Start small, get big

Small business is where everything begins. Service providers and system integrators are finding that it pays to work with SME's, provided they are not sidetracked by trying to land bigger payoff's.

Small businesses alone spent US$200 billion on IT services in 2000, up 33 percent from US$150 billion in 1999, according to Cahners In-Stat.

Spending on networking hardware and services accounted for 38 percent of small businesses' IT budgets. What are these customers buying? Broadband, converged communications and core business solutions top the list, say our small-business readers. E-commerce is still too immature and risky for most of them.

"They want solutions to real problems that impact their business and that work the first time out of the box," says Bill Walker, president of ServiceSolutions Inc., of Davenport, Iowa. His customers include small manufacturers and job shops. "Their version of B2B is ordering hardware from CDW [Computer Centers]," Walker adds.

"I have so many clients that are just now embracing e-mail," seconds Bob Thomason, owner of SimSoft Inc., an IT solutions provider in Magnolia, Ariz. "Just last week, I sold one of my larger clients [Buddy Bean Lumber] a Web site and e-mail for his two plants." During that meeting, Buddy Bean called his local banker to introduce him to Thomason, who is now eyeing a possible online banking project.

"The four things we encounter are broadband [mostly DSL and T1], e-mail solutions, a good managed network, and Internet security/VPN," says Tony Nejad, co-owner of Mnemonic Computer Solutions, which offers small-biz solutions starting at US$1,200. When we asked our small-business readers to identify their most valuable partners, their answer was no surprise: small vendors.

"I buy all the equipment I can from Engen [Tempe, Ariz.]," says Thomason. "They're a small hardware distributor that I've dealt with for better than 10 years. There are three guys there that can work me through any hardware problem."

Adds Thomason, "If I don't have good support, I'm out of business. Merisel has a tendency to change sales reps pretty often, so you never know who you will be talking with. Small vendors can provide the relationship you need for support problems."

Walker of ServiceSolutions says that when it comes to obtaining leads and products—and closing sales—his best partners are Qqest Software Inc. of Salt Lake City, and Studebaker-Worthington Leasing of Jericho, N.Y. "[Studebaker-Worthington] "definitely helps to save sales where everything except the cash to buy is in place," says Walker.

Nevertheless, finding partners that court the small-biz market is not easy. Mnemonic, for example, gets its inexpensive DSL routers from US$90 million Netopia, and steers its Web customers to hosting service ValueWeb, which already hosts 70,000 Web sites. Most vendors are primarily interested in today's volume, not tomorrow's relationship.

"What these vendors don't realize is that ... small business is where everything begins," says Nejad. That's the opposite of most vendors' come-to-market approach, which focuses on landing high-value showcase accounts before addressing smaller businesses."

Seek Marketable Services
Service providers may become the small-business solutions provider's best friend. Many of these service vendors are also small businesses.

Yipes Communications, for example, is packaging its bandwidth-on-demand managed fiber-optic network for small solutions providers. Nestegg, a two-person network engineering firm in Fort Collins, Colo., sells Yipes' service to business-park customers, which need only a standard Ethernet connection to tap up to a full gigabit/second in one-meg increments.

"I couldn't even have imagined undertaking this sort of project a year or two ago without Yipes," says Doug Renn, the president of Nestegg. "We manage and monitor telco circuits for other companies, so we know the grief involved in keeping those up. Without having Yipes, we absolutely wouldn't be supplying bandwidth to the business park."

Communications ASPs (CASP), meanwhile, are reaching out to ISPs,data local exchange carriers and integrators with partnership programs that offer recurring revenues with none of the hassles of running a phone company. CASPs such as Gobeam, TalkingNets and HotVoice target companies with as few as five phones. For less than $100/phone per month, small businesses can have PBX functions, long-distance calling, unified messaging and other enterprise-class services.

Managed- service providers offer yet another opportunity for small-business profits. Silverback Technologies provides 24 x 7 network monitoring, security and reporting service for as little as $2,000 per month—much less than the cost of even one network administrator. Silverback partners earn part of that fee and can earn more selling their own services (e.g., actually fixing the problems that Silverback reports).

Hosted vertical applications for small businesses are appearing at last. "The concept of a small business using PeopleSoft has always amused us," says Charles Barr, spokesperson for Professional Data Systems Inc., which offers ProTrac, an ERP and general-ledger suite for small to midsize wholesale distributors. ProTrac is available on a pay-as-you-go basis, as is Netivations' Practix ASP suite, which sells into the US$2.3 billion medical and dental office management market. There's an old parable about a farmer who sold his spread to seek his fortune in foreign lands. The lucky buyer of the property found a rich deposit of diamonds beneath the abandoned fields. Solutions providers in the small-business space similarly can find diamonds all around them, provided they don't get sidetracked chasing potentially bigger payoffs.

Size is the small solutions provider's strength. Small businesses—or branch offices of large enterprises—prefer to buy from small businesses. They identify with a local outfit, especially when the head honcho takes time to listen to them.

"Most of my clients buy me as much as my products," declares Walker. "I make every attempt to find out what their business is, how it works, and what are their goals, plans, desires and time frames, before I even try to fit a product to their problems."