The SMB IT Vendor Relationship Dilemma

Monday Aug 17th 2009 by Scott Alan Miller
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IT vendors have far less rapport with SMBs than with enterprise clients – putting small business at a distinct disadvantage. It’s up to the vendors to change this and reap the gain.

When most people compare enterprise IT and the small business IT markets they generally think about size and scale. Enterprise environments are huge and small business IT often consists of just one or a few IT professionals holding a company together.

But the differences between these environments are much deeper than just size. Thinking of the small and medium business market as being small-scaled enterprises is a great way to misunderstand this market.

There are fundamental behavioral differences between these organizational types. It’s these behavioral differences that most accurately reflect the contrast between SMBs and large enterprise from an IT perspective.

One of the places in which this difference in behavior is most visible is in vendor relationships. In the enterprise space vendors act very much as a partner with the corporate IT department.

Often vendors will have dedicated representatives who spend some (or possibly all) of their time at the customer site and are available to answer questions, make contact with support, provide input and guidance. In exchange the vendor has nearly constant access to the "ears" of IT and management in order to inform them and to sway their opinion in favor of said vendor's products.

This relationship causes "the conversation" between the vendor and the "market" – as described in the groundbreaking 1999 tome "The Cluetrain Manifesto" – to take place in-person, in real-time in a way that is very effective.

When the company wants product information it simply contacts its vendor representative and that rep will provide samples, get documentation, give a presentation, organize training sessions, obtain roadmaps and more. If the products do not meet the company's needs the feedback is immediate and meaningful. The relationship is symbiotic and everyone gains from the tight communication channel.

The small business market sees none of this. The scale on which the SMB IT department operates does not allow a vendor to dedicate a sales resource, let alone a technical resource, to a single client. This one, simple difference breaks the communication channel, leaving SMB IT departments in a far different position than their enterprise counterparts.

Any conversation held between an SMB IT manager and a vendor is an ad-hoc, temporary conversation. Vendors don't see their clients as individuals but as a pool of consumers, more akin to the standard, personal consumer market.

The differences in interaction are not solely from the vendor's perspective. In the enterprise the IT department typically has resources with time to dedicate to interacting with vendor representatives. Technical support roles such as server administrators may work directly with sales and engineering resources for support issues and purchasing recommendations. Architectural professionals may use vendor representatives to assist in capacity planning, system design or to establish performance metrics.

In the SMB these dedicated internal players do not exist. The available IT resources are often overworked and spread too thinly between many different tasks.

Enterprise departments often manage to even allow regular, "in the trenches" technical staff to attend sales luncheons and other vendor-sponsored events only loosely tied to their job functions. In the SMB space this is all but unheard of.

IT Purchasing Decisions

Enterprises generally view their purchasing process in terms of services. These may include warranty services, datacenter management, software customization, hardware leases, software customization, etc. The small business market generally sees purchasing in terms of products - either hardware or software.

Small businesses think in terms of buying desktops, monitors, servers, software licenses, etc. The transactions are very simple. They purchase the same whether buying directly from their vendor, from the channel or from the local store.

Enterprises think of a server in terms of its monthly support cost and total lifespan, while SMBs simply see a price tag. This does not mean that SMBs never purchases services - only that they do so typically in a very up-front, set price sort of way. And they typically purchase far fewer services than do enterprise IT departments.

Enterprise IT environments have the distinct advantage of large-scale peer interaction, both internally and externally. IT professionals working in large environments are constantly learning about new products and technologies from their counterparts within their own organization – as well as from peers in competing organizations in their market verticals.

This gives enterprise staff an advantage in working with their vendors. They see how these vendors interact with their peers and get feedback on how other vendors in competing areas work with their clients. This creates a competitive market for vendors based on their level of service to their clients.

In small and medium business there is very little insight into these relationships at other, similar companies. SMBs naturally do not get interaction with a direct peer group. At best, they can hope for peer support groups for organizations of similar size, but even that is extremely rare. Vendor relationships with the SMB market are very much isolated from peer review and market pressures.

SMB IT professionals seldom get a chance to attend industry events like their enterprise counterparts either. This provides fewer opportunities for SMBs to learn about vendors with whom they don’t already have a relationship. This is very beneficial to big vendors like HP, Dell, IBM and Microsoft who need no introduction to any IT professional. But smaller vendors, new vendors and niche vendors will often find it hard to make SMBs aware of their existence – let alone find an opportunity to discuss their products directly with them.

SMBs also suffer from not having industry publications and other vertical resources available to them in most cases. SMB IT managers may use general resources from the IT field such as technology publications and online magazines to investigate what others in their peer group are doing, but targeted materials designed specifically for their technology needs are rare if not non-existent.

Enterprise customers typically purchase products strategically. This purchasing may be driven by a desire for datacenter consolidation, power reduction, features, easing administrative burdens, market pricing advantages and more. Careful cost analysis will often cause them to buy opportunistically and a tightly coupled vendor relationship helps to enable this.

SMBs, on the contrary, are typically tactical (demand-driven). They purchase new products when the old are no longer serviceable, no longer meeting demand, no longer supported or when additional capacity is needed. They will seldom buy when market pressures make purchasing most advantageous but will do so quite suddenly with relatively little research leading up to the point of spending.

The SMB market is very likely to be keenly aware of the bottom line of any purchase. This seems obvious but in the enterprise space there is normally much more room for a technical specialist to ask for features that carry extra cost because they simply feel confident that they will be beneficial.

Enterprises are often more likely to trust the hunches of their technical staff and to pay for "soft benefits" that are not easily quantifiable. With SMBs, if a feature does not meet a clear requirement or provide a rather certain return on investment then they will typically opt for the lower priced option.

IT Pricing

Enterprise customers typically negotiate a blanket discount rate that applies to everything they purchase from their vendor. Getting pricing on new products or price comparing many products is easy. Very easy. Pricing for the enterprise is quite transparent, making it very simple to do cost analysis on one solution over another.

In the SMB market, prices are generally negotiated on a purchase-by-purchase basis. Because of this SMB IT departments usually have only a very general idea of the price differences between two different solutions - especially if those products come from two different vendors.

Gathering enough data to do a large cost analysis study is both time prohibitive and ineffectual. SMB IT managers cannot simply go to a single web site and look up many different discounted prices and do a quick comparison of many different products, which puts them a strategic disadvantage over their enterprise counterparts.

SMBs Playing Catch Up

These differences presents a key question: how are vendors and SMB customers going to overcome their natural barriers?

There is no simple answer. Both vendors and small business IT managers need to be aware of how vendors and their customers behave and think so that they can begin moving toward each other in a meaningful way. But this is only the first step.

Vendors need to have dedicated small and medium business representatives who specialize in the needs of this market. These need to be professionals who have truly studied the market and understand how very small and moderately small businesses behave, what products are generally in use, what their architectures normally look like and more.

Vendors often think that SMB IT managers spend their day thinking about ERP, CRM, rapid disaster recovery planning and datacenter consolidation problems as do enterprise CIOs. But, in fact, most are concerned with desktop management, virtualization, basic security and maybe even purchasing their very first server!

Vendors need empathy with the small business market in order to service it well. Even vendors with amazing products that are perfect for this market often fail to inform their potential customers on when these products may make sense for them or may lack the ability to support them in the optimal configurations.

Most important, vendors need to find a way to join the conversation (as put forth in "The Cluetrain Manifesto"). In the enterprise space the conversation takes place inside the organization as well as in peer groups and conferences. It is everywhere and finding it is simple. Small businesses struggle with joining the conversation themselves - mostly because they cannot always find it. But it is there.

A perfect example of where this conversation is beginning to emerge is in online technology social media platforms like the Spiceworks Community. This online community includes hundreds of thousands of small and medium business IT professionals and managers. They’re engaged in ongoing discussions on everything from low level technical problems and architecture concerns to product selection and vendor relationship management.

A few progressive vendors have joined the community and are interfacing with their customers and potential customers in a mode that, in many ways, mimics the behavior found in the enterprise. Suddenly vendors and customers have an opportunity for personal interaction and open dialogue.

Through this conversation between vendors and customers there is a real opportunity for vendors to learn about the needs and desires of their customers, interact with customer peers, share resources and, most importantly, simply have an open discussion where concerns and needs can be exposed and addressed.

Customers have questions, often a lot of them. There is often not time during a sales call for the customer and the vendor to get to know one another and become acquainted with each other's needs and offerings. Through ongoing conversations – not only when a customer is considering an immediate purchase – the relationship between vendor and customer can be built. This allows them to understand one another, feel comfortable reaching out with suggestions and more.

Because the conversation is an opt-in experience vendors can talk with customers or potential customers without the need for a sales or marketing interface. The customers are ready to hear about products. They want know and they want to learn. This is a marketplace where sales lead generation is already done simply by the fact that the customers are present. They have already given the vendor their ear.

A Challenge for Vendors

Learning how to behave in this open conversation marketplace is difficult for many vendors - especially those that are very well established large businesses. Adapting is critical, as those companies that are perceived as caring about their customers will have a significant advantage over those companies who appear to find it a burden to stoop to interacting with small clients.

Large businesses are accustomed to keeping the SMB market at arm's length. They often arguing that the "channel" – the reseller and system integration market – is their interface to small business. The channel, however, acts as a chasm keeping small businesses from ever speaking directly to their vendors. This causes both to rely on a third party – who may not share any common interest with either – to broker any semblance of a conversation.

The channel is not incentivized to act in the interest of either party. It will likely only present products and services that the channel members themselves support, rather than exploring niche product options and exotic solutions that may be a better fit.

The interest of the customers are then not passed back to the vendors, leaving the vendors guessing blindly what products and services would be useful to the SMB marketplace. The lack of experience with SMBs often means that vendors are completely unknowledgeable about their customers. Or in many cases simply do not even have those customers.

SMB IT shops will generally only turn to one system integrator, managed service provider or vendor to supply them with hardware. Since PCs drive SMB IT this means that SMB shops will, by necessity, be turning to managed service providers who are partnered with someone who supplies desktops.

That makes it unlikely that those service providers would additionally be partnered with someone like, say, IBM or Sun. This in turn causes that service provider to automatically recommend products only from the vendor(s) with whom they are partnered, further isolating customers from potential solutions provided by alternative vendors. This isolation can be mitigated through direct vendor to customer relationships even if purchasing itself is still handled through a channel provider. It is in both the vendor and the customer's interests to interface directly and to engage in a conversation.

It is not uncommon to see IT managers choose a vendor based primarily upon that vendor's willingness to engage in an open conversation. Customers like vendors with whom they have a relationship. They really like knowing that when something goes wrong or when a great new (but not entirely understood) opportunity arises that they can turn to a vendor rep and ask for assistance.

No one expects the representative themselves to have all of the answers. They expect that person to have the resources necessary to reach out internally at the vendor and engage the right people. Not only is this method friendly and cost effective but it’s also very low stress.

SMB Customers often don't know where the problem may reside and do not have contacts internal to the vendor, unlike enterprise customers who often deal with specific issues so often that they know the necessary resources at the vendor. And without a helpful representative they may be left without the necessary contact information or channels to get the assistance they need.

In some cases this may result in customers feeling that the product is poorly supported or just does not work. In others it could result in new opportunities being lost or the customer turning to another vendor whom they know offers a workable solution.

While the online SpiceWorks community is hardly the only venue for vendor to customer interactions it is rapidly becoming a unique place, due to its scale, reach and unique SMB focus, where vendors and customers can make connections, join in open discussions, create relationships and get support.

The community is extremely large, with over 700,000 IT professionals all from the SMB ranks. It’s rapidly expanding its online presence and also with local users groups and regional SMB IT conferences - all of which present opportunities for vendors to interact with the SMB marketplace in new and exciting ways.

SpiceWorks represents, I feel, a key component in the future of vendor relationships in the SMB IT market. SpiceWorks acts as a broker to the conversation, providing the venue and framework necessary to make customer/vendor interactions as simple and valuable as possible.

As the community continues to grow and as more vendors decide to become a part of the conversation I expect to see the value of this forum expand exponentially. It is in communities like this that those vendors serious about the SMB IT market will succeed in differentiating themselves and engaging current and potential customers.

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