By Deepinder Sahni
In talking to channel partners like you that serve the small business market we hear of their difficulties in maintaining margins and continuing to grow their top line. You may have built a relationship with a small business customer over the course of a year or two, only to see that business eventually fail and go off the grid. Or, your small business customer will make a sizeable, one-time IT investment and forgo future spending over the next few years. Others may buy progressively less IT products over successive years, and then eventually go out of business or get acquired. The truth is that you spent valuable time building and servicing this account, but did not see this acquisition (or exit) coming, and continued to dedicate effort into that account. That effort — time and marketing money — would have been better spent trying to acquire other promising customers. Managing these “business events” needs to be a key best practice to ensure your profitability.
Whether a small business thrives, stagnates or exits depends to a large degree on how well it is managed and shepherded along its evolutionary life cycle. A big part of this shepherding also involves ensuring the firm stays current with new IT. Secular vertical industry trends have additional impact. AMI-Partners’ quantitative tracking and segmentation of the small business market (based on IT usage, attitudes, behaviors and business performance) reveal that top management’s attitude toward IT, ongoing IT investments, relative revenue growth rates and vertical industry orientation are strong indicators of whether a business will thrive, stagnate or exit over the next two to three years.
AMI segments small businesses (1-99 employees) into four distinct segments wherein Tier 1 firms are the most sophisticated IT users and also growing revenues at above average annual rates, and Tier 4 firms are the least technologically sophisticated and also losing market share year-over-year. This is backed in part by the distribution of small businesses by “age” across each of these tiers (see table: Age of U.S. Small Business by Tier).
Tier 3 and Tier 4 small businesses typically do not make it beyond the first five years of their existence. To be sure, according to U.S. census data, more than 70 percent of businesses exit by the time they are 20 years old. But when we look at that data, it is clear that some segments are more prone to failure sooner in their life compared to others. In other words, the life expectancies of a Tier 1 and Tier 2 are significantly greater than that of a Tier 3 or Tier 4 small business. Similarly, each segment exhibits a different view of their forward-looking IT and cloud spending (see chart, Expected Change in IT and Cloud Spending). Clearly, Tier 1 and Tier 2 firms are more optimistic in their plans, and even more so for cloud-related investments.
Ways to Engage
This insight can be leveraged by channel partners to adjust and target their marketing spend/engagement with small business customers/prospects depending on their segment membership (see table: Sales Engagement Approach for U.S. Small Businesses by Tier).
As an example, Tier 3 and Tier 4 small businesses can be engaged via more cost-effective touch points, while Tier 1 and Tier 2 companies can be courted with individualized attention, including on-site technology road map planning sessions. The key is to conserve marketing talent and financial resources for deployment on the most lucrative and fast growing prospects and customers. Yet another application of these insights is tied to customer acquisition campaigns — targeting campaigns and messaging to most sought-after segments, thus conserving wasteful marketing spend and maximizing marketing ROI.
A few simple actions can go a long way in focusing your marketing efforts and improving ROI:
Deepinder Sahni is senior vice president at AMI-Partners where he leads analytics and forecasting, and manages a multitude of marketing strategy engagements. He has more than 20[KH1] years of experience providing strategic insights and go-to-market guidance to global Fortune 500 technology, communications and business services companies.