- Serving success to SMB?
- Market snapshot
- The importance of relationship
- Competitive landscape
- Making a move to managed services
The small and medium business (SMB) reseller channel is almost as diverse as its customer base. ARN, in conjunction with IBM and Microsoft, hosted an industry lunch recently with a selection of resellers to look at challenges and opportunities in the server market. What follows is edited highlights of that conversation.
Brian Corrigan, ARN (BC): It seems all the major vendors are making a lot of noise about the SMB market at the moment. If we focus on servers, what is driving sales with your customers today?
Phil Jones, Tardis Services (PJ): From a day-to-day point of view it is the requirement for storage of data, backup and centralisation. A lot of customers have grown up with a group of PCs in a workgroup environment but these are the factors that tip them over the edge. They don't generally have a centralised application requirement. We are seeing a lot of growth in the storage side.
Wayne Small, Correct Solutions (WS): In addition to that, they want remote access to their data from anywhere and that is something we are focusing on. Most small business owners don't know what's possible. They don't know they can do these things and it needs a partner to come in and open their eyes. Everybody expects a file server to be there - they expect to be able to share files and for it to be backed up. Those things go without saying so it's about the bells and whistles that mean they are going to get more value. Dean Calvert, Calvert Technologies (DC): You get clients that have an existing server but don't have the storage capacity or the performance they have had in the past and need to expand. You are often looking at an old box that they want to invest new money into but you have to question that when it is going to run out of legs within months. It is usually better to upgrade properly and we find a lot of opportunities come out of that. There are also times when another partner has been in, or the business owner has taken a do-it-yourself approach, where the server is just not doing what it is supposed to. We found some businesses that have had such a bad experience they are going back to pen and paper. They don't understand technology or how to get it to fit their business needs. There's all this marketing going on but these little business owners look at the major vendors and ask how such large organisations can understand small business.
Mathew Dickerson, Axxis Technology (MD): When you get down to small business they don't know the technology they want is called remote access or storage. They just know they want to do stuff. We find one of the most effective means of getting the message across is running education seminars. They are not big enough to have a dedicated IT person and rely entirely on external help. People don't really care about whether it is IBM or HP - they just want you to deliver technology that will enable them to do whatever is important for their business. I don't agree that people are going back to pen and paper because they have reached a level where they can't go back. If you go back five years and a computer stopped working, they would pull out a book and write a few dockets. Now, they can't afford to do that because they have point-of-sale terminals and other core business functions like stocktaking and accounting are so reliant on technology. Clients are putting greater emphasis on redundancy, disaster recovery plans and improving uptime.
DC: I don't think I have ever had somebody come to me and ask to buy [Microsoft] Small Business Server.
WS: I have. I had a bet in 2003 that nobody buys a product by name, they buy a solution, but Microsoft did an awareness campaign for Small Business Server and I lost the bet. I had to fly to Seattle and buy the guy dinner. It's a bet I was happy to lose.
DC: It is still an unusual case. Normally, they just want to be able to make their widgets better. PJ: That's right. We are not selling servers; we are selling solutions.
WS: But customers are becoming more aware bit by bit. They see the mass media talking about things like mobile devices and they want one.
Paulo Mpliokas, Cellnet (PMs): Users are not sure what devices or software they need to make it happen but they might have been talking to somebody on a train that is accessing email and can see how mobility improves the productivity of their business. At the smaller end of SMB, they don't have loyalty to a particular vendor and they are dependent on a technology advisor to show them what they can do. Demand from those customers is driving varied uptake - updates on software, new handsets and mobile devices, updates on servers, more shared storage. The technologies don't mean much to a small customer but now they can access mail from wherever or send quotes to customers while they are on the road.
Angela Logan-Bell, Ingram Micro (ALB): Affordability has also been a factor in the past. Many small businesses thought servers were out of their reach and that is why they stayed in a peer-to-peer environment. Has that question gone out of the window?
MD: It's about productivity. All you can do is paint a picture that productivity is king and affordability doesn't come into the conversation. They want it to be as cheap as possible but affordability won't stop people buying a solution. Interest rates are still good for leasing so they are prepared to pay a monthly fee for added productivity.
Jean Marc Annonier, IDC (JM): How do you resolve the question of market fragmentation when it comes to running education seminars? Many of your customers don't have much to spend.
MD: I think there is more profit to be made in SMB because I still enjoy gross profit margins of 30 per cent. They are coming to us for overall solutions. When you get above 100 seats, you might be selling more but when you look back it is often the case that you make less money on a $300,000 deal [for a larger customer] than on a $30,000 job [for a smaller one]. It's not that we are ripping small businesses off, it's just that we are able to charge the right price rather than having the margin squeezed. When Small Business Server first came out we invited about 40 clients to a demonstration seminar. The name of the product was only mentioned once or twice but we showed what it could do and, within three months, 38 of those clients had ordered or implemented it. They didn't know some of the things you could do.
David Abouhaidar, Klikon Solutions (DA): With SMBs there is a lot more loyalty. But what is the typical size of customer going around the table?
MD: Our sweet spot is 10-20 PCs. WS: Probably 90 per cent of our customers are less than 50 seats.
DC: We are about the same.
Robert Georgievski, Profusion Media (RG): 100 seats plus.
DA: I could probably count on one hand the number of customers we have that are under 100 seats and on the other hand those that are less than 500. We physically can't look after a customer with 10-20 seats because our infrastructure is too big. At this point in time there's a lot of activity because the value of the Australian dollar against the US is high and that makes hardware cheaper, or more cost-effective. That is driving people to invest in technology. People are sick and tired of not spending money to make more money. The SMB market is one where organisations have purchased a network in 2001 and it has pretty much stayed where it was. It has done the job - whether it's a good job or a bad job nobody ever knows but it has done the job. When they want to take their business to the next level, that's when they start to understand there is technology out there that can help them drive that change.
BC: There's a lot of talk at the moment suggesting the market is buoyant. Is that the case?
ALB: In terms of volume, we move more units every year, every quarter, every month but average sell price is falling. The technology is so good these days and users get such good value. If you go back five years, you would probably pay three times as much for the same solution. So the market is buoyant but we all have to sell more if we want to achieve growth.
Dean Janjic, IBM (DJ): My neighbour does car modifications and wants the ability to take photos of jobs he has done, put them on the Web and let other potential customers have a look at them. He wants to start an online forum for enthusiasts. He has no idea about technology but has a clear of what he wants to do with it. He needs a skilled partner that can come in and sell a box with all the related services around storage, email and the Internet.
Pip Marlow, Microsoft (PMw): From a small business perspective, cash flow is still a big issue and affordability is important. They are still looking for protective measures like protecting customer data and they look to a trusted advisor much more. I am seeing greater levels of acceptance around the need for a storage strategy. There is also a great deal of interest in making a small business look like a big business and the Internet is an amazing thing. We are starting to see smaller businesses adopt technology in ways that are less defensive and more concerned with improving productivity and growth. The mid-market space tends to have IT managers and it is a different discussion. We are starting to see things like business intelligence become important, and communications and collaboration is as hot as I've ever seen it. It's a huge opportunity because customers see the potential to work better and grow faster.
BC: Are customers using technology to get ahead?
DC: It depends on what industry they are in and whether they talk to each other. Graphic designers are a good example because it is a fairly small group, they know each other and are aware if somebody is implementing something new. They want to be able to leapfrog and tell their client base that they are using a more advanced technology than their competitors. We are using Kaseya, as Mathew [Dickerson] is as well, to support our clients from a managed services perspective and that is something we can use to set ourselves apart from other resellers in the area. As small business owners, we understand the pains our clients are going through. Sometimes we shake our heads and wonder if Microsoft, IBM and other major vendors get it. We would like to engage with them, and the distributors, to achieve better outcomes.
RG: Customers do rely on our advice to some degree but we shouldn't take that for granted because a lot of them are educated and know what they want. They are conscious that they need fault tolerance or some sort of redundancy. They know they are relying on IT to run their business and the impact it will have if something goes down. The challenge is to put together a solution within budget. Storage is a key indicator and requirements are growing exponentially because of things like collaboration systems and the typical file size. Even smaller organisations are sometimes prime candidates for an entry-level SAN but they can't afford it or won't shell out for it. The challenge is to give them access to these technologies at a price they are willing to pay.
PJ: It's very important for us to achieve trusted advisor status. There are two sorts of customer - one sees IT as a gaping wound in the side of their costs, while the other sees it as an enabler for competitive advantage. If they can share with us what they want to do, and we can work with them, they will get a lot of benefit out of it. I tell a lot of customers that they don't need certain technologies. Somebody might say they want a BladeCenter but they only have two servers and are planning to keep it under their desk. We won't sell that. We have had customers for 15-20 years and they keep coming back because they trust our advice. If they don't trust us we tell them to go and find somebody they can trust.
BC: Is the concept of a trusted advisor more relevant at the small end of the market?
WS: Absolutely. The SMB customer buys on word of mouth recommendation. They will buy from me because I have done good work for their friends. Likewise, when they hear negative things about a product they will stay away from it. Going back 10 years, my business was based around two people and I still have both of those customers. I can trace just about every single customer I have back up the tree to those two people. That's the way word of mouth business goes but getting that flow of referrals is the biggest challenge we have. They are happy to refer you but they are not actively out there promoting you. We now have a few clients who are doing that and that's when you've struck gold.
DC: Some people are reluctant to spread the word because they are scared you will get too busy to look after them on an ongoing basis.
Katie Axam, IBM (KA): Or they will lose their competitive advantage.
DC: That's right. If you find a good plumber, how many people are you going to tell about them at the risk of not being able to get hold of them when you need them?
WS: That is a very serious issue for an SMB reseller - trying to grow so that it is the business that is represented rather than the individuals within the business.
PMw: For a small business owner, when systems go down the impact is much bigger than what happens in a large enterprise. If my PC goes down I will order another one and the impact on me is not as material as it is for a small business owner that has to make a trade-off for a holiday or might have been saving up for a new car. It is a completely different level of decision. They want to be working with somebody who has that in mind, which is why resellers who are small business owners themselves have a great deal of relevance and empathy.
WS: People always ask how I sell to my customers: I don't sell; they buy. They buy because they trust us and know we have walked that mile in their shoes. We have gone through the Christmas cash flow issues that a lot of businesses have. We know what it's like and we know not to push when it's a bad time of year for a particular customer. We know to try and find economical solutions and plan for the longer term.
MD: I spoke about small business customer relationships at a Microsoft conference a couple of years ago and a guy came to talk to me at the end. He worked for an organisation with 5000 employees that had put together a team of 100 people and set aside $1 million for marketing to attack the small business space because they had heard messaging from Microsoft that there was a huge amount of money to be made. He told me after hearing the talk that he was going back to close the division down because an organisation of that size could never do what we do.
WS: I hear a lot of resellers expressing concern because a vendor is planning to go direct. I don't care if a vendor goes direct because it can't do what I do. A lot of other resellers haven't established the trusted advisor mindset yet and are still worried about making 2-3 points on a product. They need to re-energise their business and think outside the box.