From little things....

It might sound funny, but nobody should be in any doubt that small business is big business in Australia.

According to the Council of Small Business of Australia, the nation's 1.88 million small businesses employ 3.7 million people, roughly half of all those working in the private sector. Combined they are worth $4.3 trillion, four times as much as all the companies listed on the Australian Stock Exchange.

Notoriously difficult to service, this market sector is also characterised by its diversity and breadth. Everybody from a local hotel or accountant, through to the construction consultant working from a home office or the local grocer, fits into this broad base. Nonetheless, each of them has totally different IT requirements and entirely different business concerns.

Given the numbers involved it's little wonder that technology vendors are keen to get a piece of the action, but the level of diversity means it's hardly surprising that most are keen to leave this market segment entirely up to the channel.

Currently working as chief technology specialist for IT reseller and services company, Correct Solutions, Wayne Small has more than a decade of experience working in the small to medium business sector.

As a starting point on what is traditionally a difficult segment of the market, he claims resellers should look to partner with vendors who understand how the market operates.

"Vendor relationships are as important as our relationships with our clients," Small said. "We seek out vendors who are capable of building and developing client relationships with us; it has to be a two-way street - we are helping them sell their products and we need to be able to go to them for support."

According to Small, many IT vendors limit their success in the SMB space by insisting on fixed budget and sales targets, rather than moulding these to the individual reseller. Others, he said, fail to listen and respond to reseller feedback, and in doing so lose an important information stream.

"We work very closely with our vendors and develop a symbiotic relationship; we provide them with feedback regarding the way their products are performing in the market place," Small said. "The smart vendors encourage this and respond to it."

Vendors who accepted this level of feedback, he said, showed they were serious about the SMB market. While other smaller vendors, especially local software developers, had proven particularly responsive to his customer's needs.

"We also seek to work with smaller vendors because they're often the best at adapting and responding," Small said. "The bigger guys, even if they have the commitment, can find it difficult to change."

Director of Sydney-based IT reseller Phrixus, Mark Giles, said many of these smaller software vendors were very familiar with their own software but lacked general IT skills, creating an important partnering opportunity for the reseller channel.

"We came across a small local vendor who was delivering software to dental practices," Giles said. "They were brilliant at setting up their own software, but they were not so good at setting up the rest of the network."

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According to Giles, this off-chance partnering opportunity led to Phrixus adding a raft of local dental practices to its client base.

However, the approach of partnering with smaller software vendors doesn't always pan out. Director of Canberra-based IT integrator, Synergistic Network Solutions, David Mackie, thought he was onto a good thing when he began partnering with a local software vendor selling management systems into news agencies and bicycle repair shops.

"They paid a lot of lip service to wanting to partner, but they had been selling cheap and nasty technology, which simply wasn't going to work in the long term," Mackie said. "We spent a couple of months putting quite a lot of effort into the relationship, but when I had to deal with an angry customer who'd already spent $10,000 building a network that was always breaking we decided to give it a miss."

Mackie's challenges with this partnering relationship really get to the core of the difficulties associated with working with SMB.

In an attempt to save money, many adopt cheaper options which ultimately end up costing more in the long run, as the reseller is forced to return on a regular basis to prop up unreliable systems.

"I often find myself biting my tongue when working with SMBs who've bought into cheap and nasty systems," Mackie said. "Do I tell them it's not worth fixing, and that they bought the wrong hardware in the first place, or do I just accept the money and expect to see them again next month?"

As a result of these experiences, Mackie backed away from partnering with smaller software developers, opting instead to establish relationships directly with the customer, and thus gain more control over the initial hardware installations and ongoing support requirements.

What SMBs want

The challenges faced by SMB resellers are often easy to articulate, but difficult to solve, and most hark back to the challenge of tiny budgets and big demand.

Technical consultant and co-owner of SMB IT integrator, IT Next Generation, Damian Hupseld, specifically created his company to target a sector of the market he thought was poorly serviced by many in the channel.

"Many IT resellers focus on their larger customers, and their smaller customers tend to get left behind," he said. "We created the company to provide really good service to smaller customers, because we saw the opportunity to really grow the market in this area."

The challenge however, Hupseld conceded, is that the IT requirements of SMBs are most often far greater than what they are willing to spend.

"Potentially it's a great market space, because there's a huge number of really small businesses that need good quality IT solutions to grow," he said. "If you can get in there on the ground and convince them to spend on the right technology then you can grow along with them."

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Growing with your customers is a popular and successful strategy among many resellers.

Correct Solutions' Small said it began with listening to customer requirements.

"The key thing you need to understand about the SMB space is that every business is different, and you won't understand your customers' requirements unless you start by really listening to their needs," Small said. "It's the resellers that go out there with the idea of selling the customer something that end up making all the mistakes."

According to Small, time spent in the initial phase of a customer relationship, listening to their requirements and discussing different technological responses, is the best way to build a long-term base of customers.

"You need to know where their business is going and suggest the way technology can solve their problems, because a lot of the time the technology they have in mind is entirely wrong for what they really need," Small said.

In a similar vein, business development manager with IT reseller and integrator, Evolve IT, Clayton Moulynox, said the key to selling into SMB was to remember not to be a sales person, but to listen and offer advice.

"The term that's often used is 'trusted advisor' and that's what we attempt to become for our clients," Moulynox said. "Some even invite us along to their board meetings so that we keep a clear idea of where the company is headed."

Having spent a significant period working in a corporate environment, director of CRM software integrator Applied Marketing Technologies, Phil Haddock, said the major difference between large companies and small is the level of personal interest the small business owner has in every single business decision.

"In many ways a small business is similar to the division of a large company, except that the business owner has a strong personal interest in how and where money is being spent," Haddock said.

"Their sense of value is based on the fact that they are personally spending their budget and need to see a clear relationship between investment and value to the company before they will adopt a new technology."

IT Next Generation's Hupseld agreed and suggested this heightened sense of return on investment leads to a focus on technologies which are easy to use, and provide a clear benefit to the bottom line.

"Small businesses rarely have in-house IT skills, so they need to rely on a combination of fast, responsive service, which won't break the budget," Hupseld said. "And they don't like to feel that they are being sold to. They really need to see how the technology will benefit their company before they will trust you enough to buy from you."

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Budgetary constraints

Given these competing challenges of high levels of service and low levels of expenditure, it's understandable that many IT resellers feel they have to balance conflicting demands when it comes to SMB customer requirements.

The key challenge, according to Haddock, is the tendency towards reactive rather than strategic spending in this cash-strapped sector. As he assesses the market, the challenges created by SMB micro-budgets are twofold. The first is the tendency to skimp on the initial investment, leading to problems further down the track, and the second is to skimp on maintenance leading to reactive and ultimately costly spending patterns.

"We often get called in when there has been some sort of disaster," Haddock said. "If we can get in then and demonstrate that a lack of ongoing maintenance is actually costing the company money, then the response is, 'OK what do I need to do to avoid this happening again?'."

The strategic goal of SMB reselling, according to Haddock, is to get the customer past focusing on the initial spend, to begin to see IT as an ongoing investment in their company's continued success.

However, a greater challenge for SMB-focused resellers is that the vast majority of companies in the sector they target don't budget for IT at all, Phrixus' Giles said.

"Because they don't have any budget for IT, they immediately think of it as an expense rather than an investment, which makes it very difficult to justify spending a bit more to purchase a more reliable technology," Giles said. "And they almost never consider the ongoing cost of support, even if you explain how important this is to keeping their systems in tip-top condition."

Giles' tactic is to resort to referring to the metaphor of cars, and how ridiculous it would be to buy a new car and run it into the ground.

"A lot of our clients run small fleets of cars and understand the economics behind keeping their vehicles on the road," Giles said. "Sometimes this helps in getting them to shift their thinking about IT as well."

Hupseld has adopted a similar approach of working with customers to explain the relationship between the small ongoing costs of maintaining a solid network infrastructure, and the sudden large costs of a poorly maintained IT infrastructure.

"If you can get your customers into a properly planned network environment you can minimise their ongoing costs by spending more time and money on planning upfront," Hupseld said. "The key is to take the time to find out about their issues and where their pain points really are."

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Managed services versus break/fix

Hupseld is also scathing of the increasing tendency towards the adoption of managed services, over the break/fix model more traditionally favoured by the SMB market.

"Given the choice, most of our customers are happy to work with a fixed price for customer support visits as required. They are happier with this than with the idea of paying for ongoing support," Hupseld said. "We stand by our reputation of creating robust systems upfront so that their ongoing support needs are minimised."

However, many resellers are looking to move their SMB customer base into a managed service, where they pay a small monthly fee for regular service, rather than the more traditional break/fix model, where they pay only when something goes wrong.

Having invested heavily in software infrastructure which enables the company to deliver an affordable managed services model, Phrixus' Giles argued it was in a customer's interest to opt for the ongoing fee, rather than the higher one-off costs of the break/fix approach.

"Managed services is simply a more proactive model, where we ultimately spend less time onsite fixing a problem, and more time managing the systems remotely, and dealing with problems before they arise," Giles said.

Proponents of the managed service approach argue that it shifts the risk of IT from the customer to the reseller, and creates modus operandi where it is in the reseller's interest to ensure the customer's systems are reliable and functional at all times.

However, to make the approach cost effective from the reseller's point of view it also requires a significant investment in remote management software, which is particularly costly until the reseller can establish a large enough customer base to take advantage of economies of scale.

"We don't really want to be billing by the hour, we'd rather charge a fixed rate, but it doesn't really become cost- effective until you have a large enough customer base to adopt a remote management technology," Synergistic's Mackie said.

To market to market

By far the greatest challenge faced by SMB resellers however, is figuring out how to actually reach their target customer base in a noisy and diverse market place. At one stage, Connect Solutions' Small spent $10,000 on a comprehensive marketing campaign, only to win a single customer. More recently, Synergistic Network Solutions spent $2000 on a direct marketing kit, from which it has yet to see any return.

According to Mackie, the principal problem faced by SMB-focused resellers when it comes to marketing is that they simply aren't marketers.

"I don't think we've picked up a single customer through advertisements or direct marketing material," Mackie said.

In fact the broad consensus in the SMB market is that direct sales and marketing campaigns largely fall on deaf ears, while a good word from a trusted peer carries significant weight.

"99.9 per cent of our customers come from word of mouth referrals, or people moving into a new company and bringing us with them," Small said.

Phrixus' Giles agreed, pointing out that the reason the company has developed apparent specialisations in totally unrelated areas such as financial services and plumbing is the direct result of one happy customer talking to another.

"We found one plumber, and they were happy, so we ended up with more," Giles said.

And while he conceded word of mouth has been a valuable resource, Giles is keen to try other options, especially in an attempt to build up a customer base in his local area.

"Plain old simple door knocking, and it seems to have worked as I was received quite well," Giles said. "We've developed a little calling card basically saying who we are, what we do and where we're located, so we'll see if it turns into work."

A market with endless IT requirements, and tiny IT budgets, a vast geographical spread and diverse business requirements, apparently immune to marketing, but addicted to the sound of its own voice; it's little wonder the vendors leave this vast unwieldy sector firmly in the lap of their channel partners.

And right now there's at least one reseller who wouldn't have it any other way.

"In this space, 2008 is going to represent new and incremental business opportunities," Small said. "There's a lot of potential in the education space and big opportunities in terms of rolling out managed services; it's going to be a great year."