The many faces of small business and open source

The many faces of small business and open source

Summary: Legacy businesses may be where the money is, but it's not where the growth is. Go for the real little guys, and the entrepreneurs, first.

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TOPICS: SMBs, Open Source
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One of the laziest behaviors of politicians, journalists and analysts lies in how we define a "small business".

(Most businesses visited by Mike Rowe of "Dirty Jobs" (right) are what I call legacy businesses. For more on that read on.)

We define the term too broadly. Politicians routinely call companies with as many as 500 employees "small businesses" when tax breaks are under threat. Reporters never call them on it.

Analysts are little better. They have this catch-all called "SMB" -- small to medium businesses -- which can include firms with nearly 1,000 employees.

The definition lumps too many different markets into one.

It includes entrepreneurial enterprises, slow-growing legacy enterprises (often family-owned) and true small businesses, which are single-location shops with only a few employees and a closely-defined mission.

Which brings me to Matt Asay's latest, a complaint that open source still doesn't have the SMB market right. It's a follow-up to a 451 Group effort from December saying open source doesn't get much from the SMB market.

If we're talking truly small businesses, this is an immense opportunity for Value-Added Resellers (VARs), as I wrote concerning my own pharmacist a few years ago.

You can give your customer more hardware, and yourself fatter margins, by selling open source and adding Windows through emulation or virtualization when necessary. You also get more control over your customer.

The lesson for vendors is to build their channels. Open source is the best pitch a VAR has to get new business.

Many entrepreneurs are big users of open source, but don't pay for open source (or anything else) until they have a going concern.

These going concerns are great opportunities for hosted solutions, and the client need never know he's on Linux at all.

The lesson for open source here is to focus on hosting and clouds that run Linux, selling their software as a service because it's the best way for entrepreneurs to scale.

The real weakness for open source lies in what I call legacy enterprises.

These are not small businesses, and they're not usually new businesses. They're going concerns which scaled their systems when Windows was the only client-server choice.

Switching now may seem like a big, "bet the business" change. And most legacy enterprises are conservative in the best ways -- they know what works and resist changing their operations.

These folks are tough to switch. Their budgets can afford Windows, Office and Oracle. The update and upgrade "taxes" these firms impose are just a cost of doing business.

You can't try to hit these clients up in a crisis, either. If a big client goes toes-up, or a tornado blows through, computing does not top their list of concerns.

Your best chance lies at a time of positive change. When there's a big new contract requiring a general expansion or a new facility, then these folks can see open source savings coming to their bottom line.

But that's a rare event. This is the heart of the "SMB problem" for open source.  Legacy businesses may be where the money is, but it's not where the growth is. Go for the real little guys, and the entrepreneurs, first.

Topics: SMBs, Open Source

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  • some SMB data points from open source ERP

    Dana, we're seeing much the same thing in our world of open source ERP (www.xtuple.com). Aggressive small businesses, typically staffed by people who have "been there, done that" with big-iron ERP in the past, are many of our best customers. They're growing fast, and know they need good systems in place to support and scale that growth. Open source gives them a cost-effective way to do that.

    I'd kind of agree with your description of "legacy enterprises" - but would point out that there are still plenty of market externalities that can help nudge them toward seeing the light. Again, in our world of ERP, old vendors are getting acquired and products EOL'ed all the time (see my erpgraveyard.com blog)... and when conservative businesses contemplate the very real possibility that they might not be able to get support or updates for their most mission-critical system, it can help them see more clearly the benefits of living in a vibrant open source community - commercial or otherwise.

    Cheers,
    Ned
    xtuple
    • What are the possible alliances?

      Hi Ned, good to see you out there on Xtuple. What are the possible upstreaming alliances for Open Source Accounting software with Open Source ERP packages?

      At TurboCASH we specialise in 1 to 10 Accountants in the company. We try to avoid integration and make the app work "out of the box".

      Do you have figures on who has what share of the ERP business and in particular where the Open Source vendors fit in?

      Here is my pictorial view of the bigger market:
      http://www.turbocash.net/Open-Source/The-Accounting-Market-where-do-we-fit

      Philip Copeman
  • RE: The many faces of small business and open source

    This article is on the money. There is a massive difference between the one man business working from home in a distributed environment and even a 50 man business.

    In the TurboCASH Accounting Project, we aim at entering with the one man business. But you have to give the user the option to grow to 50 people without changing their accounting package.

    The market is enourmous. There are currently 15-20 Million peoples running small business accounting packages. HTis market is dominated mostly by Sage (6 Million) Intuit (5 Million) and Microsoft Excel (about 5 Million). TurboCASH Accouting, the biggest open source player has 100 000 users.

    The good news is that while the rest of the market grows at 3%, we grow at over 30%.
    Philip Copeman
  • RE: The many faces of small business and open source

    We are looking to start an IT Services company that relies on Open Source Software. If you wouldn't mind filling out this short survey for Small Business Owners and IT Services.

    http://survey.constantcontact.com/survey/a07e2kkf6fkfz9y6xw4/start

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