VARs, systems integrators speak candidly about SMB woes

The appetite of SMBs for sophisticated technology is growing fast; but selling it requires a lot more than just a good price, a good bundle and simplicity.

If vendors and analysts agree on one thing, it is that the SMB market is where the next big wave of IT spending -- and opportunities for channel companies -- will occur.

Both talk about price and simplicity as key decision drivers among potential SMB customers, but don't often talk about the creative approaches -- and unexpected rejections -- value-added resellers (VARs) experience in a market that's far less standardized or homogeneous than even the fractured enterprise IT market.

Last year SMBs spent $133 billion on information technology, according to IDC, which predicts that number will increase 8% this year, to $144 billion. That increase -- the fastest growth rate in nine years -- will outpace the 6.6% growth of the worldwide IT market by more than 25%, IDC reports predict.

While the market holds a wide range of opportunities, it also has a plenty of heartache. SMBs are notorious for a lack of expertise and discipline in their IT organizations, and many lack dedicated IT budgets.

They can also be fickle or parochial about business decisions in a way that is less common in larger customers, according to Francis Poeta, president of Cliffside Park, N.J.-based P & M Computers Inc., a systems integrator with $2 million in revenues and five employees.

After spending a month working with the IT manager of a retail company on an e-commerce infrastructure deal worth almost $1 million, for example, Poeta was bumped by a competitor who normally wouldn't have even been in the running.

"We thought everything was clean, done and ready to go," Poeta said. "When we sat down with the president of the company to discuss what we were going to do, he looked at the plans and said, 'my son-in-law can do this.' We lost the deal."

But avoiding customers because one dominant personality could scotch an IT deal isn't an option. With much of the growth in the channel coming from smaller companies, "we're going to grow our SMB business or we won't be in business," Poeta said.

Monetary constraints are the most frequent headache with SMBs, however, according to Jay Kishor, president of California Integrated Solutions, a Phillips Ranch, Calif.-based VAR with four employees and $3 million in revenues.

"I've lost $80,000 deals because customers' budgets could not allow for that level of IT spending, and for the smaller deals of around $10,000, some other reseller won the business because they were selling the product cheaper," said Kishor.

Cost of support can be an issue, but the intimidation factor can outweigh even that -- even for small companies that do have IT managers, Kishor said.

"Just talking about storage is a subject they think is complex, and that's the reason why vendors are simplifying storage solutions for the SMB market," Kishor said.

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Storage vendors have not been shy about products with features that make them easier to install and service after the sale. Network Appliance Inc.'s StoreVault S500, Hewlett-Packard Inc.'s, StorageWorks All-in-One system, IBM's entry-level DS3000disk-array series and EMC's Retrospect 7.5 software for Windows backup and recovery are all designed and pitched as being easy for SMB customers to install and manage on their own.

Yet, an increase in spending does not mean that VARs can easily tap into the market warns Roy Boggs, IDC's vice president for small/medium business and home office research.

"As VARs look at this group of potential customers, they can no longer look at elephant hunting -- devoting enormous resources to tracking down one account," Boggs said. "They have to think about rabbit hunting, or antelope hunting. They have to be very efficient."

Of course larger system integrators are developing their own strategies, and many have the resources to take advantage of executing successful strategies.

Gary Johnston, president of IT Partners, a Pheonix, Ariz.-based VAR and consulting firm, has developed a project methodology that includes planning around the requirements of a potential customer, designing a solution to meet those requirements, assembling the solution and testing it in an offline environment.

With 25 employees, 11 of which are dedicated consultants, Johnston said, SMBs have provided his company the opportunity to create revenue streams that may not be possible at large corporate accounts.

"SMB's are more willing to pay for a bundled solution that includes the technology, the services and the software all wrapped into a solution, versus larger corporate accounts that have the staff to do all the implementation, planning and design work," Johnston said.

So far SMBs represent 60% of IT Partners' business and contribute significantly to the companies revenues, which range from $15 to $20 million, Johnston said. There's another reason Johnston thinks VARs can earn more from SMB's over larger customers.

"The larger accounts typically buy at a lot bigger discount so there are fewer profit margins," Johnston said.

Buffalo Grove, Ill.-based integrator ASAP Software is trying a more collaborative approach. It has created a VAR program called ASAPartner Net, in which some 100 VAR partners across the country collaborate on SMB projects.

"These smaller VARs can't sell the licenses, like a Microsoft license; there are only a limited number of companies like ours that can do that, and we are one of Microsoft's top large account resellers," according to Chandran Rajaratnam, senior vice president of operations.

Executives at ASAP, which has 600 employees and approximately $1.5 billion in revenues, said the company's SMB business is its fastest growing segment. They also said SMBs are keen to implement technology that helps them stay competitive.

"A small business has competitors breathing down their necks, and whoever deploys the new technology -- in CRM or business intelligence or in the ability to just turn around faster with the new Microsoft products -- will have an edge. Technology is moving so fast, the issue is how do SMBs stay up with it," Rajaratnam said.

IT Partners' Johnston concurs: "SMBs need solutions and that's where the real opportunity is. If VARs can figure out how to bundle technologies up with services as a solution to a customer, you are going to be successful in the SMB marketplace."

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