Middle-Market Opportunities
While looking through news articles or press releases on any given day you are bound tofind more articles than you can count about small business initiatives and small-to-mediumbusiness (SMB) programs. In the past year, vendors and wholesale distributors have placedSMBs at the forefront of their sales and marketing strategies and the press has supportedthis move. The rationale behind this shift is quite simple: the SMB market is seen as avast, under-penetrated market for which the technology industry has, at last, compellingbusiness propositions and solutions.
These strategies raise a serious question, "Should vendors distinguish betweensmall businesses and medium business when building product and marketing strategies? Doesit matter?" MSI believes that the answer is unequivocally "yes!" and thatby not doing so vendors are creating strategies that are both overly simplistic andinaccurate.
We believe that several key factors must be considered when assessing opportunities andbuilding strategies for the SMB market. These factors include:
Level of IT spending
Technology Environment and Drivers
Decision and Purchase Processes
As the following discussion will reveal, small and medium businesses (medium businessesare also referred to as the "middle market") vary widely in each of these areas,thus requiring differentiated strategies.
LEVEL OF IT SPENDING
Can customers afford to buy the technology?
Understanding IT spending levels within a given market is important when building salesand marketing strategies, for two key reasons.
First it provides vendors with an idea of what technologies a company can afford tobuy. IT budgets, on average, are quite different between small and medium businesses.Within the small-buinsess segment, 75 percent of the companies have fewer than 20employees.
As a result, the average IT budget for a small business in the U.S. is only about$21,000. In comparison, medium business had an average IT budget of about $935,000 in1997. With 100-1,000 employees in medium businesses, these differences are significant inboth absolute as well as relative terms; medium businesses are making greater investmentsin technology. The small business segment is predominantly a PC, low-end server andaccessories opportunity for hardware and a shrink wrapped or bundled applicationopportunity for software.
ITs IMPORTANCE
Second, it reveals the relative importance and priority of technology spending withinthe segment. The basic premise is that organizations that 1) place a higher priority onintegrating technology into their businesses and/or, 2) have greater financial means tobuy technology will increase their IT spending at a faster rate. As the chart reveals,medium business on average, increased their IT spending at a faster rate than did smallerbusinesses. It's important to emphasize that many small businesses do place equal value ontechnology investments, they simply do not have the resources to increase IT spending atthe same rate as larger businesses.
Average IT Spending Growth Rate | 1-99 | 5% |
| 100-249 | 4% |
| 250-499 | 8% |
| 500-999 | 9% |
| 1000+ | 2% |
| Total | 5% |
Excerpted from "Recognizing The Middle Market Opportunity" (February 13,1998). Reprinted with the permission of MSI Consulting Group (Seattle, Wash.).