A significant percentage of the US economy is reliant on small-to-mid-size businesses (SMBs) which are responsible for a large amount of the nation’s technology spending. A recent McKinsey report shows that around 3,500 SMBs have an understanding of their technology requirements and what they need to continue to grow.
This provides a great opportunity for tech providers, but the competitive and somewhat chaotic nature of the SMB market means a deep understanding is required to determine the individual needs of each business.
In this article, we will explain how to win small business tech and digital service revenue in economic uncertainty, the best practices, and how tech and digital service providers need to adapt.
How Have SMBs Been Affected By Economic Uncertainty?
Businesses, large and small will be affected by economic uncertainty and the threat of recession, SMBs in particular will need to navigate this less-than-perfect environment if they are to sustain their desired level of growth. The repercussions of the global pandemic are plain to see, with 30-year fixed mortgages falling to an all-time low of 3% and the cost of living affecting businesses.
In the current climate, SMBs must act with caution, weighing up each purchase and key decision due to the growing rate of inflation. A large percentage of small-to-medium-sized businesses acknowledge that it may be difficult to grow the organization during this time, with finding new talent and facing rising inflation being major concerns.
According to a recent survey of small business owners, over 30% of respondents expressed concern as to how inflation would impact their businesses. And in the recent McKinsey report cited above, 50% of businesses revealed that they are not finding it easy to fill open positions, while around 90% claim there are very few or no qualified candidates to fill the role.
This uncertainty has also forced business owners to amend their plans regarding technology spending, with around 25% of SMBs set to reduce their spending on tech over the next 12-24 months. At this time, IT cuts could rise to as high as 30%.
However, there will always be core requirements for any business that cannot be included in any cost-cutting plan. Connectivity (internet and mobile) is one such requirement, while hardware and cloud-computing providers have also seen little change in small business spending.
How The SMB Market Has Changed for Tech Providers
Unsurprisingly, SMBs have had to adapt their decision-making and purchase patterns to safeguard against these uncertain conditions. This has forced many businesses to be even more meticulous when it comes to spending, applying four best practices before any key purchasing decisions are made.
- Centralized Purchasing
A common trend among SMBs is a shift towards centralized purchasing decisions, allowing individual departments, such as IT, to make decisions on necessary purchases that are then signed off by the business owner. The reasoning behind this shift is that specialized IT personnel are likely to have a more in-depth knowledge regarding digital services and tech, and should be able to better determine what they need to operate more efficiently.
As well as an understanding of the requirements of the business’s IT operations, it is also likely that in-house experts can provide insights into competitive pricing, helping to select the best deal. In addition to individual departments, this centralized purchasing mechanism can also work based on location. Businesses with multiple locations across the US can rely on local knowledge to choose the most appropriate service for the site’s specific needs.
- Try Before You Buy
Trialing products and services before making a purchase is now becoming the norm, with many SMBs exploring the benefits of ‘freemium’ software before committing to a contract.
This system is more commonly used by smaller businesses and entrepreneurs, proving to be mutually beneficial for business owners and software providers. In most cases, if a small business is satisfied and builds trust with a provider following a trial, they are likely to commit to larger-scale solutions as the business grows in the coming years.
- Improved Procurement Capabilities
SMBs have taken steps to improve their procurement capabilities since the pandemic, introducing soliciting Requests for Proposals (RFPs), as well as conducting better competitive research. In addition to purchasing from direct channels, the use of resellers is also a major consideration, as is the use of price comparison services, and utilizing value-added resellers (VARs).
A Request for Proposal (RFP) is a document distributed to appropriate providers to announce a new project, describing its requirements, and soliciting bids from capable providers that can deliver the service. This system is widely used for government projects but has since been adopted by businesses of all types.
Centralized marketplaces enable businesses to make quick and easy price comparisons, with websites such as Amazon holding a large share of the SMB market due to transparent pricing and reliable product quality.
Resellers, however, could have an edge over such marketplaces if they adopt some of the key features offered by the likes of Amazon. Many SMBs prefer to deal directly with a technology or digital service provider instead of a third party.
By establishing themselves as a trusted SMB partner, value-added resellers can offer a much wider and more cost-effective service. This includes providing guidance on future tech requirements and making recommendations on how costs can be optimized, delivering much more than standard procurement.
- Flexible and Usage-based Consumption Models
Rising costs have forced a rethink about SMB consumption models, with many small businesses preferring a month-to-month pricing model instead of an annual payment for services such as broadband internet. This avoidance of longer contracts gives small businesses much more flexibility and allows them to continually compare the market.
For infrastructure like cloud computing and software-as-a-service (SaaS), SMBs favor a usage-based approach instead of fixed payments – giving businesses more control over their expenditure.
Tech & Digital Services: Demand & Supply
Due to the current economic turbulence, there has been some suggestion that the tech market could see a downturn in the coming years, hit by rapid rates of inflation across the world. Despite this, small business demand for online services does not appear to have waned. Some online services such as fitness, online accounting, and Shopify-based businesses have seen significant growth.
Cryptocurrency is one of the few markets to take a significant downturn, falling to $798 billion from a peak of $2.9 trillion in 2021. And in a recent survey of over 1,200 digital businesses, 40% said they have a bullish outlook about this year’s economy despite many needing to increase prices by between 5-10%. Furthermore, 36% of these businesses also claim that they are willing to invest in new services in 2023 to achieve growth.
4 Tips for Winning Small Business Tech & Digital Service Revenue
Based on the above findings, it is clear that tech and digital services providers must adapt to the current market conditions to continue winning small businesses. Even leading providers have adopted new practices that are likely to transfer to medium and small businesses.
Emphasis on Value, not Price
Pricing is of course a crucial factor during a time when inflation is rising rapidly, with most SMBs performing regular market analyses to compare the price of digital services, especially if their current provider has issued a sudden increase.
The good news is, for larger SMBs, the focus is placed more on the value of a service than just price, allowing providers to differentiate themselves from the competition. Some of the key aspects when emphasizing the value of a service are reliability, customer support, and high performance.
Many SMBs purchase products from a range of providers, preferring to procure the best available products and prices, as opposed to a packaged product that may not provide the best overall solution. This is because packaged products are not individually tailored to suit the needs of specific businesses.
As such, products need to be more customizable to appeal to smaller businesses, with product ‘bundles’ being more flexible to allow customers to choose alternatives, or swap out any services that are not applicable. These bundles can be tailored for a specific industry, reducing the product offering to only include products that the business needs.
Giving customers license to design their product bundles can be an attractive proposition for SMBs that want to reduce the number of providers they work with, for a more manageable solution.
An End-to-End Service
Most stages of the buyer’s journey are now completed online, from the initial research, the transaction, and through to seeking product support. Websites and eCommerce platforms that offer assistance during the process, such as a built-in chat function, are also popular with SMBs, as opposed to a self-service website.
For a long time, businesses have moved away from ordering products via the telephone due to automated voice systems and waiting times. This is why providers have transferred to complete online services, facilitating everything from purchases to product video tutorials, and customer support. That’s why businesses need to invest heavily in learning how to create high-quality media content for their customers and online customer support systems that can respond to inquiries quickly and effectively.
Similar to how eCommerce has developed a personalized B2C approach, digital providers are now offering a similar experience to potential clients in terms of outreach. Personalized outreach campaigns based on industry or the size of businesses are an effective way of grabbing the attention of prospects. A segmented marketing strategy allows providers to build targeted campaigns that can be optimized over time, offering a greater return on investment.
With broad campaigns, recipients may have to skip through sections relating to products that do not apply to them, or they may think the provider lacks expertise in their industry. Personalized campaigns allow for more direct messaging, and a customized product offering, giving providers a chance to display their knowledge and understanding of specific industries and niches.
Winning Small Business Tech & Digital Service Revenue in Economic Uncertainty: Summary
Economic uncertainty and rising inflation provide a considerable challenge for any business, meaning they may need to revise budgets and reduce spending. Fortunately, small-to-medium-sized businesses still place great importance on tech and digital services, deeming some services to be essential.
To appeal to SMBs, providers must understand the change in buying habits and the way small businesses procure new products and services. These changes range from a shift towards a ‘try before you buy’ approach, to pricing based on usage instead of a fixed rate.
Larger providers have implemented new practices to remain competitive in the current market conditions, and these practices will likely be adopted across the sector. Core practices include personalized outreach, an end-to-end online service, customized product bundles, and promoting a service’s overall value instead of just the price.
By following these best practices and making the necessary adjustments, the tech and digital service industry is expected to continue to flourish, fuelling the nationwide growth of smaller businesses.
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