Selling to SMEs: What`s the secret?

Many suppliers of Information Communications Technology (ICT) products and services now recognise the Small-and-Medium-sized Enterprise (SME) marketplace as one of significant importance - enough to focus considerable marketing and selling resources on it. For a number of suppliers it is an under-penetrated market with high growth potential.

In broad terms, the SME market can be defined as businesses employing between 20 and 499 employees. However, in South Africa SMEs are also associated with Small Office, Home Office (SoHo) organisations.

The SME market may also be defined in terms of vertical markets (retail, distribution, manufacturing, etc) and horizontal markets (by size, hardware and software installed, services used, IT staff size, etc).

One of the key characteristics of the SME market is its diversity. From an ICT perspective, there are no neat, clear-cut solutions to the business and administrative problems faced by SMEs.

Nevertheless, opportunities abound. For many local SMEs today, business has become a balancing act: risk versus reward. For example, SMEs need to find ways to manage the very real risks that are associated with competing against bigger, more established players in the market.

At the same time, SMEs need to adopt solutions that protect them from the vagaries of the market and give them the edge needed to compete on national and even international stages.

New generation technologies are important for SMEs who are particularly vulnerable to poor communications and administrative infrastructures. This means their businesses are also vulnerable to hacker attacks and other malicious activities. They need access to the expertise to implement technology to address these issues.

Players in the SME market are increasingly able to afford technology. They are better funded, thanks to the application of private equity models of financing in South Africa. (By contrast, in sub-Saharan Africa, more than 90% of SME funding comes from family resources.)

Locally, the SME market is attracting experienced investors who involve themselves intimately in the management of their companies. They are looking to gain every advantage that modern ICT solutions can offer.

SMEs that fall into the Black Empowered Enterprise (BEE) category have an inherent advantage thanks to the South African government`s aggressive preferential procurement policy framework.

As a result, SME organisations are maturing fast and - on average - they are not the young, vulnerable, debt-ridden companies of only a few years ago.

For ICT vendors looking to reach this market, an important question arises. Is this market suitably viable for a full-scale "three-tier" channel distribution model to flourish?

Are traditional vendor-distributor-reseller relationships able to meet the challenges of an emerging market that is very price conscious, brand agnostic and yet results driven?

In any selling environment, a number of elements must be present. These include an ability to perform a needs analysis as well as give the potential customer access to system design expertise, implementation knowledge and on-going support and training.

So, who is best equipped to deliver these services to the SME buyers? More importantly, are all these services available from any one individual organisation?

There are probably no more than a handful of vendor organisations in South Africa capable of delivering this level of service to the SME market.

The reason is simple: The SME market is not yet viable enough for this level of focus by the "direct touch" sales personnel in these organisations who are generally tasked with addressing the large enterprise market.

More significantly, vendors are geared towards the volume purchases of their distribution partners and meeting the unique challenges that specialised selling to this market entails.

What about the distributor community? Do they have the manpower "muscle" to sell and support directly to SMEs? Traditionally, distributors are tasked with identifying and cultivating appropriately skilled resellers while providing basic logistical support.

Many distributors are, in effect, "box droppers" and their efforts are geared towards providing support to the reseller base - not the end user.

In fact, if an end user interface is maintained - and this is unlikely - it is usually under sufferance. The distributor community usually sites the lack of "volume purchases" as the underlying reason for tardy service and support for the end user - particularly the SME.

This leaves the reseller. There is no doubt that the reseller`s function is to interface with the end user and install and commission the products associated with the sale. Technical expertise is a key requirement, as is a suitably staffed and skilled support team.

This looks good on paper. However, working off tight budgets and with competition rife, many resellers ignore SMEs because of the "hassle factor" associated with small value purchases generally made by this sector. The SME`s poor brand and supplier loyalty also play a significant role here.

The answer seems to be in alliances. Increasingly, vendors, distributors and resellers are getting together to formulate sales strategies for SME prospects.

They are looking at the available profit margins and taking a pragmatic and realistic approach to splitting them between themselves on the basis that the SME market can become viable if volumes of scale can be realised.

Technical support is also an issue. While all members of the channel realise that technical support can no longer be free - it must be paid for somehow - the best solutions for SMEs are available from the growing number of alliances or partnerships that have been formed by like-minded industry players.

This trend has created significant opportunities for value-added distributors - once said to be a dying breed.