Understanding How SMBs Fit in the Big Picture

  • As a community with a heavy presence of the SMB technology community, it is important for us as IT practitioners to understand how SMBs fit into the big business picture.

    First, SMB (Small / Medium Business) means different things to different people. But a common definition is something like 10 - 2,000 users. SOHO is the category smaller than the SMB, SME is the category larger than it. SOHO tends to have no IT, or extremely little without dedicated staff. IBM doesn't consider anything smaller than 500 users to be a business. What constitutes a user? No one really knows.

    The SMB category is the largest, in number of businesses, of any category. The vast, vast majority of all companies are SMBs and SOHOs. There are some important things that we need to understand about SMBs, as a whole.

    Companies Want to Grow: With rare exception, very rare, companies desire to grow and make more money. There are exceptions, like local restaurants that never want to open another, or just very special case businesses that run not to be a business but just to be a tax or legal vehicle for individual professions; but by and large the goal of any business is to make money and to make as much money as possible. This happens primarily through growth.

    That means that all SMBs are one of three categories:

    1. The niche category that isn't in business to be in business and is not looking to grow.
    2. A temporary state as an SMB while on their way to being an SME or larger. Companies start small, but good ones get bigger and leave the SMB category. These are very rare.
    3. A permanent SMB that wants to be big but can't do it and is either failing to grow or is actively shrinking. This is the largest category of SMBs, by far.

    On average, a new SMB will fail in the first two years. Most that remain will fail before eight years. SMBs are almost always in a state of failure. Successful SMBs are very rare, both because very few every become successful and those that are successful stop being SMBs.

    SMBs Rarely Attract Top Talent: SMBs rarely have deep pockets or loads of soft advantages and so struggle to attract top talent because they simply cannot afford them (nor leverage them, the best CEO ever might be useless in a tiny SMB with no funding or future.) This is very important to understand because this means that the management team in a SMB is very often, failing and is in the SMB because they have failed.

    This is critical as understanding. Management in a healthy enterprise can easily earn big paychecks with low risk; paychecks come in month after month, jobs are reliable and can last a lifetime. In the SMB even doing a good job will often result in small paychecks and high risk, one misstep and all might be lost.

    SMBs, of course, offer some amazing advantages and good managers in a good SMB can grow that SMB and win big time, even compared to enterprise counterparts. But this is the exception, not the rule. On average SMBs don't do well and the management in SMBs are rarely unable to make the leap to bigger businesses and are in the SMB not because they are successful, but because they are not.

    The average CEO does not earn that much. The media likes to tout the problems with the high CEO salaries in the enterprise space, but this is the top .001% of CEOs and even their enormous salaries don't offset the averages. But if the average CEO earns only barely six figures then we know that SMB CEOs earn even less, on average. The average CEO makes much less than a doctor, lawyer, or even a large percentage of sales people and IT. A mid level systems admin in the enterprise can easily earn as much as an SMB CEO and a well paid senior admin might earn 300% of the CEO average!

    These pay scales and needs are very important to understand. It is easy to perceive management as being experienced and getting where they are from "making good decisions and having done a good job", and sometimes this is true, but for the most part management in the SMB is either "on their way to somewhere else" or, more often, has failed and is in the SMB through a lack of other options.

    This is something that needs to be well understand, on all sides, that even highly regarded "top management" in an SMB that might be held in high regard might struggle to hold down or acquire even an entry level management job in a more successful company.

    Scaling Brings Its Own Problems: The rare SMBs that grow out of the SMB world will face very dangerous growth problems. Primarily because management that is good in an SMB world may not be good in an enterprise one. SMBs and SMEs and enterprises need different approaches to management. SMBs generally need hands on managers that do a lot of the work. Enterprises need people who can manage people and navigate politics. SMBs can hire the best of the best; enterprises generally have to manage the middle. SMBs need to outsource effectively everything that isn't the core operations, but enterprises often run in house departments for nearly all tasks. Just because a team is great as an SMB and can grow into an enterprise doesn't mean that they will survive once there. Smart is smart, but no amount of SMB experience necessarily prepares management for the enterprise world.

    How Does IT Fit Into This

    IT needs to understand that their SMB firms are, almost certainly, not the rare ones that are run by top management and on their way to massive success. It can happen, but don't assume that you are going to find that company. They are very, very rare and they only stay small for a very small time period (normally) and are often start ups which are their own beasts.

    IT always needs to understand the IT role in business and how management structure and responsibility works. IT must also understand that to be a good IT decision maker often means having more skills and experience than a CEO would have in the SMB! Next time your CEO says you should not earn so much because it's too close to what he makes, maybe you should be shocked that you aren't earning more than him since you are expected to know more technology and more business than he does!

  • This artefact is also a reason why SMBs need IT through an MSP structure. The business experience and insight needed from IT often exceeds the business experience needed for the rest of the business. Why would IT work for a fraction of the salary of the CEO if IT is expected to do the CEO's job for them (or at least be able to) while also having to do dozens of very complicated technical jobs while also needing to be on call!

  • @scottalanmiller I think your point 3 is a bit broad. There are plenty of SMB that are constantly growing by smaller amounts. They will likely never grow out of the SMB at their pace, but they are consistently growing.

  • @JaredBusch said in Understanding How SMBs Fit in the Big Picture:

    @scottalanmiller I think your point 3 is a bit broad. There are plenty of SMB that are constantly growing by smaller amounts. They will likely never grow out of the SMB at their pace, but they are consistently growing.

    If they consistently grow, they will exit the SMB sooner or later. It just might take a really long time. But they will do it eventually unless we move the line as to what an SMB is. Even if they only add one employee per year... yeah it will take like centuries, but they will do it. They will remain in the SMB for a very long time, but they make up a decently small amount of an already small slice of the pie. It's a valid point that a growing SMB might not exit the SMB really quickly, but they are on their way to leaving it.

  • I'd put NTG in that category. Year after year growth. But it's still very slow. But it is not a steady state, it's annual improvements. Two steps forward, one step back, but still more forward than back.

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