Going Downmarket is Tough For Enterprise Vendors
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- September 25th, 2007
You have two companies on the Fortune 1000 list. Company A delights in serving small businesses — and counts 7 million of them in its customer base. Company B won’t touch the small business market with the proverbial 10-foot pole. Why not? In the words of Company B’s Chairman, “We just haven’t figured out a way to make a substantial profit in that market. We think it’s hard to make money.”
How can two companies — successful by anyone’s measure — have such radically different views of the small business market?
The answer: it’s all in your business model. How your product is set up, how it’s priced, how you sell it, how you service it.
Scaled-down big company methods and approaches don’t work. You have to design from the ground up for small businesses.
Company B is Oracle. Larry Ellison, Oracle’s Chairman, made his remarks about not being able to make money in the small business market last week, as reported in eWeek magazine.
Enterprise vendors — those technology companies that sell big complex solutions to large corporations — have tried before and more often than not failed in efforts to reach down to the small business market.
The problem is that most of them start out with a large-company product and try to scale it down. What they end up with is a product that is too complex for small business needs. Then they try to sell the product using some variation of their existing structure and processes, and of course the price points that small businesses can afford don’t begin to cover the costs of highly-compensated solution-selling teams and account reps. To be successful, the enterprise vendor would have to create an entirely new business, losing any synergies and efficiencies in the process, as Ellison points out.
Now let’s look at Company A, which is Intuit. A company like Intuit can be profitable serving small businesses because it takes a completely different approach. Theirs is a mass-market product and sales process. Instead of starting with a big-company product, they designed and built a product from the ground up for small businesses. Their sales and support costs are much lower, because they don’t call on small businesses individually and try to sell them one-to-one. With a lower cost structure, they can afford to price lower to meet the small business budget.
There are 2 lessons in all this.
(1) Yes, Virginia, you can make money selling to small businesses. You just have to have a business model designed for the small business market, not for selling to large corporations.
(2) Enterprise vendors, you may be better off not trying to go after small businesses – the adjustments you’d have to make may cost more than the value of the market you’re going after. Instead, consider purchasing or investing in a company that’s already made it in the small business market.