Recently, in SME / SMB Have Become Obsolete Acronyms I discussed how now, that business software and services have become affordably available to small businesses, the SME term has become inadequate to describe this market, especially from the software industry's point of view. Simply because the needs of a $100M company, which SAP and Oracle consider a "small" business are not even comparable to a 6-10 person company - traditionally referred to as SOHO, while recently a new term is popping up: VSB - very small business, the absolute "S" part of SMB.

Innovators in the software business are increasingly focusing on this segment. The result of this change is that "Enterprise Software" is no longer the luxury of large corporations. This might sound like a shocking statement, since "Enterprise Software" typically means the world of SAP and Oracle, and the traditional heavyweight, expensive, pay-huge-license-fees-upfront, then try-to-implement-forever model that does not work anymore.

But there is another definition that is largely being overlooked:
Software that allows a company to conduct it’s everyday business, supporting most of the core, fairly standard business processes any company performs repeatedly.

With this definition, Enterprise Software has a whole new, largely unpenetrated market to enter: that of small businesses. Such business functionality has traditionally been beyond reach for a typical small business, for two major reasons:

• Cost (license, hardware, implementation, maintenance ..etc)
• Lack of IT resources (integrating applications, designing processes, dealing with multiple vendors ..etc)

SaaS is the right answer for both, since it allows the SME user to start using the functionality without an upfront investment, does not require implementation, upgrades, maintenance, worrying about backups and security ..etc.

Of course several Open Source packages are available completely free, which is a perfect solution for the cost problem, but frankly most of these packages are by geeks for geeks; i.e. you really have to be quite IT-savy to implement, integrate, upgrade them, and as we stated most small businesses simply do not have that type of resource.

Stefan, Winweb's Founder and CEO started an excellent mini-series on Saas Benefits detailing a lot of technical, delivery, usage aspects - now I am going to look at the changed economics from the other side, the software vendors' point of view.

If SME’s could not in the past afford Enterprise Software, the same held true for the Software Industry: they could not afford SME’s, since there was just no way to profitable reach millions of small businesses. The cost of customer acquisition vs. the very low license fees made it an uneconomical model, whether via direct or channel sales. A common "dirty secret" of the industry is that about 80% of a an enterprise software company's cost is Sales and Marketing. There's a lot of "fat" in that sales process that needs to be cut out.

Once again, technology comes to the rescue: the Internet, and largely Search Engine Marketing changes everything. Joe Kraus, Founder of JotSpot and previously Excite sums it up:
“ Ten years ago to reach the market, we had to do expensive distribution deals. We advertised on television and radio and print. We spent a crap-load of money. There’s an old adage in television advertising “I know half my money is wasted. Trouble is, I don’t know what half”. That was us. It’s an obvious statement to say that search engine marketing changes everything. But the real revolution is the ability to affordably reach small markets. You can know what works and what doesn’t. And, search not only allows niche marketing, it’s global popularity allows mass marketing as well (if you can buy enough keywords). “

Another benefit of SEM (search engine marketing) is that while traditional advertising can pick the right demographic groups, it cannot pick the right time, only a fraction of the target audience is in “change mode”, looking for a solution. That’s the beauty of Search Engine Marketing: obviously if you are searching, you have a problem and are looking for a solution, which is half a win from the vendor’s point of view.

Small Business Trends published a survey on “Selling to Small Businesses”, which supports the increasing importance of SEM: “A full 73% of vendors attract small business customers through search engine results”

Joe has another excellent article worth reading; especially the last two bulletpoints are relevant to our discussion here.

What we're seeing is that the SaaS model changes not only the technology and the delivery of software to customers, but the marketing and sales process, too, which is perhaps where most of the excess "fat" can be cut from. Software companies can now directly and affordably reach millions of small customers. The entire marketing, sales, delivery, implementation, support, upgrade process is seamless, highly standardized, conducted via the Net, teleconferencing, Webex-like sharing in new low-cost ways.

So how do software companies make money on small businesses? Ziff Davis has the answer: “Products for the long tail and SMB market, where 72 million businesses spend $5k or less each year, are a much easier play” Wow, I don’t know where those numbers come from, but if I were a SME-focused software vendor, I’d certainly like them … there’s a goldmine out there.

AMI Partners confirm: U.S. SMBs to Spend $2.2 Billion on Software in 2006

(This article, with minor changes is cross-posted on my personal blog)

Tags: Enterprise Software, Sales, Enterprise Sales, Demand Generation, SAP, Oracle, Jotspot, web20enterprise, business model, Open Source, SEM, Search Engine Marketing, SMB, SME, VSB, Small Business, Winweb

The Internet has previously been considered a holy grail for wealth and massive revenues. Although that perception had to be amended, it is still true that your web site can provide you with additional income. However, not every product or service is suitable to be sold online. Always remember that your customers will judge the experience, not only the product. This means if your delivery system is not efficient or your delivery costs are too high people are unlikely to buy from you again. Having said that, most products and even services can be sold online and today’s sophisticated systems, such as Winweb Shop, make the set up and maintenance of your online shop very easy.

Frequently Asked Questions about selling online

a) How much does the set up of an online shop cost?
Set up and maintenance cost for your online shop differ vastly depending on which supplier you choose. You can ask your hosting company to provide you with an online shop facility. Also, it depends on whether you want to accept credit card payments or only allow users to browse your catalogue and then call you to order. Winweb OnlineOffice provides all single parts you need to set up your online shop through one interface.

b) Take credit card payments for e-commerce with our partner PayPal?
Yes, there are different ways of accepting credit card payments on your e-commerce site. You can either list your products on your website, provide a telephone number and process every order manually, or (taking advantage of Internet technology) you can accept credit card payments securely online. Winweb can handle the entire process securely for you. You only need to decide what to sell online. Winweb E-payment lets you take credit card payments directly into your bank account.

c) How can I drive customers to my website?
There are different methods of advertising your website. Start by mentioning your online shop on all your business stationery, in your brochures, etc. You need to optimise your site for search engines and register it with them and sending well written announcements to relevant press is also a must. Depending on your product you can also announce your store in newsgroups, place flyers in local shops, at the dentist or wherever your clients are likely to see them.

d) Can I compete with the huge number of suppliers already online?
Yes. You have to make sure that you target the right market and identify your competitive advantage. This might be local knowledge, customised products or better customer service. If you had your business for some time you will know what sets you apart from competitors. Play on these strengths when you set up your online shop. To start off you will give your existing clients a new channel to interact with you. Work with them and ask them what they like and dislike about your product, service and web shop.

e) Is selling online profitable?
Again, the Internet is not the solution to all your sales problems. It has to be seen as an integral part of your business strategy. If you product is not suitable for selling online you shouldn’t force online sales. How ever, if you plan your shop properly and calculate the costs involved, prepare for increased demand and monitor your ROI (return on investment) closely, your online shop can provide a substantial amount of income.

f) How long does it take to set up my online shop?
Setting up your online shop doesn’t take much time. It depends, however on the nature and number of products you wish to sell. You need a description, price and picture of each product. Ideally, you should also have customer testimonials.
If you use a template system, like Winweb Shop, entering the single products and modifying the look and feel of your shop is a very straight forward and quick process.

g) How much control can I have over my own online shop?
The online shop you choose should give you the level of control you need. Of course you should be able to add or remove products and change prices or discounts anytime. How much control you want to have over the actual design and look of your shop depends either on your programming skills or the amount of money you want to spend designing your shop. The Winweb solution is very flexible when it comes to product management. It also is directly linked to your accounting system, which means every transaction is automatically booked.

Checklist for your online shop

• Which products / services do you want to sell online?
• Will you sell only to UK residents, other countries or worldwide?
• How will you send your goods to your customers?
• For each product: 100 word description, 500 word description, professional picture, price.
• Terms and conditions for your customers?
• Who in your company will look after fulfillment of online orders?
• How much business do you expect to come through the website?
• What is your return and refund policy?
• Where will you promote your new shop?

Tags: Business Development, Business Start Up, E-Commerce, Exporting, Home Business, Micro Business, Office/IT, PayPal, Online Shop, SaaS, Selfemployed, Small Business, smb, sme, sme-blog, Software as a Service, Web Technology, WinWeb

I spent Friday and Saturday at TiEcon 2006, a Silicon Valley gathering of close to 4000 Entrepreneurs and their "ecosystem".  I’m posting some of my notes on my personal blog, and in case I feel it fits the theme of The Small Business Blog, I will repost those notes here.

Jeff Clavier’s bootsrapping panel is certainly on of those: Small Business owners at several stages (early, established, already sold) and investors discussed startup issues.   (note: I am obviously publishing this, as well as other TiEcon posts after the fact, but have done only  very basic editing, and some linking, essentially posting my original live notes)

Panelists:

• Fred Durham, CEO CafePress
• David Hornik, General Partner August Capital
• Kanwal Rekhi, Angel Investor
• Tony Schneider, CEO Automattic
• Tim Tuttle, VP AOL Video (having sold Truveo to AOL)

David Hornik: best way to grow a company is without VC money - now that’s something to hear a VC say…

Jeff Clavier: Agrees, but sometimes  competitors force the entrepreneur to want to accelerate business which in turn leads to a need for VC investment.  

David adds another case when you need VC investment, citing a  payroll company he invested in: in that type of business customers expect a robust infrastructure, not just a  program, and building out the infrastructure is capital intensive.

Toni:  Background:  Oddpost, Yahoo,  Automattic - this being his 4th startup now, and he’s just recently "switched sides" to True Ventures.   Classic bootstrapping worked for him better than VC funding.  Too much VC investment can create a "fat model", entrepreneurs may find themselves trying to use VC money to "create a market" where there is none.  Oddpost - could not raise money,  since  everyone thought they were crazy to be a "me-too" on the crowded email market.  They got some corporate customers (licencing deals) , eventually took VC money, but ended up not touching it, since Yahoo acquired them  4 months after the funding.   At Automattic they raised intentionally little, could have raised more, but does not favor that model.  Organic growth, go find customers, start revenue flow works better. 

Jeff:  Automattic is  going up against well-funded blogging companies, why is the "lean model" better?

Tony: Wordpress is Open Source, combine that with the Silicon Valley effect: start an Open Source project, people will find you.  Want to be lean, organic, likes the craigslist approach: 15-8 people run a huge service.   Jeff Clavier compares them to MySQL’s Open Source - viral growth effect.   Tony: MySQL goes after the corporate market, it  needs Marketing,  while we have a consumer product, and our products are  blog-related, and bloggers are natural marketers.

Jeff: Often the original Founder is an engineer who needs a business savvy partner, or at least advisor, how do you get started in finding the right business guy?

David:  Teaches a class on IP at Stanford B-school.  Recently saw a flyer, showing the original Sun Founding Team.  It said: "Do you wanna be like them?  I am an engineer… looking for business partner"  Cool poster, but generally it’s safer to find them "organically", living your life, networking, having coffee.  
                      (Warning: this is the Commercial: I am   available )

Toni: more business people are looking for technical parners then the other way around, they tend to be better at networking, while the techies are sitting at home writing code.

Fred Durham:  Don’t start by looking for a patner. Go find customers first before partners, since you’ll never get it right on your own without customers. 

Tim Tuttle: Found his first business partner through determined search on job boards. 

After the warmup / introductory questions Jeff quickly switched to taking questions from the audience.

Question on picking the right business, focus on one out of several options:

Toni: Early in life he was a trainee at Autodesk.  They had 9 original Founders, all engineers, all with their own ideas. Since they could not predict which one would take off, they pursued all for a while, eventually dropping all but on.  But generally it’s good to have a singular focus.

Jeff, as moderator demonstrates the importance of focus when he forces the next questioner to pick only one of two questions he wanted to ask.  After all, that’s what entrepreneurs have to do, too.
Question: How much money/equity to give away to ?   

David: Equity is a zero-sum game.  Early stage entrepreneur normally forgets this,tends to give away too much.  Raising money is a market mechanism  If the market is one, i.e. only one source is willing to fund you, that one source will determin the price.  Price of equity is  more easily determined in an investment situation then with partners.  What’s the value of participation? Depends… Give away as little equity as possible without feeling a jerk.

Fred: interrupts: Give away less than that, it’s  OK to feel a jerk. 

Kanwal: Don’t give partners / employees what you feel they’re worth  upfront, you can always do that later.

Tim: Don’t take money from friends.  Business and Friendship rarely match. (Oops, I know .. been there, done that...)

Question:  When do you give up pursuing a dead business? 

Fred: I failed many times, walked away relatively unharmed. Advice: run early. Get on a different horse. 

Tim: When you and the children need  a tent to live in, it’s a pretty good infication that it’s time to give up.

Question:  Specifically to Tim and Fred. How did you get initial traction once you have the product?

Tim: Raised little money, spent most of it on viral marketing.. 

Fred: Co-founder sent 100 invitations (spam) to random webmasters.  He got 20% response rate.

David:  A portfolio-company used quizzes. 

Toni : design product to be word-of-mouth compatible.

Question:  Entrepreneur ended up "in the tent" in 2002 starting again now.  Trying to release little bits of software to get customer feedback instead of writing plans. Is that a good approach?

Tony: Just be careful that the core is polished enough to put in front of  people without turning them off.

David: Don’t ask me as a VC what to do.. If your VC knows more about your business than you do, than one of you is an idiot.

Fred: Switching cost is huge, don’t easily jump to the next more attractive idea.

Question:  Inventor of ready-to-launch web application to save marriages. (huge audience laughter, apparently the entrepreneur crowd is in need of being saved….  Hey, if I am not married, what can you do for me?)  Finalist of Berkeley Business Plan Competition..  He just needs a VP Marketing to launch, but listening here made him realise he should be hunting for a CEO (Wow!).

David: You don’t want my money NOW, get it out, launch, create buzz, displayt ads - you will get called by VC’s.

Toni: You don’t need a VP Marketing to launch a product. You will need one later to take it above $10M.

Question on chances of a little startup vs. established players.

Kanwal  Uses Cisco as example: they won’t pay attention until you’re large, then buy you. 

Tim: Truveo: big guys wanted to build better video search, but they couldn’t, so they bought us.   Now that I am part of a big com I understand why.  (Audience laughter…. someone on the panel remarks Tim probably missed  AOL’s PR training )

Question:  Legal issues., when to involve lawyers.

David: Cites strory of a great business, raised big interest in the Valley.  Later it turned out the Founder built the products on his employer’s computer and time - BAAAAD.  Advice: get lawywers involved early - try to find ones who are excited about the business and pre-fund their contribution until you can pay later.

Tim:  Strongly disagree, lawyers are a pain in the ass, put it off as long as you can.  

I don’t remember the context but two notable quotes from Fred:

"The only thing you want to do is to separate people from their money."

"Nothing will focus your mind razor sharp better than losing money, especially your own"

Tags: tiecon, tiecon2006, conference, entrepreneurship, technology, innovation, venturecapital, vcfunding, bootstrapping, startups, angelinvestment, marketing, forum, paneldiscussion, smallbusiness, smb, sme, zoliblog

.

Welcome to our new small business blog. We hope you will enjoy our rambling & ranting on the subject of small business.

On this blog we will concentrate on providing an inside to our thinking with respect to self-employment, home businesses and small businesses, the so called micro and small businesses.

Some of the areas will include:

• Accountants/CPAs, we believe accountants/CPAs should be more then glorified bookkeepers. They are in a unique position to help small business and start-up business to get the financial and business advice they need to survive long term. We will discuss what to look for in an accountant.

• Banks, they should help you to finance business and NOT overheads. We are going to talk about healthy and unhealthy relationships with your bank.

• Business Start-Up, how to run a business while you keep your job and test the water, before you jump into business and commit your savings and/or borrowed money. Do you really need a VC before you can earn yourself a good living?

• Government, why most government help for small business may be a sincere offer, but in reality is nothing but hot air.

• Marketing/PR, the high tech way to create awareness for your products and services for the small budged.

• Web-Technology combined with Live! services, changes the business dynamic completely, the “In & Out” of on-demand technology and why it helps you.

• Outsourcing & Virtual Assistants, the technology driven way to timeshare professionals and keeping you overheads down.

Let us know what you think and let’s talk business, ……SMALL BUSINESS.

Accounting, Business Development, Business Start Up, CPAs, Data Security, E-Commerce, Exporting, Finance, IT, On-demand, Open Source Software, Outsourcing, PR, SaaS, Sales, sme-blog, Software as a Service, Virtual Assitants, Web Technology, WinWeb