For over 25 years, many of the clients I’ve been fortunate to work with have been marketers at large organizations that sell products and services to small businesses. These marketers have been talented, innovative and smart. Ironically, however, almost none of them have ever run, or even worked at, a small business. Time after time, my colleagues and I have seen how easy it is for these smart marketers to fall into the trap of thinking their small business decision-making customers run something that’s like a big business (an “enterprise”), just smaller. In reality, the people who make buying decisions for small businesses live on another planet in a galaxy far, far away from what the marketers envision.

Big businesses have an operational mindset

A major difference is experiencing a reality of what it takes to get things done at a big corporation: organization and structure. For necessary reasons, large companies are organized in a hierarchy and order based on what I describe as an “operational taxonomy” (borrowing the word “taxonomy” from the approach scientists use to map out classifications and connections). Such a taxonomy enables workers with specialized skills and responsibilities to understand where they fit into an organization by department (finance, marketing, IT, production, etc.), rank (assistant to the regional manager vs. assistant regional manager) or mysterious function (fixer, closer, rainmaker). The operational taxonomy of operations is so dominant among large corporations, it has become the way in which business schools organize academically. A person who has an MBA with a marketing focus has become an expert not only at marketing, but where marketing fits into the operations of a company.

Small businesses have a situational mindset

In a small business, people typically have multiple responsibilities and little perception of operational boundaries. (“Hey, can you help me move this table?” the intern asks the owner.) The flexible structure (translation: structure that looks like chaos) gives rise to what I call a “situational taxonomy.” Small businesses often don’t know, nor care, whether a problem is financial or operational, marketing- or technology-based. They simply know they have a problem that needs a solution. And the solution needs to appear now.

What this means if you sell products or services to small businesses

Except for skills and knowledge related to their industry or market niche they serve, a small business owner is typically a generalist when it comes to business operations. Often, we don’t always know what we don’t know.

Unless your product or service is tied to a specific profession or industry, when you describe it to a small business customer, don’t use the language of a big business (or “enterprise”). Don’t talk about features or use acronyms or technical specifications. Talk about the situation a small business owner is likely facing when they are looking for your product. Talk about how your product or service addresses the situation.

Here’s what it’s like when you are a small business owner who wants to buy your product

Imagine yourself at a hardware store asking a clerk if they have one of those thingamajigs that goes with a whatchamacallit. That’s what it’s often like when a small business customer needs your product. We just don’t know the name of your product, or even the category of product you may consider it.

A small business owner or manager wears many hats throughout the day. If you can find a way to help a small business customer understand how your product or service can enable them to wear one less hat, you’ll have a better chance of generating sales and starting a long-term relationship.

(Note: A version of this article by Rex Hammock, founder of SmallBusiness.com, first appeared in Idea-Email, the “un-newsletter” of Hammock Inc., the direct-to-customer media and content company and host of SmallBusiness.com.)

]]> https://smallbusiness.com/selling-to-small-business/what-is-an-smb/ Thu, 20 Sep 2018 17:30:23 +0000 http://smallbusiness.com/?p=8242 (Originally Shared on SmallBusiness.com on April 14, 2014. We can’t say this enough.)

As within any tribe of professionals, it’s normal for those who market products and services to small businesses to develop an inside language of buzz-terms and acronyms as shortcuts for long strings of words or common concepts. As business-to-business marketers can’t do what consumer marketers do when they describe customers as a set of demographics (women, ages 18-21, for example), marketing strategies for reaching small business decision makers tend to describe the customer by the size of a company (revenues or employees), the industry “vertical,” or other factors like location. For that reason, the proxies for consumer-like demographics have evolved into terms like:

• Microbusiness
• Small office/home office (SOHO)
• Small and mid-sized (or medium-sized) business (SMB)
• Small and medium enterprise (SME)

As marketing strategy terms, those labels may make sense. However, if you are not a marketer to small business, but an actual small business, there’s a big possibility that you have no idea what any of those terms actually mean. And even if you did, you’d likely prefer to be described as a small business, anyway.

When strategy words escape the marketing department.

Often by accident, the inside-baseball marketing terms that we use while developing and managing a marketing strategy become so much a part of a marketer’s vocabulary, the terms start creeping into conversations with people who, by the blank looks on their faces,  have no idea what we’re talking about. Strangely, that doesn’t stop us from using them. We even start naming products and services with acronyms no one in the target audience ever use (see graphic below).

The problem with using “strategy labels” like SMB or microbusiness when communicating with customers.

Even though it is quite normal to talk in the marketing department with the language of demographics and target markets, if you were a consumer marketer, I doubt you’d ever approve the slogan, “This Bud’s for Males, 21-34.” But that’s exactly what you do when you brand something the “SMB Solution Center.”

When marketing to small business owners and managers, use the labels they use.

Next time you talk with one, listen to how a small business owner or manager describes himself or herself and you’ll never hear an acronym used in their description (unless they are a CPA, or perhaps, an ENT). They’ll self-identify using phrases like, “I run a business” or “I have a bike shop” or “I’m an electrician.” They will use terms like small business or family business or independent business to differentiate their companies from certain types of businesses they know have negative connotations among customers (as I’ll note shortly). Rarely do the people who own and run small businesses, even fast-growing ones, call themselves an entrepreneur. However, in recent years, they’ve stopped correcting others who say they are. While they may admire entrepreneurs, most small business owners  think the term refers to someone else.

In three decades of marketing products and services to small business owners, I have never once heard a small business owner or manager describe himself or herself or their companies using any of the following terms: microbusiness, SOHO, mid-sized or SMB.

Small Business owners and managers want their companies to be called a small business because they view it as a competitive advantage

(Click to enlarge image.)

(Source: Pew Research via USA Today, 4/23/2010)

The findings of a 2010 study by Pew Research may shed some light on why a business of any size would like to be identified  as a small business. According to the Pew study, Americans trust the institution of “small business” even more than they trust religious organizations and universities.

(Click to enlarge.)

(Source: Gallup, Surveyed: June 1-4, 2013)

In similar research conducted by the Gallup organization last year, “the institution of  small business” ranked #2 when the U.S. military was added to the list. Still, the findings show there’s plenty of goodwill in the marketplace for small businesses. To be a “small business” is to be trusted. To be something else is to be less trusted. 

The term “small business” has statutory definitions that benefit a wide variety of businesses, and that are baked into thousands of state and federal laws, regulations and administrative codes.

Another reason a small business (or, even a mid-sized one) wants to be called a small business is quite practical and bottomline oriented. The term “small business” appears 996 times in the U.S. Code, the massive collection of all U.S. laws. Here’s how many times the following terms appear in the code: Mid-sized business:  0;  SMB: 0, Microbusiness: 0. Unlike the marketing-department strategy terms “mid-sized” “SMB” or “microbusiness,” the definition of  small business has been standardized and codified by the U.S. government (and like other government creations, it’s quite complex). Nearly all federal legislation appropriating government funds includes language requiring part of those funds be spent with companies designated (and defined) in the law as a “small business.” For an example, visit this Small Business Set Aside FAQ on the website of the U.S. General Services Administration. Knowing precisely what a small business is can keep a company from being subjected to certain regulations or taxes. Because such things as SBA loans and government contracts hinge on a very precise understanding of what the term”small business” legally means, those who run small businesses don’t devote any time wondering if they fall within the parameters of measurements dreamed up by marketers. Being what the government defines as a small business is more important to them than, say, the desire of Walmart’s Sams Club to redefine a huge segment of small businesses as “microbusinesses.”

Multiply the following by 50 states: The House Committee on Small Business, The Senate Committee on Small Business and Entrepreneurship, The Small Business Administration.

(Illustration: SmallBusiness.com, photo: Google Maps Street View)

As noted in the previous point, the process of codifying the term “small business” has taken place over a period of six decades. Each state and territory uses the term “small business” for agencies, committees and programs. The term small business is actually  written in stone on the front of an office building in Washington, DC. (see graphic). From a lobbying standpoint, any strategy that appears to break up the trusted institution of  “small business” into smaller segments called “micros” and “mid-sized” would appear to be a divide-and-conquer strategy that could negatively impact the ability of small businesses to have a unified message.

Small Business Saturday

Five years ago, when American Express chose to put its marketing muscle behind the idea of supporting a “Small Business Saturday,” they closed the door on those who might want it to be called Microbusiness Saturday or Small and Mid-sized Business Saturday. In other words, tens of millions of dollars have gone into a campaign that encourages small businesses, of any size, to call themselves a small business on the Saturday after Thanksgiving.

And finally: No one has ever said the following sentence, ‘My goal in life is to one day start and run an SMB.’

(Photo: Joshua Ommen via Flickr)

Again, there is nothing wrong with using any acronym you want when discussing marketing strategy behind closed doors. But when you start using terms like SMB, those who don’t know what SMB might mean will do what we all do: Google it. And they’ll be even more perplexed when they discover that the first several links on the Google search results page will explain to the small business owner that an SMB is a “‘Server Message Block’ that operates as an application-layer network protocol mainly used for providing shared access to files, printers, serial ports, and miscellaneous communications between nodes on a network.”

Of course, if you aren’t a networking engineer, after reading that, you’d still have no idea what an SMB is.

So now you know what it feels like when you call a small business an SMB.

While American’s overall trust in national institutions has fallen to historically low levels, three of the 15 institutions tested annually in the Gallup confidence study remain at their long-held positions atop the list: (1) The Military, (2) Small Business, and (3) Police.

Highlights of the  “Gallup American “Confidence in U.S. Institutions, 2018” 

• Americans’ average confidence in the nation’s major governmental, economic and societal institutions has leveled off at a historical low point.
• Not only are the military, small business, and police, the most trust institutions, they are the only three institutions that receive higher confidence ratings from a majority of Americans.
• The 12 other institutions are trusted by less than 50% of Americans.
• If you’re looking for some positive metric in the annual research, here’s one: Compared to previous years, the distrust of American institutions didn’t get worse.

GettyImage | USS Constellation returns home from Persian Gulf area, 2003.

Percentage of Americans who trust the following institutions either “a great deal” or “quite a lot.”

*Trusted by a majority of Americans

Source | Gallup “Americans’ Confidence in U.S. Institutions, 2018”, June 1-13, 2018

In the U.S., almost every government entity is required by law to include small business suppliers, vendors or other types of product or service providers when making purchases that are a part of the programs they administer. But what exactly is a small business? The legislation that established the Small Business Administration states that unless specifically authorized by statute, no other federal department or agency may prescribe a size standard for categorizing a business concern as a small business concern unless such proposed size standard meets certain criteria and is approved by the Administrator of SBA. 

Therefore, the first step for a business to become a government contractor is to accurately meet the legal (or statutory) definition of “small business” for your specific industry.

(Note: This entry focuses specifically on size standards, not on the process of applying for a contract.)

To qualify as a small business government contractor, you must adhere to industry size standards established by the U.S. Small Business Administration. For most industries, the SBA defines a “small business” either in terms of:

1 | Average number of employees over the past 12 months
2 | Average annual revenue over the past three years

In addition, the SBA defines a small business as a concern that:

• Is organized for profit
• Has a place of business in the US
• Operates primarily within the U.S. or makes a significant contribution to the U.S. economy through payment of taxes or use of American products, materials or labor
• Is independently owned and operated (i.e., not a subsidiary of a larger company)
• Is not dominant in its field on a national basis
• Is a sole proprietorship, partnership, corporation, or any other legal form of ownership

In determining what constitutes a small business, the definition will vary to reflect industry differences, such as size standards.

North American Industry Classification System (NAICS)

The SBA uses the North American Industry Classification System (NAICS) as the basis for its size standards.  Visit the official NAICS website to find the code(s) that apply to your industry, then use the SBA’s Size Standards Tool  to determine if your business qualifies.

Links to the Most Recent SBA Updates Related to Size Standards

Size standards change. But those changes are not across-the-board. For that reason it is important to seek the most recent information from the SBA regarding standards in your industry. The following links go to SBA online resources that are updated when changes are made in specific industries

What’s New with Size Standards

• Get updates on small business size standards news.

istock

Also on SmallBusiness.com

Answers to 20 of the Most Frequently Asked Questions About U.S. Small Business

Experian, the credit reporting company, has released the findings of a new study that compares 2.5 million random small business owners to similar data of consumers who don’t own a business. The results not only provide an interesting comparison to consumers, they offer an interesting comparison to research provided by other sources including the Census Bureau and Small Business Administration.

“Since the health of small business tells the tale of how the overall economy is performing, it is encouraging to see that while small business owners have an exceptional amount of credit available to them and carry a higher debt load, they have done a great job managing their payment obligations and keeping utilization low,” said Pete Bolin, director of consulting and analytics for Experian’s Business Information Services.

Credit management and access to credit

(Note: While small business owners are consumers, in these findings, the term “consumer” refers to individuals who don’t own a small business. )

721 | The average credit score of a small business owner
673 | The average credit score of a consumer

$56,100 | Average credit limit of a small business owner
$26,900 | Average credit limit of a consumer.

$195,000 |  Average debt load of small business owners
$96,000 | Average debt load of a consumer

$2,032 | Average payment made per month related to debt
$954 | Average payment made per month related to debt

5.9% | Small business owners with  bankcard trades 90+ days beyond terms (during past 24 months)
7% | Consumers with  bankcard trades 90+ days beyond terms

Income and home ownership comparison of small business owners and non-owners

Small business owners are more likely to own a home, have a higher income and be older than non-business-owner consumers

$91,600 | Average household income of small business owners
$70,400 | Average household income of consumers

62% | Percentage of small business owners who own a home
47% | Percentage of consumers who own a home

$192,000 | Average mortgage balance for small business owners
$147,000 | Average mortgage balance for consumers

Demographic comparison of small business owners and non-owners

56 | Average age of a small business owner
51 | Average age of consumers who don’t own a small business

68.6% | Percentage of small business owners who have attended some college and beyond
53.5% | Percentage of consumers who have attended some college and beyond

65.6% | Small business owners who are male
31.2% | Small business owners who are female

47% | Consumers who are male
46.4% | Consumers who are female

Thinkstock

Babson College has released the findings of a study of small business owners called,  The State of Small Business in America (PDF). The purpose of the report is to advance small business owners’ perspectives on how to grow in the U.S. business landscape specifically around: access to capital, the regulatory environment, workforce, and technology. It is based on the feedback of over 1,800 respondents across the country, all of which have at least four employees and at least $150,000 in revenues. Below are some highlights from the 40-page report. (Note: Limiting the survey to small businesses with at least four employees means the survey does not include the largest segment of small businesses, the self-employed.)

Obtaining capital is challenging for small businesses

Banks | Primary source of funding
$100,000 | Median amount requested (across all sources, including banks)
$40,500 | Amount lent

Sidenotes | Companies run by people with a business and management education are more likely to obtain capital and secure a greater portion of their request. To facilitate access to credit, businesses are asking for more flexible loan terms.

Regulations are a challenge for small businesses

60% | Find difficulty in understanding and managing government regulations and laws
4 Hours | On average, the time spent per week is spent dealing with government regulations and tax compliance
200 Hours | The time spent annually dealing with government regulations and tax compliance

Sidenote | For the vast majority of respondents, the owner is primarily responsible for dealing with regulatory issues.

Skills gap is a major issue in finding employee

70% |  Say it is difficult to hire qualified employees

Business owners value technology but are hindered by costs

80% | Recognize the importance of technology to the growth of their businesses
49% | Say that cost-related issues account for significant technology challenges

Sidenote | Cost-related issues range from the expense of  new technology  to the cost of upgrades and maintenance to training

Cyber security is viewed as a significant threat

40% | Businesses that feel ill-prepared for a cyber attack
25% | Have been victim of a cyber-attack

Illustration: SmallBusiness.com

Because of the extensive media coverage of young tech entrepreneurs, most people think the average small business owner is a 20-something techie who needs a shower. But as the chart below shows, the median American small business owner is a bit over 50 years old.

Demographic Diversity Among Small Business Owners

The chart is from Babson College’s State of Small Business in 2016 study. It’s a comprehensive, 40-page report covering a variety of small business issues. The report focuses entirely on small businesses with employees. It does not cover independent workers (freelancers, etc.).

(For more SmallBusiness.com coverage of the Babson 2016 study, see: Highlights of Babson College Small Business in America Research)

(via: Small Business Labs)

Photo: ThinkStock

According to Gallup’s 2015 survey of Americans’ confidence in major institutions, only the military (72%) and small business (67%) — the highest-rated institutions in this year’s poll — are currently rated higher than their historical norms.

(Click to see larger version of the graphic above)

As we’ve explored before, there’s one competitive advantage that small businesses have over big businesses: By a gap as wide as the Grand Canyon, Americans trust the “institution” of small business far more than they trust big business. Indeed, only Congress ranks lower than big business on Gallup’s annual survey of American’s confidence in the nation’s institutions.

These results are based on a June 2-7 Gallup survey that included the company’s latest update on confidence in U.S.

“Americans’ confidence in most major institutions has been down for many years as the nation has dealt with prolonged wars in Iraq and Afghanistan, a major recession and sluggish economic improvement, and partisan gridlock in Washington,” says Gallup. “In fact, 2004 was the last year most institutions were at or above their historical average levels of confidence. Perhaps not coincidentally, 2004 was also the last year Americans’ satisfaction with the way things are going in the United States averaged better than 40%. Currently, 28% of Americans are satisfied with the state of the nation.”

Confidence in U.S. Institutions as ranked by Gallup survey participants

Survey participants were read this: “Now I am going to read you a list of institutions in American society. Please tell me how much confidence you, yourself, have in each one — a great deal, quite a lot, some, or very little?”

This is a ranking of the percent of participants who answered either “a great deal” or “quite a lot.”:

72% | The military
67% | Small business
42% | The police
52% | The church or organized religion
37% | The medical system
33% | The U.S. Presidency
32% | The U.S. Supreme Court
31% | The public schools
28% | Banks
24% | Organized labor
24% | Newspapers
23% | The criminal justice system
21% | Television news
21% | Big business
 8% | Congress

Graphic: SmallBusiness.com

Quote:

One reason Main Street isn’t over the moon for Big Corporate: Large brands tend to lump small business into one category, says Harris, failing to adjust their sales approaches when calling on, say, an architecture firm or a tech startup.

Continue reading: Small Business Owners Aren’t Big Fans of Big Brands (BusinessWeek.com)