If you are in a product management role for a company selling technology equipment into the enterprise, then in today’s economy you are likely facing serious questions over top-line growth. One way to improve top-line growth is to expand into an adjacent market. An adjacent market might be an adjacent product category, an adjacent geography, or, if you think you sell to The Enterprise, a different size of business — in this case, the SMB (Small and Medium-sized Business).
What’s Wrong with The SMB?
The “problem” with SMBs, at least from the perspective of the enterprise equipment vendor, effectively boils down to the fact that they don’t have deep enough pockets. And the vendors are kind of right — most SMBs would be hard pressed to afford their gear. Conversely, most SMBs don’t see the value in the enterprise-class equipment, and (usually correctly) don’t think they have the staff in house to support it.
These two things conspire to make it incredibly difficult for an enterprise IT vendor to effectively serve the SMB — even when they really want to, and know they should. Let’s look at a couple of examples.
First, take Hewlett-Packard. HP is dominant in the SMB printer market, but if all of your experience is with SMBs, you may not realize that HP is primarily an enterprise company. They build all kinds of equipment — from networking equipment to blade servers — that serve in data centers and enable cloud computing both internally to the Internet and in large enterprises. Now, if you’re one of the larger SMBs, you might actually be interested in some of this stuff: clustered computers, rack mount servers, remote storage, etc…. But, the vast majority of the time, you’re just going to go get it from Dell. Even though if you visit HP’s web site you’ll see that they have a section devoted to the SMB, they have really struggled with this market.
To take an even more extreme example, look at Cisco. Cisco desperately wants to get into the SMB market. They’ve been trying for years. Ultimately, the master of acquisitions, Cisco acquired Linksys in 2003 to help solve this problem. But as good as Cisco is with acquisitions, they still haven’t succeeded. There are a couple of reasons.
The first one is perceived value. Linksys products are much cheaper than Cisco products, and much less feature-full. And Cisco must keep it that way. If they don’t, they doom their core business. Cisco enterprise and carrier-class equipment is sold at amazing margins. They vary slightly over product line and over time, but generally speaking they’re at around 70%. If they started putting the features that allow for those margins into the Linksys equipment at Linksys prices, then they would quickly erode their own margins.
The second one is that, even if they just stuck the 80% of their high-end features that SMBs need into their lower end products, it still wouldn’t work. We know, because they (and lots of other companies) have tried before. The problem here is that those “enterprise features” are difficult to manage — and ease-of-use is critical for the SMB. So, Cisco is where they are today. They have an “SMB” product line, suited for down to about 250 employees. Linksys has “high end” products targeted at the “SMB” up to about 50 employees. And the genuine SMB, with anywhere from 50 to 250 employees, is stuck either buying cheap products from Linksys that don’t really meet their needs, or spending more than they want on Cisco products that fail to meet their needs in other ways.