One of the most interesting shifts we've seen since we started researching small businesses is the change in view of small businesses as a target market.
A decade ago relatively few firms - large or small - considered small businesses a key target market. Today, lots of firms do.
This fact was highlighted in a letter sent to the management team of Office Depot by the Hedge Fund Starboard. They recently bought 13% of Office Depot's stock and are pushing the company to restructure. Key quote from their suggestions on how Office Depot can improve their financial performance:
... called the retailer to increase the mix of its North American small- and medium-sized business customers, which it said are more profitable than larger-contract accounts.
So even the Hedge Fund/Corporate raider crowd thinks you should target small businesses.
BTW, this quote pretty much sums up 1 of the 4 key reasons more firms are targeting small businesses. These are:
1. There is a growing view that the small business segment is more profitable to serve than the enterprise (meaning large businesses) segment. Enterprises have gotten so good at contract analysis and negotiation that it's very hard to wring profits out of this segment. Enterprises also demand high levels of support.
This view was succinctly explained in a conversation I had with an executive at a company well known for serving large corporations. He/she said "enterprises are a pain in the ass to deal with - they aren't worth it".
The common view is small businesses have neither the expertise nor the leverage to negotiate margins away or demand high levels of expensive service.
2. Firms big and small are recognizing how large the small business segment is. Due in part to a steady drum beat about small businesses being the backbone of the economy and future of work, companies are realizing small businesses make up a big chunk of the U.S. and global economy.
Also helping is the success of high profile firms serving small businesses. Google, eBay and Intuit are good examples.
3. It's gotten much easier to reach and service small businesses. Prior to the Internet and related technologies reaching and supporting small businesses was very hard.
I still remember VC meetings a decade ago where I was told VC firms wouldn't fund companies targeting small businesses because of these issues. Large corporations often told us the same thing.
Today, thanks to the Internet targeting is relatively easy and support can be self-serve. Also, many of the technologies and business models used to go after small businesses have been developed and proven in the consumer Internet space. This gives everyone more confidence in their ability to sell and service large numbers of customers.
4. Growth is hard to come by so more firms are looking at new markets. In many cases the small business market looks like a logical space to target.
We're not surprised by the growing interest in the small business space - we forecast this a decade ago when we decided to focus on this segment (and yes, I'm patting us on the back as I write this).
Over the next 5 years we expect the interest in small businesses to continue to grow. We also expect much more focus on micro-enterprises (firms with fewer than 5 employees) and independent workers (freelancers, temps, self-employed, etc.) as target markets.
Which is one reason why we are doing deep dive research on these markets. See the MBO Partners 2nd Annual State of Independence study for more on independent workers.