Peeling Back the Layers of the Small Business Market

PEELING BACK THE LAYERS OF THE SMALL BUSINESS MARKETA look at the opportunities and challenges for technology solution providers

Copyright (c) 2015 CompTIA Properties, LLC, All Rights Reserved | CompTIA.org | [email protected]

Setting the Stage

Check-in on the state of the small business market (confirm known assumptions)

Assess how SMBs learn about, procure, and manage technology

Evaluate factors driving or inhibiting SMBs from adopting new technologies

Explore issues related to the relationship between SMBs and the channel

RESEARCH OBJECTIVES

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Research can be used strategically or shared directly with customers as part of the sales process.

Data from 500 U.S. micro, small, and medium businesses

Senior decision makers; mix of business and technology-focused individuals

METHODOLOGY


Point 1The SMB Market Is NOT a Monolith; There Are Many Nuances and Differentiating Factors

1,000+

500-999

250-499

100-249

50-99

20-49

10-19

5-9

1-5 employees

Large Business Segment• 0.2% of market by establishments• 16.8% of market by employment• 25.8% of market by wages

Total of 9 million business establishments

Medium Business Segment• 1.7% of market by establishments• 25.6% of market by employment• 27.0% of market by wages

Small Business Segment• 20.4% of market by establishments• 42.4% of market by employment• 35.1% of market by wages

Micro Business Segment• 77.7% of market by establishments• 15.2% of market by employment• 12.1% of market by wages

Source: Bureau of Labor Statistics | EMSI | CompTIA

SMB market as defined by the U.S. Small Business Administration equates to firms with 1-499 employees

By firm count, there are about 28 million small businesses; of which, 75% are single-person sole proprietors.

Business Dynamics in the U.S. Economy

Segmenting the SMB Market by Industry Verticals

Health care and social assistance, 1.4m

Professional, scientific, and technical services, 1.1m

Retail, 1.0m

Construction, 744k

Accommodation and food services, 656k

Wholesale trade, 620k

Admin and Support / Waste Mgt. / Remediation Services, 491k

Finance and insurance, 468k

Real estate and rental and leasing, 357kManufacturing, 334k

Transportation and warehousing, 227k

Information, 148k

Arts, entertainment, and recreation, 130k

Educational services (does not include public schools), 106kMgt. of companies, 59k

The Top 4 Industry Verticals Account for 54% of All SMB Establishments

Source: Bureau of Labor Statistics | EMSI | CompTIA

High Rate of Churn in the SMB Space• Smalls businesses are a primary source of job creation. However, small businesses also

fail at high rates – only about half of startups survive five years, which means SMBs also destroy a lot of jobs.

• 10-12 percent churn annually means there is a continuous pipeline of new SMB prospects

Small Business Owners Come From Many Backgrounds• Using the broader definition of small business to include sole-proprietors, women-

owned businesses account for 28.8% of the total. Minority-owned businesses account for 21.5% of the total.

Scaling from Small Business to Large Business is Difficult• According to McKinsey Consulting, just 19 of 3,197 of publicly traded software companies between

1980 and 2013 reached $1 billion in annual sales. This translates to a 3% success rate for scaling to a very large size.

Point 2Small Does NOT Mean Simple; SMBs Must Contend With Many of the Same Challenges That Enterprises Face

SMBs Wrestle with Challenges on Many Fronts

People#1

Technology#2

Process#3

Top Strategic Priorities Reported by SMBs

1. Reducing costs / overhead

2. Reaching new customers

3. Improving operational efficiency

4. Improving staff productivity / capabilities

5. Innovating more effectively

6. Managing competitive threats

7. Improving use of data analytics to make better / faster decisions / improve agility

Rank Order of Challenges in Optimizing Their Business*

*As reported by SMBs

Underlying Many Strategic Priorities Is the Desire to Simplify

Source: CompTIA’s SMBs and Technology study | Base: 500 U.S. small and medium businesses

Ranking of Strategic Priority

MicroFirms

[1-9 staff]

Small Firms

[10-99 staff]

Medium Firms

[100-499]

Reducing costs / overhead 63% 58% 52%

Reaching new customers 68% 57% 40%

Improving operational efficiency 42% 47% 57%

Improving staff productivity / capabilities 28% 41% 41%

Innovating more effectively 22% 28% 27%

Improving use of data analytics to make faster decisions 10% 25% 33%

Managing competitive threats / keeping up with competition 21% 22% 26%

Segmentation of SMB Strategic Priorities


Point 3The Democratization of Technology Has Created Many New Opportunities for Small Businesses; Yet, “Getting There” is Easier Said Than Done

Marketing

CRM

Infrastructure / operations

Communications

Inventory mgt. / Supply chain

Staffing / Expertise

Web presence / e-commerce / m-commerce

Productivity

SMBs now have the means to leverage technology across every functional area to level the playing field….

SMBs Ready for Improvement in Technology Use


Profile of SMBs Exactly Where They Want To Be With Technology

21% Micro15% Small16% Medium

17% IT role11% Business role

15% <5 years in business23% 5-9 years in business18% 10-14 years in business13% 15+ years in business

17% Have internal dedicated IT staff15% Do not have dedicated IT staff

23% View IT provider as a Trusted Advisor8% View IT provider somewhat/not a TA

Exactly where we want to be

in tech useVery close to where we want to be in tech use

Moderately close/not close to where we want to be in tech use

About half of SMBs feel well positioned with a technology vision and strategy; the other half, not so much

17%

36%

47%

Frequently Occasionally Seldom/Never

Staff bring issue to execs 14% 52% 29%

IT staff bring issue to execs 18% 42% 33%

Technology vendors pitch 17% 43% 33%

Staff bring issue to IT team 17% 42% 35%

IT firm pitch / recommendation 13% 42% 37%

Departments operate independently 15% 35% 43%

IT staff make own decisions 15% 29% 49%

Triggers for Technology Decisions

32% IT support specialist / helpdesk29% IT director22% Web administrator22% Database administrator19% Network engineer or administrator18% Software developer17% CIO16% Analytics / business intelligence specialist30% None of the above

7 in 10 SMBs Have IT Personnel on Staff Incidence Highly Correlated with Firm Size87% % of medium firms with IT personnel79% % of small firms with IT personnel32% % of micro firms with IT personnel


Business/operations consultant

Local general retailer

IT solution provider, VAR or tech consultant

Local electronics or computer retailer

Online electronics or computer retailer

Direct from a hardware/software company

6%

20%

16%

48%

42%

22%

11%

21%

36%

39%

44%

43%

20%

20%

50%

25%

30%

57%

Medium SMBsSmall SMBsMicro SMBs

Sales Channels for SMB Technology Purchases


Better understanding of ROI

Examples from other companies /_x000d_case studies

Easier way to compare options

Better understanding of integration

Mechanism for staying on top of new IT products/services

28%

34%

34%

36%

43%

SMB Perspectives on Ways the IT PurchaseProcess Could Be Improved

Interestingly, the more sophisticated SMBs appear more likely to seek improvements in the buying process. The less sophisticated SMBs are generally content with the status quo.


Point 4SMBs Rely on IT Service / Solution Providers for a Range Core of Needs; But, Some Disconnects Do Exist

Most SMBs Rely on IT Services / Solutions

71%29% 65% Use IT firms regularly work

with

31% Use various IT firms

Tendency Towards Familiarity and ContinuityHave NOT

used any type of IT

firm in past 12 months


Inclusive of reselling, break/fix, integration, custom software development, managed services or consulting

IT Service / SolutionMicroSMBs

SmallSMBs

Medium SMBs

Repair/troubleshooting of computer, network or related IT issues 26% 38% 38%

Deployment, installation or integration of IT or software system 10% 29% 33%

Web design or e-commerce related 14% 29% 29%

Procurement of hardware or software 8% 27% 31%

Cloud computing initiative 8% 23% 35%

Cybersecurity related 7% 22% 31%

General IT consulting / advisory / strategy services 7% 25% 28%

Telecom, communications, A/V related 4% 16% 25%

Mobile app development / mobility initiative 2% 17% 19%

Workflow or business process automation initiative 2% 10% 20%

Analytics / business intelligence / data related 2% 5% 13%

None of the above 58% 20% 16%

Segmentation of SMB Use of IT Services / Solutions

Source: CompTIA’s SMBs and Technology study | Base: 357 U.S. small and medium businesses using IT firms

Needed specific vertical industry expertise

Wanted a second opinion on direction

Systems were getting too complex

Needed to reduce cost of IT support

Wanted help driving business with tech

Wanted to focus internally on core business

Needed greater expertise for new areas

23%

27%

28%

30%

32%

33%

46%

40% among IT executives

46% among IT executives

Drivers for Using Solution Provider / IT Services Firm

Source: CompTIA’s SMBs and Technology study | Base: 357 U.S. small and medium businesses using IT firms

Disconnects Highlight Realities of Working with SMBs

1. Break/Fix

2. Deployment, installation or integration

3. Web design or e-commerce related

4. Procurement of hardware or software

5. Cloud computing initiative

6. Security related

7. General IT consulting / advisory / strategy services

8. Telecom, communications, A/V related

9. Mobile app development / mobility initiative

10. Workflow or business process automation initiative

11. Analytics / business intelligence / data related

Top SMB Uses of Tech Firms

1. Security related

2. Effectively managing and using data

3. Modernizing aging equipment or software

4. Managing increasingly complex technology

5. Understanding/deciding among choices

6. Getting more ROI from tech investments

7. Integration challenges

8. Aligning business and IT needs

9. Next-gen customer engagement

10. E-commerce or mobile-commerce

Top Tech Areas SMBs Want to Improve

Higher-level, strategic, proactive investments can quickly take a back seat to “keeping the lights on” initiatives


The Role of Outsourcing and Managed Services

Call center / customer service

Financing and accounting functions

PR / communications

Fulfillment / delivery

IT related

Payroll

69%

62%

63%

55%

50%

55%

26%

30%

27%

30%

36%

25%

6%

8%

10%

14%

14%

20%

Among micro and small businesses (5-99 employees), the reality is that most functions will be managed internally. Even if there is a desire to outsource or it makes economic sense, outsourcing may not be embraced.

60% Concerns over costs

38% Concerns over ROI

38% Concerns over quality

33% Not comfortable turning over sensitive data/systems

27% Don’t want to lose internal expertise

21% Tried outsourcing in the past and had a negative experience

Top Reasons SMBs Do NOT Outsource Business Functions

Mostly Outsourced

Mostly Internal

Partially Outsourced

Source: CompTIA’s Managed Services Trends study | Base: 200 U.S. small businesses

Point 5There is SMB Demand for Digital Business Services and Opportunities for the IT Solution Providers That Can Provide Them, But There Are a Few Caveats…

Marketing

CRM

Infrastructure / operations

Communications

Inventory mgt. / Supply chain

Staffing / Expertise

Web presence / e-commerce / m-commerce

Productivity

SMBs now have the means to leverage technology across every functional area to level the playing field….

77.8%21.8%

0.3%

The “Sweet Spot”- Customers with 10-249 employees- About 2 million establishments- Typically sufficient scale and budget

to be candidates for many digital business services

DIY / Budget Conscious- Customers with 1-9 employees- About 7 million establishments- Most likely to use IT services for

break/fix or web design- Often too small or budget

constrained for many IT solutions

Competitive Targets- Customers with 249-499 employees- About 31,000 establishments- Scale, budget and sophistication to

attract many suitorsNote: this chart depicts a top down approach to market sizing, which means it will not capture every nuance of the market place. There are certainly examples of very small customers with sophisticated IT needs and substantial budgets. Similarly, there are examples of larger customers in the early stages of adopting digital business services with limited resources.

Sizing the Addressable Market for Digital Business Services in the SMB Space

Source: CompTIA’s SMBs and Technology study | Bureau of Labor Statistics | EMSI

Industry Vertical by 2-Digit NAICSSource: EMSI | BLS | IDC | CompTIA

Average Sector

Spending on IT

Sector SMB

Summary[1-499 staff]

DIY / Budget Conscious

Customers [1-19 staff]

Sweet Spot Customers [20-249 staff]

Competitive Target

Customers [249-499 staff]

Accommodation and Food Services Low 655,707 322,176 332,371 1,160

Retail Trade Medium 1,036,981 719,717 312,481 4,783

Healthcare and Social Assistance Medium 1,377,558 1,130,114 243,264 4,180

Professional, Scientific, and Technical Services Medium 1,100,248 948,077 150,227 1,944

Manufacturing High 333,818 192,855 135,662 5,301

Construction Low 743,967 617,910 125,051 1,006

Wholesale Trade Medium 620,035 497,473 121,307 1,255

Administrative/Support; Waste Mgt.; Remediation Medium 491,391 382,263 105,699 3,429

Finance and Insurance High 468,400 381,847 85,003 1,550

Transportation and Warehousing Medium 227,103 166,505 59,218 1,380

Real Estate and Rental and Leasing Low 356,675 315,345 41,083 247

Information High 147,583 110,288 36,348 947

Arts, Entertainment, and Recreation Low 130,494 97,742 32,269 483

Educational Services (does not include public schools) High 105,740 72,845 32,169 726

Management of Companies and Enterprises High 59,071 38,529 19,577 965

Segmentation of SMB Market by Industry Vertical

Source: CompTIA’s SMBs and Technology study | Bureau of Labor Statistics | EMSI

Lack of cloud service offerings

Difficult to work with

Lack of industry vertical expertise

Did not put my needs first

Unreliable / poor response time

Lack of innovative solutions

Cost / too expensive

16%

17%

18%

22%

26%

29%

42%

Reasons SMBs Leave One IT Firm for Another

40% very much view their IT firm as a TRUSTED ADVISOR, while 53% do somewhat

Source: CompTIA’s SMBs and Technology study | Base: 111 U.S. small and medium businesses that have used new IT firms

Areas for Solution Provider Improvement: a Combination of Core + Higher Level Areas

• Availability / 24/7 support

• Better communications

• More proactive

• Faster response time

• Respond to issues in a more timely manner

• Meet project deadlines

• Prompt and courteous replies

• More end user training

CORE AREAS FOR IMPROVEMENT

• Listening to true needs (aka reading between lines)

• Understanding business / vertical better

• Technical roadmap / vision of future

• Make systems more user-friendly

• Better customization to specific needs

• Cloud services

• More/better ideas for integrating different areas

HIGHER LEVEL AREAS FOR IMPROVEMENT

Based on verbatim comments from SMBs


The Channel Transformation Balancing Act

Self-Reported Degree of Business Transformation

High Degree

Moderate Degree

Low Degree

12%

52%

36%

11%

59%

30%

12%

59%

28%

201320142015

Top Reasons for NOT Transforming1. Solid performance by existing business

2. Lack of customer demand for new services / capabilities

3. Lack of resources to pursue new ventures

Top Reasons for Transforming1. Cloud

2. Customer demand for new services / capabilities

3. Desire to move from transactional to recurring revenue model

Source: CompTIA’s Industry Outlook 2015 | BLS | EMSI

BUILT TO LAST

REVENUE

Thank You | Questions | Comments


Peeling Back the Layers of the Small Business Market

Technology

small business market

small businesses

small business administration

wages small business

market intelligence

business dynamics

wages micro business

smb establishments source