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SMB customers growing more reliant on technology and the IT channel

SMBs see greater value in IT today than they have in the past, giving partners opportunities to penetrate deeper into this enormous market segment.

Small and medium-sized businesses are more inclined to use information technology than ever before. 

However, most small and medium-sized businesses (SMBs) are not prepared to deal with today's complex and rapidly changing IT landscape. This lack of expertise is great news for partners who understand their SMB customers' specific business and industry needs; are in it for the long haul and have technical expertise, according to industry participants.

That's not to imply that the lion's share of SMBs -- companies with fewer than 500 workers that make up 99.7% of the 5.68 million employer firms in the U.S., according to the federal government -- are modernizing their IT. But the opportunity for partners to work with those SMBs poised to deploy new technology is enormous given the sheer number of these companies.

"Most SMBs believe that technology is very important or somewhat important to their business success -- more so than ever before," said Anurag Agrawal, CEO and analyst at Techaisle. According to Techaisle's recent research of 848 SMBs, more than 28% of small businesses and 43% of midmarket businesses have become more dependent on technology in the last 12 months. Techaisle's data from a 2015 survey defined small businesses as those with fewer than 99 employees and midsize companies as having 100 to 999 employees.

In a recent a CompTIA report, Enabling SMBs with Technology 2015, respondent sentiment was similar.

More than 28% of small businesses and 43% of midmarket businesses have become more dependent on technology in the last 12 months, according to Techaisle research.

"SMBs are more apt to explore new technology and believe that new technology can give them new capabilities," said Seth Robinson, senior director and technology analyst at CompTIA.

While SMBs rank cost control or spending on IT among their top technology concerns, these companies also want to innovate. And just like larger companies, SMBs are interested in deploying new technology products -- mobile, cloud, and analytics -- to improve customer success, acquire new customers, maintain existing customers and keep customers satisfied.

The challenge is to figure out what the right investment is, said Robinson.

For that type of expertise they're more likely to turn to IT consultants. "Not VARs [value-added resellers], solutions providers, MSPs [managed service providers] or system integrators," said Agrawal, who noted that SMBs' view of channel partners is in a bit of an upheaval. IT consultants are more focused on business outcomes than speeds and feeds.

"Just two years ago, SMBs went to partners for technology expertise," he added. "Today, more SMBs go to channel partners based on the quality of services they provide [and] the long-term relationships they have, and they go to those partners who demonstrate an understanding of the SMB's business."

In other words, more SMBs are looking for partners who understand their business and are able to tailor best-of-breed offerings specific to that company's needs. That's a 180-degree turn from when SMBs turned to VARs to provide troubleshooting, break/fix and resale.

Managed services, cloud top the trends

ZAG Technical Services, an IT services organization located in San Jose, Calif., started as an SMB-focused provider more than 15 years ago and for the past five years has evenly split its business between SMBs and larger enterprises. Joe Foos, director of sales and marketing at ZAG, has seen two key trends among its SMB clients.

The first trend is favoring managed services over fee-for-service work. "These customers are tired of owning the responsibility for the stability of their IT," he said. Today about one-third of ZAG's business comprises managed services, a number Foos expects will grow.

Many SMBs have crossed the chasm of recognizing the value of IT to their business and would rather spend a couple of thousand dollars a month to have their IT infrastructure covered under a type of insurance policy than pay $200 per hour to fix something when it breaks, Foos explained.

"Companies who still view IT as a necessary evil will keep paying for break/fix, struggle with their IT and never get to the point of realizing that their people should be focusing on their own customers," Foos remarked.

Today, more SMBs go to channel partners based on the quality of services they provide [and] the long term relationships they have, and they go to those partners who demonstrate an understanding of the SMB's business.
Anurag AgrawalCEO and analyst at Techaisle

Moving to the cloud is the other trend among SMBs. As Foos added, "Most of our SMB customers have already adopted cloud or are in the process of doing so because they prefer it to on-premises infrastructure."

However, there are laggards who shy away from cloud because of concerns about security, performance or disaster recovery.

In East Syracuse, N.Y., Infinit Technology Solutions, a 10-year-old partner, provides SMB customers with data and voice networking as well as professional and managed hosted offerings. This partner has a few early technology adopter customers and more middle adopters and laggards, according to John Spiridigliozzi, chief operating officer at Infinit. For the latter segment of customers, Infinit serves primarily as a reseller; but for some SMB customers, Infinit serves as part of their staff in a longer-term consultancy relationship.

Many of Infinit's SMB customers are not interested in cloud. "Cloud to them isn't necessarily a solution. Cloud means their job is at stake," Spiridigliozzi said.

They are, however, showing interest in cloud managed wireless offerings, driven by their awareness of Cisco Meraki.

"We're not seeing SMBs move to the cloud, per se; but with Meraki there are a lot of benefits based on architecture and platform, and it's a great SMB fit," Spiridigliozzi added.

Unlike other traditional partners, Infinit's business legacy didn't start in its own backyard but rather from reselling regionally and nationally. The partner also has three reps in Latin America. Since 2014, the company is growing its MSP business locally and targets SMBs with 100 to 250 employees, but also has SMB customers with as few as five seats.

For managed services, Infinit offers several, including desktop monitoring and maintenance; server monitoring and maintenance; middleware; antivirus, and backup and disaster recovery. They also offer archiving and cloud-based applications such as Microsoft Office 365, Microsoft Lync, SharePoint, Outlook, VoIP, hosted PBX and IP cloud-based paging services.

While some SMBs may be modernizing their software, not all are willing to drop what they already have to move to a new delivery model.

"SMBs don't have the capacity to move away, even if the new thing may be better," said CompTIA's Robinson.

That doesn't mean that within SMB organizations users or departments aren't swiping their credit cards for cloud software such as Salesforce, Dropbox or NetSuite. "In the past few years, a lot of SMBs have signed up for cloud services on their own, and sometimes it works out fine, and other times they get lost when it comes to tying everything together," Robinson noted.

SMB customers acknowledge that they need help sorting out this ad hoc IT strategy, which is why IT consultants are gaining stature in the SMB market and have been over the past few years, according to Agrawal. "Consultants are vendor agnostic and their focus isn't on IT spend but rather the degree of influence they have on the SMB firm," he asserted.

Buying patterns impact partners

Trends in the way SMBs buy and consume technology have had a mostly positive impact on partner companies, allowing partners to choose which SMBs they want to work with.

"We still get calls from companies hoping to get a low-cost commodity product or service, or they call to have us help them sporadically with things they try to do on their own," Foos said. "We're not in a position to be everything to everybody."

In fact, ZAG flat out tells these types of callers that they're not the type of organization they can help. "Our customers rely on us 100% for their IT," Foos noted. "Once companies get over the hump of viewing IT as a necessary evil, then it's easy to help them see the value of standardizing on equipment and software and processes and disaster recovery, expectations, and everything else."

For channel partners such as Zag, the more SMB customers they have that are stable and follow best practices, the easier it is for partners to support their SMBs and to grow their own business. From an operational standpoint, ZAG's technical personnel aren't break/fix people driving around in a truck filled with tools. Instead, they're more consultative and preventative in focus.

"We've expanded our help desk to more of a support center and upgraded our technical support people. The same thing with our field technicians. At the highest level, they're consultant business analysts and virtual CIOs," said Foos.

Sixty-five percent of SMBs work with IT firms on a regular basis, according to the CompTIA report, with some partners providing and managing technology while others provide strategic services to drive SMBs' business visions. The top two reasons SMBs would look for a new partner were cost-related or for a better cost structure (42%) and for a more innovative partner (29%).

"If the SMB's current partner offers break/fix and resale but also offers managed services and a virtual CIO, that partner may still play a role for the SMB," said Robinson.

However, if a partner's business model is primarily break/fix and resale, then they may not be the primary partner for the SMB going forward, he added.

Channel dynamics are in a state of flux and partners need to assess their current business model. While the services they offer SMBs may be valid today, partners must continue to evaluate whether they'll fit into the larger picture as IT in the SMB space becomes more complex.

Next Steps

Read about the changing IT channel business models

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Why SMBs see potential in hosted virtual desktops

This was last published in April 2015

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