allowing them to understand one another, feel comfortable reaching out with questions and suggestions and more.

Vendors have more than simply the chance to answer product questions when they are part of a larger conversation.  They can also provide input into conversations that are not necessarily directly related to their own products.  They can provide insight into larger architectural and design decisions.  In many cases they can take the time to explain how their products work or why they are valuable to their customers.  It is not uncommon, especially in the SMB space, for potential customers to have no previous knowledge of products that are available to them or if products would apply to them, work in their environment or integrate with their architecture.

Because the conversation is an opt-in experience vendors can talk with customers or potential customers without the need for a sales or marketing interface.  The customers are ready to hear about products.  They want know and they want to learn.  This is a marketplace where sales lead generation is already done simply by the fact that the customers are present.  They have already given the vendor their ear.

Learning how to behave in this open conversation marketplace is difficult for many vendors – especially those that are very well established large businesses. Adapting is critical as those companies that are perceived as caring about their customers will have a significant advantage over those companies who appear to find it a burden to stoop to interacting with small clients.

Large businesses are accustomed to keeping the SMB market at arm’s length often arguing that the “channel” – the reseller and system integration market – was their interface to small business.  The channel, however, acts as a chasm keeping small businesses from ever speaking directly to their vendors causing both to rely on a third party, who may not share any common interest with either, to broker any semblance of a conversation.  The channel is not incentivized to act in the interest of either party and will likely only present products and services that they themselves support and those with the greatest profit margins rather than exploring niche product options and exotic solutions that may be a better fit.  The interest of the customers are then not passed back to the vendors leaving the vendors guessing blindly what products and services would be useful to the SMB marketplace.  The lack of experience with SMBs often means that vendors are completely unknowledgeable about their customers or in many cases simply do not even have those customers.

A perfect example of this breakdown in communications is with IBM.  I watched an active online conversation involving IBM where a large group of heavily experience SMB IT professionals were discussing IBM and its place in the SMB space – what products it offered, how they would compete with other vendors and IBM’s specific relationship with small businesses.  In this conversation I heard repeatedly people speak about IBM’s only SMB focused offerings being its desktops and laptops.  I was shocked, as I suppose was IBM itself, since IBM stopped manufacturing these products many years ago having sold that division to Lenovo.  Even experienced IT professionals taking an interest in IBM, enough to participate in what evolved into a virtual panel discussion on their role in the market, were kept so far removed from IBM itself that they were unaware of even who IBM was and what they offered in the market.  A significant eye opener for everyone.  Likely this breakdown in market communications has been caused by IBM’s reliance on the channel to provide them an interface to their customers and that channel finding it better to sell Lenovo products as IBM products to customers who know the name IBM but do not know Lenovo than to take the time to educate their customers.

IBM is certainly not alone here but with their relatively recent divestment of their desktop and laptop business to Lenovo has created a unique and dramatic challenge in their interface to the SMB market.  IBM’s key competitors, Hewlett-Packard and Dell, use their desktop, laptop, display, networking and printer products as their key “in” with SMB customers and then, once chosen as a vendor, are able to make the relatively rare server sales to this market as well.  IBM has the challenge of selling servers and services to a market that is guaranteed to be buying its desktops and other products from a competing vendor.

Sun (now a part of Oracle) has long faced this same challenge in this market.  SMB IT managers understand desktops and laptops well – this is their bread and butter, what they deal with primarily every day.  Most SMB concerns are desktop related and the bulk of their purchasing is done there.  SMBs do not buy servers in large quantities with rare exception and using a different vendor for infrequent server purchases, which would involve separate vendor relationships and managing different support contracts, is not something that SMB IT managers are going to seek out.  Companies like IBM and Sun need to be involved directly with these customers and make them aware of their unique product offerings, such as Power and Sparc platforms in this example, to even have customers understand who they are and what they may offer.

This issue, hardly unique to IBM and Sun, is exacerbated by the use of the channel.  SMB IT shops will generally only turn to one system integrator, managed service provider or vendor to supply them with hardware.  Since PCs drive SMB IT this means that SMB shops will, by necessity, be turning to managed service providers who are partnered with someone who supplies desktops.  That then makes it rather unlikely that those service providers would additionally be partnered with someone like IBM or Sun.  This then, in turn, causes that service provider to automatically recommend products only from the vendor(s) with whom they are partnered further isolating customers from potential solutions from alternative vendors.  This isolation can be mitigated through direct vendor to customer relationships even if purchasing itself is still handled through a channel provider.  It is in both the vendor and the customer’s interests to interface directly and to engage in a conversation.

It is not uncommon to see IT managers choose a vendor based primarily upon that vendor’s willingness to engage in an open conversation.  Customers like vendors with whom they have a relationship.  They really like knowing that when something goes wrong or when a great new, but not entirely understood, opportunity arises that they can turn to a vendor representative, especially in an open community like SpiceWorks, and ask them for assistance or guidance.  No one expects the representative themselves to have all, or even any, of the answers.  They expect that person to have the resources necessary to reach out internally at the vendor and engage the right people.  Not only is this method friendly and cost effective but it is also very low stress.  Customers often don’t know where the problem may reside and do not have contacts internal to the vendor, unlike enterprise customers who often deal with specific issues so often that they know the necessary resources at the vendor, and without a representative to whom they could turn they may be left without the necessary contact information or channels to get the assistance that they need.  In some cases this may result in customers feeling that the product is poorly supported or just does not work and in others could result in new opportunities being lost or the customer turning to another vendor whom they know offers a workable solution.

While the online SpiceWorks community is hardly the only venue for vendor to customer interactions it is rapidly becoming a unique place, do to its scale, reach and unique SMB focus, where vendors and customers can make connections, join in open discussions, create relationships and get support.  The community is extremely large, over 700,000 IT professionals all from the SMB ranks and is rapidly expanding both with its online presence but also with local users groups and regional SMB IT conferences – all of which present opportunities for vendors to interact with the SMB marketplace in new and exciting ways.  SpiceWorks represents, I feel, a key component in the future of vendor relationships in the SMB IT market.  SpiceWorks acts as a broker to the conversation providing the venue and framework necessary to make customer/vendor interactions as simple and valuable as possible.  As the community continues to grow and as more vendors decide to become a part of the conversation I expect to see the value of this forum expand exponentially.  It is in communities like this that those vendors serious about the SMB IT market will succeed in differentiating themselves and engaging current and potential customers.

2 thoughts on “The SMB IT and Vendor Relationship Dilemma”

  1. Well said, Scott. Funny part is that every tech company acknowledges that the SMB space, and not Enterprise, will be where future revenue growth is found, yet when it’s suggested they become involved with a community such as Spiceworks the usual answer is “we don’t have the resources”. That comment is followed by “so, what kind of banner click-thru rates can we expect”.

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