Small and medium businesses (SMBs) form the backbone of our economy. As per industry experts, many unique propositions make SMBs the largest opportunity for IT solution providers. In this story, we explore the USPs and various IT opportunities that SMBs offer on the table
With more than 51 million SMBs, the sector contributes 45 percent of manufacturing output, 40 percent of exports and is likely to contribute up to 20 percent of India’s GDP by 2020. These businesses produce more than 6000-8000 products and employ a staggering 106 million people, second only to agriculture.
In the past, most SMBs looked at technology as nothing more than a way to support what they were already doing. But a recent SMB Group research shows that currently, three-quarters of small business respondents (companies with 1–99 employees) agree that using new technology effectively is key to their company’s survival and growth and that technology is reshaping their business models and their industries. As per industry estimates, SMEs in India are touted to be a $25.8 billion market for emerging technologies by 2020.
SMBs mostly learn through examples and success stories from large enterprises within their domains. In fact, they have a few unique propositions to offer. “Due to limited IT budgets, SMBs are currently focusing to stabilize their IT in terms of infrastructure and security. They want to try new technologies as long as the cost of entry is not prohibitive. In terms of ease of doing business, SMBs have improved in the last 3-4 years and there are signs of consistent planning and spending in the areas they want to improve,” reveals Ashish Kamotra, CEO, Adapt Software.
Industry experts accept that while SMB IT requirements are similar to the large enterprises, the difference comes in affordability and execution. “SMB IT requirements are no different from large organizations but due to affordability and lack of process maturity, project implementation takes longer. Project execution remains a big challenge among SMBs especially when it comes to development and implementation of software. Therefore, we advise SMBs to look for readymade software, which can be implemented quickly,” explains L Ashok, Founder & CEO, Futurenet Technologies.
Moreover, SMB’s business decisions are dependent on how crucial the investment is for continuing the business. “Most of the SMBs lack planned IT investment strategy and deal closures are dependent on price and extended credit terms. However, the closing cycle is short as when they realize that investment can’t be delayed they move quickly,” shares Vipul Dutta, CEO, Futuresoft Solutions.
With some unique propositions, SMBs offer a number of opportunities for IT solution providers.
Cloud is opening up an opportunity for SMBs to bring about a paradigm shift in the use of technology to improve their operations and productivity, in-turn improving their competitiveness and profitability. With ISPs having built connectivity infrastructure across India and a mature channel partner ecosystem offering tailor-made cloud services to SMBs, this is an opportune time for SMBs to leverage cloud technologies to drive their growth.
With cloud services, SMBs can increase storage and computing capabilities during peak hours or seasons and scale back when not as much processing power is necessary. This allows them to serve their customers just as a larger organization would without overbuying internal resources. Moreover, 74 percent of SMBs in a Techaisle study say the cloud enables more agility in business operations. Channel partners with customized cloud offerings definitely have a good opportunity here.
“SMBs mostly want integrated solutions to limit complexity and therefore seek channel partners that are capable of delivering cloud and mobility solutions together in an integrated way. SMBs are expected to continue to increase their usage of cloud services for data storage, file hosting and sharing,” says Anil Sethi, Vice President and General Manager, India Channels, Dell Technologies.
He adds that clients want their channel partners to strategically support their business around cloud and mobile applications, IaaS, social media, and big data. Reduction in operating expenses and improvement in cash flow is seen to be a significant benefit of cloud adoption.
Besides lowering prices, benefits like pay-per-use, easy ramp-up, and ramp down are the reasons why SMBs are looking at cloud as a better option. However, once their usage for a specific service/application reaches the 80 percent mark on a monthly basis, we suggest them to opt for Capex model as that’s way too cheap in the long term, discloses Dutta of Futuresoft.
He adds that HCI and software-defined infrastructure are being consumed more regularly as it’s available on Opex model now.
In addition, tools like Office365 are giving SMBs more options to improve their employee productivity at a very small entry cost. “Many of the businesses opt for ERP and HRMS on the cloud so that human resource can concentrate on customers rather than on IT,” shares Kamotra of Adapt.
He adds that contribution from SMBs in Adapt’s business has increased from 10 percent to 30 percent over the last 3-4 years. “One of the important reasons for such a pattern is cloud adoption by SMBs, especially during the last one year. We have seen new opportunities for value-added services and solutions that include training and employee productivity tools such as document management systems and chat-tools.”
SMBs are finding themselves in the center of ever-increasing security threats. SMB customers’ concerns regarding cyber attacks are warranted, especially as Verizon’s 2018 Data Breach Investigations Report found that 58 percent of all breaches in the past year occurred at small businesses – exceeding those at large corporations. Cybercriminals have zeroed on these organizations as a focus area for they have data, have fewer protection resources and less training.
For SMB customers, a cyber attack is a high-stakes situation, as 60 percent of small businesses close within six months of a breach. “SMB leaders are aware of these risks, and are taking steps to invest further in security and minimize their susceptibility to cyber attacks, with 25 percent of small businesses and 62 percent of mid-market businesses noting intentions to increase their security budgets,” Rajesh Maurya, Regional Vice President, India & SAARC, Fortinet.
“SMBs have 1-2 full-time employees dedicated to managing its data and IT infrastructure. However, these individuals are IT generalists and not highly skilled in managing security breaches. Hence security offers a huge opportunity for partners,” reveals Manasi Saha, CEO, Macaws Infotech.
Partners can leverage the security requirements of the SMBs by offering services like technical and threat assessments, security deployment, centralized management solution, as well as by offering SOC and NOC services.
Many SMBs have limited in-house IT expertise and want to have some or all of their network management provided by a partner. Some of them want the flexibility of servicing their own network with the assurance that fast, expert technical support is easily available when a problem arises. For most SMB customers, cost containment is crucial. To address these different needs, IT companies often develop individualized suites of services and products from ground-up that helps SMBs realize the full potential of their investments with the right types and levels of services for their businesses.
“While SMBs benefit from solutions that are simple to install, use and maintain, they also benefit from solutions tailored specifically for their industry, from retail to real estate. That’s where a value-added re-seller or trusted technology partner that understands a specific industry and its unique business needs can help an SMB maximize the business value of its technology investments,” explains Ashok of Futurenet.
We are seeing a trend where SMBs want to reduce their internal IT teams by moving more stuff to the cloud. “Therefore, demand for managed services will shift from maintenance to value-added services in the near future. SMBs or large companies will be willing to invest in managed services for improving the ROI on their software investments through training etc. Infrastructure-as-a-service will replace traditional managed services in large companies during the next 3-4 years,” believes Kamotra of Adapt.
Dutta of Futuresoft adds that SMB’s are interested in shared services where they expect a single partner to offer capabilities across technologies and charges them on per call basis.
New tech adoption
Digital technology can help SMBs differentiate themselves in the market thus enabling them to make a new offering or offer an existing product or service in a newer way. This translates into using AI for greater customer interaction, IOT to create newer business offerings, robotics to increase plant output and efficiency, and data analytics to determine consumer trends.
Few of the technologies that are affecting the productivity and effectiveness of an SMB are conversational chatbot technologies with AI and machine learning. Chatbots and auto answering systems enable companies to expedite consumer complaint redressal and handle millions of queries within minutes. This sensitivity to customer requirements helps companies build customer loyalty while improving their bottom lines. “SMBs in the manufacturing, construction, services, and education sectors are adopting this rapidly and most of them will internalize this technology by 2020. The IoT is entering the small business sector which is highly embraced by the industries that are asset-heavy,” shares Sethi of Dell.
While many of the industry experts have not observed very active adoption of BI and AI among SMBs at the moment, they are confident of active adoption in the near future. “The silver lining is that SMBs are watching how these new technologies are helping large companies so that some of these examples can be replicated. We do not see significant budgets earmarked for AI or BI, but we definitely see them keen to participate as long as they see it working in their industry domains,” shares Kamotra of Adapt.
What’s holding back
Despite being a critical component of India’s growth story, the SMB ecosystem faces several challenges. Lack of adequate capital and credit, poor infrastructure, inadequate access and constraints on modernization hamper their ability to improve profitability and grow at scale.
“Major pain is the uncertainty of budgets. It is challenging for a small business to define annual IT budgets and stick to it. These constraints delay sales cycles and many time deals are no more viable,” retorts Ashok of Futurenet.
On the other hand, SMBs are more agile as compared to large enterprises. SMBs are willing to adjust as per technology and requirements that improve the chances of success when a new initiative is taken.
Experts believe that SMBs are aware of the importance of digitalization and their learning curve is progressing well. Their own experiences as customers with other large companies are giving them enough insights to think ahead. The challenge remains in the selection of appropriate IT tools for the digitalization journey. “We see more and more business owners and their teams attending IT events to learn new things. This clearly indicates they are willing to spend money on technology as long as they find the right tools. Hence IT partners and solution providers have a large role to play,” reveals Kamotra of Adapt.
At the same time, the economic landscape for SMBs is changing rapidly with a fast-rising consumer demand curve. The ecosystem has transformed in a big way over the past decade with the rise of digital technologies and a more-evolved consumer. With 400 million active Internet users – and 250 million more set to join in by 2020 – Indians are morphing fast into digital customers who know how to look for products and services online.
The SMB sector is at a critical juncture today. As it continues to tackle these challenges, the key to meeting consumer demand and solving the problems of profitability and scale, come down to technology, and how it is delivered to them.
Multiplier effects of cloud
According to a study on the ‘Socio-Economic Impact of Cloud Adoption by SMBs in India’ conducted by the Thought Arbitrage Research Institute (TARI) in association with Microsoft, reduction in the investment cost (capital expenditure) on technology can lower entry barriers for SMBs for accessing technology, which then creates a positive multiplier effect.
Productivity gains afforded by the cloud are strongly reflected in business metrics, such as improvement in operating expenses and better cash flow from business operations. The gains have been quantified using statistical analysis, some of which are as follows:
- SMBs show a multiplier effect of 1.5 times in improvement of productivity metrics when they move from low to medium cloud usage.
- Profitability indicators (reduction in operating expenses) show a multiplier effect of 3x once SMBs move from low to medium cloud usage.
- 96% of SMBs find a positive impact on their operating expense within two years of high cloud usage (and this remains stable with time, demonstrating that the gains are sustainable).
- SMBs’ ability to improve products and reduce launch time improves 100% when they move to high cloud usage from medium cloud usage.
Some of the improvements in productivity and profitability, as brought out in the survey, are as follows:
- Asset utilization increases only 17% on low cloud adoption, but 52% on moderate and 66% on high cloud adoption.
- Employee productivity increases only 21% on low cloud adoption as compared to 51% on moderate and 81% on high
- Operating expenses reduce only by 13% on low cloud adoption, but a considerable 47% on moderate and 68% on high.
- Cash flow increases only 13% on low cloud adoption, and 33% on moderate and 53% on high.