What do SMBs Want?
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With apologies to the hip-hop trio Salt-N-Pepa, lets talk about debt, baby. On that lyrical note, this month in Ask Steve we talk about IT financing for SMBs.
Q: What do SMB customers need when it comes to finance options for phone equipment? Would it be a month-to-month low capital investment, or would they prefer to pay for a phone system with their capital or start-up dollars?
A: Whether financing phone systems, network gear or CRM software, SMBs understand the benefits of leverage. One of the top business concerns for SMBs is often a lack of funds to invest in their future, and as such, financing can provide SMBs a catalyst for future growth or a financial ball and chain. Many top vendors in the IT world, including IBM Corp., Cisco Systems Inc. and Microsoft Corp., have SMB-focused vendor financing programs for their equipment and software. Some vendors also will finance other vendors equipment to seal the deal.
A proclivity to use vendor financing is proportional to size.
Only 14 percent of very small businesses (2-19 employees) use vendor financing, while 59 percent of midmarket enterprises (500-999 employees) do.
Source: Yankee Group 2006 SMB IT Infrastructure Survey
Interestingly though, of those SMBs that use financing SMBs on average choose to finance one-third of their IT hardware and software irrespective of SMB size.
What are the benefits of financing? Certainly, spreading a large cash outlay over several years is a strong benefit of financing for SMBs. Some vendors make the financing decision even more enticing by offering attractive end-of-lease options including asset disposition or buy-out options. In addition, vendor financing can allow SMBs to purchase the right piece of technology today, rather than implementing a sub-optimal solution they will outgrow in 12 to 24 months. Premature technology obsolescence imputes massive costs related to the purchase price of the old technology and the time spent replacing it.
What are the downsides of financing? For SMBs with high debt ratios, adding another monthly payment might be unadvisable.
From the channel partners perspective, should you be discussing financing with your SMB clients?
Some SMBs that finance have higher annual hardware and software budgets than those SMBs who dont finance. This phenomenon is more pronounced at larger SMB segments (100- 499 employees) with financing SMBs spending upwards of 30 percent more than similarly sized non-financing SMBs. For smaller SMBs (less than 100 employees), we dont have any statistically significant findings to share on financings effects on SMB technology spending.
While vendors like IBM, Cisco and Microsoft all have strong financing programs, the best is offered by IBM. IBM has made substantial changes to its IBM Global Financing organization to support the distinct needs of SMBs and the partners selling to them. IBM has focused on the application process, rates/terms, vendor equipment remanufacturing and post-sales financing support to offer its partners a leading-edge financing solution.
Weve talked about all (almost all) the good things and the bad things that can be with vendor financing. Talk with your clients about vendor financing and see if you can add more value to the transaction and the ongoing relationship.
Steve Hilton is the vice president of Yankee Groups Enterprise Research Group with an expertise in converged solutions for SMBs. Hilton manages a team of analysts delivering consulting, research and programs to help vendors and service providers better serve SMBs, midmarket enterprises and large enterprises globally. Visit Yankee Group online at www.yankeegroup.com.