Small and midsize businesses (SMBs) play a vital role in the US economy, accounting for a significant portion of GDP, employment, and tech spending. However, the SMB market presents unique challenges for technology providers. To succeed in this segment, suppliers must understand the distinct buying preferences and unmet needs of SMBs and tailor their products and commercial approaches accordingly.

In this article, we will explore the current state of the SMB market and discuss strategies that technology providers can adopt to win in this challenging economy. Based on our research and insights from industry leaders, we will delve into the evolving technology needs and buying behaviors of SMBs, as well as best practices that can help companies thrive in this market.

The Challenging Economic Environment for SMBs

SMBs face significant challenges in the current economic climate. Rising inflation rates have become a major concern, with 53 percent of SMB owners citing inflation as their biggest challenge – the highest percentage in 40 years. Additionally, talent acquisition has become increasingly difficult, with 25 percent of business owners reporting difficulties filling open positions and lacking qualified candidates.

In response to these challenges, many SMBs plan to reallocate their spending in certain areas to address the major concerns. One-third of small businesses plan to invest in cash flow technology, such as invoicing, billing, and payment platforms, to automate and optimize their financial processes. Another 29% plan to invest in operational technology, such as inventory management and customer relationship management systems, to improve efficiency and productivity. Finally, 26% plan to invest in hiring software, such as applicant tracking systems, to streamline recruitment and identify top talent.

 Evolving Purchase Patterns of SMBs

In response to the challenging economic environment, SMBs are evolving their purchasing patterns and becoming more sophisticated in spending decisions. Based on interviews and survey insights, there are four best practices that SMBs are adopting:

1. Centralizing purchasing decisions- An overwhelming majority of SMBs are moving away from a federated model and centralizing their purchasing decisions. This shift is particularly evident among businesses with more than 20 employees, with 40% stating that the IT department is expected to hold more power in decision-making. Owners and CFOs still make the final decision but increasingly rely on their IT teams' expertise to understand requirements and pricing for tech products and services.

SMBs with multiple locations are also becoming more aware of subscale spending across important technology categories. As a result, they are looking to consolidate their purchasing decisions and avoid duplicative spending.

2. Digitizing and building procurement capabilities- SMBs are investing in building more sophisticated procurement capabilities. This includes soliciting requests for proposals (RFPs) from multiple providers, conducting extensive competitive research, and price shopping across resellers, value-added resellers (VARs), and direct channels. The rise of centralized marketplaces, such as Amazon, has made price comparisons easier for SMBs. In fact, approximately 30% of SMBs have purchased products from online marketplaces, citing competitive pricing and product quality as top attributes for satisfaction.

Technology suppliers need to take note of these trends and adapt their approach. SMBs increasingly prefer direct relationships with technology providers, especially those with fewer than 100 employees. Resellers and VARs can thrive by becoming genuine partners for SMBs, helping them optimize costs and move beyond basic procurement.

3. Experimenting with flexible and usage-based consumption models- To manage costs, SMBs are experimenting with new consumption models. For example, in fixed internet, two out of five SMBs prefer month-to-month pricing over annual contracts. The majority of SMBs base payments solely on usage, rather than traditional monthly or annual fees. This trend is particularly evident in the shift to cloud infrastructure and software-as-a-service (SaaS) models.

Providers should consider offering flexible and usage-based pricing options to cater to the evolving needs of SMBs. This can help SMBs manage their costs more effectively while still accessing the technology solutions they require.

4. Trying products and services before purchase- SMBs increasingly prefer to test products and services before making a purchase. Around 50% of SMBs still favor traditional software subscription terms, but more than 25% now experiment with freemium models. This trend is even stronger among smaller businesses, with 51% of solopreneurs experimenting with freemium models.

Providers can leverage this trend by offering trial periods or freemium versions of their products. This allows SMBs to experience the value of the technology firsthand before committing to a purchase. By providing a positive user experience during the trial period, providers can establish themselves as trusted partners and increase the likelihood of future conversions.

Strategies to Win the SMB Tech Market

To succeed in the SMB tech market, providers should adopt strategies that reflect the evolving needs and preferences of SMBs. Based on industry leaders' experiences, here are some key strategies to consider:

Shift the conversation from price to value.

In an inflationary environment, pricing becomes crucial for SMBs. However, leading providers understand that SMBs often consider factors beyond price when making tech-buying decisions. Businesses with more than 20 employees, in particular, prioritize the quality of support and technical specifications.

To deliver the best value to customers, providers should emphasize superior performance, technical reliability, and responsive customer service as part of their holistic value proposition. Investing in reliable products and knowledgeable customer service can differentiate providers from competitors who compete solely on price. Additionally, maintaining a constant dialogue with SMBs can help providers understand their evolving needs and offer tailored solutions.

Create a seamless end-to-end digital experience.

Digital channels have become the preferred method for SMBs throughout the buying process, from research to purchase to after-sales support. SMBs now use digital channels more frequently than analog channels, such as phone calls, and prefer digital support options over traditional phone-based service. Providers should invest in transforming the digital experience for SMBs, including personalized messaging, simplified buying experiences, and responsive customer support.

By embracing digital channels and providing a seamless end-to-end experience, providers can increase customer acquisition, reduce marketing expenditures, and improve overall customer satisfaction.

Focus on customer success and customization in product bundles.

While SMBs often purchase multiple products within a tech category, they prefer best-of-breed solutions rather than bundled offerings. Providers should focus less on cross-selling and more on customer success and customization when offering product bundles. By tailoring bundles to specific industry verticals and anticipating the unique needs of SMBs, providers can create personalized solutions that meet the diverse requirements of their customers.

Offering flexibility for customers to design their own bundles or opt-out of irrelevant products and services can further enhance the customer experience and drive customer loyalty.

Personalize outreach to customers.

Similar to the personalization revolution in B2C, providers should adopt best practices for handling customer data and designing personalized outreach campaigns. By leveraging customer data and insights, providers can develop microsegments, design personalized campaigns, and continuously monitor and refine their strategies.

Investing in marketing technology that enables high-velocity, always-on, personalized campaigns can lead to increased conversions, improved customer satisfaction, and overall revenue growth.

Final Thoughts

The SMB tech market presents significant opportunities for providers, but success requires understanding and adapting to the unique needs of SMBs. By shifting the conversation from price to value, creating seamless digital experiences, focusing on customer success and customization, and personalizing outreach efforts, providers can position themselves as trusted partners and win in the SMB market.

In a challenging economic environment, SMBs seek technology solutions that offer tangible value and address their needs. By tailoring their products, pricing models, and commercial approaches to SMBs, providers can differentiate themselves and build long-term relationships with this important segment of the economy.

With the right strategies and a deep understanding of SMBs, technology providers can thrive in the SMB tech market and contribute to the growth and success of small and midsize businesses.