Sebastien Provencher (from Praized Media) tweeted recently:

The great un-cracked opportunity: small and medium-sized businesses. #geoloco

He was at an event; not sure if someone said that or if there was a group discussing it. But it’s something I’ve been thinking about for awhile.

And there’s certainly a lot of truth to the statement. Most B2B startups immediately target small and medium-sized businesses. It looks so appealing; after all, most companies are small and medium-sized businesses. The SMB market (or SME – small & medium size enterprises) is conceptually easy to target – with such big numbers of companies, startups only need a very small percentage of them to have a real business, right?

Generally, here are the problems I’ve seen targeting SMBs:

• They’re often overwhelmed, unsophisticated and squeezed for cash. SMBs are getting bombarded with tons of opportunities to leverage social media, SEO, and now location-based technology to help their business. How are they supposed to understand it all and figure out what’s best?
• Small companies aren’t necessarily any easier to close than big ones. And if that’s the case – if your sales cycle is too long but the price of what you’re selling is low (because you’re selling to SMBs) – then you’re in serious trouble.
• It’s not as easy to get leverage between customers. Close a giant enterprise deal and you hope to get a case study, press release, public coverage and generate buzz. Close a deal with a mom & pop shop and no one cares. Plus, that mom & pop shop doesn’t know any other businesses for referrals. There are ways of getting leverage between small businesses (think: virality built into your app between businesses) but it takes new, creative thinking.
• Startups don’t sub-target into the SMB space effectively enough. Really, there’s no such thing as an “SMB market”, unless you’re providing something that they all absolutely need (for example, credit card transaction services, payroll, etc.) Most startups aren’t selling products or services that are applicable across all SMBs. So it’s critical to target very specific markets within the great masses of small and medium size companies.

There have most definitely been companies that have had huge success targeting SMBs. Freshbooks, for example. 37Signals (although they went even smaller to individual consultants/contractors to start). But the sheer size of the market gives too many startups a false sense of security that it will be easy to access lots of prospects and punch a hole in the marketplace. And this makes startups lazy when defining their target market and how they’ll access that market successfully.