Strong Opinions @marksbirch

Random thoughts from a NYC entrepreneur and investor about start-ups, technology and the people that make it all happen. Also find time for good tunes and good food.
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Posts tagged "SMB"

thegongshow:

I’m surprised given how capital efficient it is to start an Internet company today that we aren’t seeing more completely bootstrapped, wholly-owned, Internet businesses that will someday be passed down within a family.  None of them could be passed down through the generations (yet) because the Internet as a delivery vehicle for a service is too new. But I can hardly think of any Internet businesses at all today that are setup for this kind of family heritage in the future.

…To conclude, I’d really love to see more wholly-owned Internet companies emerge that could become the next generation of family-owned business that create value and jobs for many generations to come. But I’m not sure the characteristics of Internet companies lends itself towards this trend ever emerging.

I tend to disagree.  I believe that the Internet will be yet another channel as much as mail order became such another model by which to do business.  The core tenets of operating a good business do not change because of the channel employed.  It is about quality product, efficient distribution, customer loyalty, and a sustainable economic model.  Just look at how mightily the current ecommerce ventures are struggling even with millions in venture money, while people with niche ecommerce sites from the early 2000’s are still in business and manage to be profitable.

Let’s face it though, the Internet is new and in the past two decades, who would have children old enough to pass along a business?  But this will happen eventually if not in the near-term.  The real interesting trend to watch for is how the net-native children of those brick-and-mortar business owners transform those family businesses into the digital age.  The combination of technology expertise and domain experience is a hard one to beat.

Trying to sell technology to local retailers, he says, is “just a real slog.” And yet a new crop of enthusiastic entrepreneurs is trying to help local merchants defend their businesses, at a moment when online shopping is booming. Retail e-commerce in the United States rose 15 percent last year, to $186 billion, according to comScore, a research firm.

New technology a hard sell to local shops" via The Boston Globe

Yep. The small business sector…one of the toughest to break into for tech.

I believe Dunkin Donuts could be considered as non-perishable as McDonald’s french fries, though I have yet to test this.  In any event, brick and mortar is not going away.  People like to shop and to peruse stores.  It is a social activity as much as it is a fulfillment of needs and is something that online just cannot replicate.  However, they will need to adopt an extended distribution approach to thrive.

Just observe the other direction in this online vs. brick and mortar battle.  Tech giants like Apple, Microsoft, Samsung are investing MORE into physical stores.  Startup ecommerce stalwarts are dipping their toes into pop-up stores and boutiques.  Even Amazon and a boatload of startups are getting into same day delivery services.

This is the time brick and mortar stores should be implementing online channels and social networks.  Some of the most enterprising are going online in novel ways, but most seem to be believe that online simply means having a website (usually one of the those horrible ones that are free and look like crap).  Do not get me started on their Facebook pages…

Ultimately, I do not believe it is a question of perishable or shippable when it comes to the future of brick and mortars.  Those boundaries are blurring.  The trend to watch is how many of the brick and mortar small businesses evolve into hybrids stores that give their customers the most flexibility to shop and buy.

thegongshow:

If you want to tell the story of national brick and mortar consumer retail, look back 8 years ago to 2005, when Bain Capital closed buyouts for Toys R Us and Dunkin Donuts.

Legos are non-perishable and shippable. A Boston Creme has neither of these qualities.

So Toys R Us has fallen squarely in Amazon’s profitless path of disruption. By contrast, Dunkin has thrived to become a dominant national brand.

I don’t know what the next 8 years holds for national brick and mortar retail, but the trend portrayed in the contrast of these two Bain deals does not feel like a pendulum swinging. It feels like progress.

What will really matter for SMBs in 2012 is the fact they can, for the first time, mine their own business like the big guys, and do so quickly and cheaply.

How Will Digital Change Small Business in 2012? (via futuristgerd)

Analytics for the small and mid-sized businesses has been something I have been thinking about for awhile.  We are still a ways off as you need to operationalize and automate before you can reap the benefits of analytics.  However we are starting to get much closer as various SaaS solutions penetrate down to smaller and smaller businesses and become much more self-service oriented.

(via futuristgerd)

"72% of small and medium businesses (SMBs) will increase or keep the same mobile ad spend in the next twelve months."

This is a huge opportunity for startups.  The tools today for small businesses to effectively leverage mobile advertising are poor to nonexistent.

There are a lot of thoughts on the small-midsized business (SMB) technology space.  Unfortunately they mostly lead to lots of questions.  Why are SMB’s such a tech backwater?  Do SMB’s even want to embrace technology?  How come technology companies run into major challenges reaching SMB’s?  What does it take for tech startups to find success in the SMB market?

image

The SMB market is one that I am passionate about and have spent the better part of several years analyzing.  It is a core part of my investment thesis and tech startup portfolio like Onepager.  Some ventures have failed, some have stalled, and some are still navigating the turbulent straits of a little understood market.

Why do I believe in the SMB tech market?  It is not because I look at SMB owners as tech poor or ignorant Luddites.  These owners have high powered smartphones and tablets, use social sites like Facebook and Twitter, and are readily familiar with spreadsheets and other office tools.  In fact, the businesses I have spoken with are thirsting for technology that they can readily use by themselves and their staff.  The challenge is making that technology that not just fills a need, but does so in a way that is easy to use for their business and demonstrates a return on their time and investment.  It is about cutting the business friction and time wasted during their day.

This desire for better tools and the size of the SMB market make it a prime opportunity for disruption.  Outside of a website (usually a poor one at that), accounting software (Intuit rules this roost), and an office software package (almost exclusively Microsoft Office), and an order/register system (highly industry dependent), that pretty much covers the technology imprint for most SMB establishments.   Given the advances in technology and SaaS coupled with new device formats such as smartphones and tablets, this is a greenfield market ripe for taking.

Yet we have astonishingly few success stories.  Google has had the most success with SMB’s with their ad sales and the small yet growing Apps business.  File sharing vendors like Box have gotten a lot of recent attention.  That is followed by email marketing firms like Constant Contact and Mailchimp that have effectively mined the SMB space.  Then you have collaboration folks like 37 Signals, job posting sites like Craigslist and Monster, and the group deals space with GroupOn and Living Social’s of the world.

So what is holding back this market if the need is there and the opportunity is available?  I am glad to see that tech publications like Pando Daily shining a light on small business tech.  While the analogy they use is absurd, they are right to point out the market is simply too large and diverse to tackle all at once while the payoff is small for each deal.  However, there is a deeper level of nuance that is missed here.  There are two issues any SMB tech startup needs to tackle if they are to find success:

  • Business Development Skills – The key to selling to the SMB market is achieved either by hiring a massive sales force and “knocking” on lots of doors or by closing partnerships with companies that already have those SMB customers.  If you got millions in VC money, go ahead with option one, but most startups need to get started with the latter path.  The problem is that most startups simply do not have the business development acumen to pull off these types of deals.  This requires enterprise level sales chops, extreme hustle, and the stomach to endure long and difficult sales cycles that often lead nowhere.  Plus, it requires a broader and more creative approach other than simply walking up to AMEX Open and asking for a deal.  Think about it, how many pitches do those folks see per day?
  • Value Based Pricing – Businesses pay for stuff.  Since this is the expected behavior in the B2B market, so why do startups shoot themselves in the foot by going freemium?  Offer a limited free trial, give them awesome support, create a strong community, but do not offer software for free.  The second deadly sin is to underprice the product or service.  The idea is that this will ensure “capture a wide market”, but all it does is ensure customers think the software is cheap and disposable.  Smarter startups instead price based on the value of their offering.  Built into that model are options to seamlessly move customers to more premium services, encourage longer-term commitments, and create an ecosystem of additional products and service providers to support customers.  But to get there, you need to start here and now with higher price points.  Box may get away with $15 per month, but that is not going to help startups that are simply trying to stay afloat.

The opportunity is still very wide open.  Startups are finally beginning to understand the challenges faced by small businesses and are delivering great technologies for small businesses that are easy to use without significant cost or complexity.  However, it requires more than great technology to survive and startups need to have the conviction to set a higher price and to be much more creative in developing quality partnerships to drive awareness and signups.

nasdaq:

ibmsocialbiz:

Survey of midmarket CEOs shows how they’re using social media.   About one third say social media is a major element of their marketing programs. More of them, 61%, use social media to “listen” and evaluate public sentiment. Via Business 2 Community

An interesting look at the breakdown of how CEOs are using social media in their marketing programs. While 31% of them say it’s a major element, half of them say that although they use it, it’s not essential to their overall marketing plan. 

Just imagine the opportunity then for turning smaller businesses such as mom & pop stores onto the value of using social media.  From marketing to loyalty to service, the ability for social media to enhance the relationships local businesses have with customers is still very much greenfield.

What has to change for small businesses to jump on board is that the technologies needs to be easier to use and the return on the investment in time and money clearly visible.  Too many tech startups offer up solutions that are still very obtuse, jargony, and lack clearly demonstrable value.

Have you ever watched the Pixar movie, WALL-E?  It is one of my favorite Pixar movies, but that is beside the point.  In the movie, the behemoth behind much of the rampant consumerism that led to the wasting (and subsequent escape) of the planet was a mega-corporation called Buy-n-Large, or BnL for short.

People assumed that BnL was an extension of the big box stores such as Walmart, Target, or Costco.  However, I think it is really a glimpse into the future trajectory of Amazon.

I like Amazon and have been shopping with them for nearly a decade.  When Amazon launched Prime, I eventually signed up realizing that I was doing more and more shopping through Amazon.  Then I started buying all my music and storing it there.  Christmas shopping was all done online, mostly through Amazon.  Just today I signed up for subscriptions to fill all of my personal care needs.  Who did I use you might ask for my subcom needs?  It was Amazon.

What else is Amazon doing?  They are running most of our websites and web applications.  If you need to hook up payments, they got that for you.  They are offering boatloads of movies and shows, some even for free, to Prime customers.  They have their own competing white-labelled products.  They have great customer service and a very favorable return policy.  Switching phones and / or carriers?  They handle that too.

Jason Calacanis recently called it the “Cult of Amazon” in his newsletter.  I have to agree with many of his sentiments.  Why bother ever going to retail stores or malls?  He neatly sums up the choice by saying, “[Amazon] Prime gives you the joy of consumption without the pain of acquisition.”

In fact, Amazon is so convenient, one does not even have to think about the act of consumption.  It is efficient consumption to the extreme.  The only thing that would be even more convenient is that the product materialized immediately out of thin air upon clicking that 1-Click order button.  Pretty sure they are working on that as we speak.

There is a downside to all of this convenience however.  Just as the box stores have been destructive to Main Streets and small businesses, Amazon and other eCommerce sites have the potential to be equally destructive.  The free market side of me says that we should not be concerned as this is the future of commerce and we have to experience growing pains to become more efficient.

However, small retail businesses are critically important for communities.  They create jobs, lease real estate, require local services, and contribute to the tax base.  These taxes pay for infrastructure and schools and community services like police, firefighters, and emergency responders.  We lose all of those benefits when dollars go into corporate coffers to some distant company.  At least the box stores keep the money local through sales and real estate taxes.

All is not doom and gloom though for small business and local retailers.  While most people dislike poor retail experiences, many still enjoy shopping.  As great as visualization technologies and online community reviews and recommendation engines may be, nothing beats feeling and experiencing the product live.  The serendipity of that discovery and the sharing of that discovery with friends is still something better done in real life.

All of this is for naught however unless smaller retailers have the means to compete.  That boils down to getting the same operational efficiencies that the Goliath’s currently enjoy through technologies and networks.  They need not, nor should aspire necessarily, to “beat” the Amazon’s of the world as that is a losing battle.  However, small businesses can absolutely survive and thrive by leveraging some of the technologies and tools of the eCommerce players.  In fact, small businesses have the benefit of combining the advantages of physical location with low-cost technologies that are easy to use and deploying.  Whether it is website creation, eCommerce platforms, social media monitoring, CRM, or back-office operations, SaaS technologies and providers will continue to proliferate.

This only holds of course if Amazon does not become Buy-n-Large.

caterpillarcowboy:

“If you want bookstores to stick around, you should root for them to improve the way they sell stuff. Booksellers won’t survive the Amazon onslaught by merely wagging their fingers at the retail giant. Their only hope is to match the commercial innovations Jeff Bezos has brought to shopping. Indeed, this applies to all retailers, not just bookstores. The Internet has revolutionized how we buy stuff, but the main beneficiaries of this revolution have been warehouse companies like Amazon rather than firms that maintain a physical presence in your neighborhood. But it doesn’t have to be this way. This month, Amazon offered customers a discount to purchase stuff online while they were shopping at local establishments. It’s time neighborhood retailers fought Kindle Fire with Kindle Fire. Indeed, tablets and smartphones could be store owners’ best weapons against Jeff Bezos—if only they’d embrace them.”

Independent bookstores are not doomed. Here’s how they can fight back against Amazon. - Slate Magazine (via infoneer-pulse)

Nice article but unfortunately highly unlikely. Small businesses are small for a reason.

I like small business.  I like the entrepreneurial spirit, the contribution to community, and the authenticity of small businesses.  Small business owners are closer to their craft and their customers.  And small business is an important engine for the generation of jobs and wealth in this country.  When you think about any big name company, they all started at some point as a small business.

However, most small businesses will never become a big company.  In fact, it is the rare small business that ever becomes a global, multinational, publicly traded mega-corporation.  Any business has the “potential” to become large, but only a handful have the ingredients necessary to make that growth happen.

What does it take to grow from a small business to a huge business? It takes capital, people, luck, and desire. 

  • Capital - It is incredibly hard just to develop a profitable business enterprise for even a few years.  Outside of a few specialized industries like technology and bio tech, small businesses do not have access to large buckets of capital to rapidly expand or an ecosystem that can sustain them in lean times.
  • People - Small business owners are often the limiting factor because of capability, capacity, or lack of vision.  Creating a successful business requires a minimum of smarts, a whole lot of drive, and hard work which not everyone wants to do.  Even that is not enough however if there is no vision to drive towards.
  • Luck - Sometimes serendipity comes along and provides the golden opportunity.  When many businesses and competitors are fighting it out, the one chance comes along that can change the fortunes of one business over all the others, catapulting the business into the stratosphere.  Sometimes it is due to timing, or a chance meeting, or a random observation.  Whatever it is however, luck made it happen.
  • Desire - Many business owners simply do not want to grow the business.  These are “lifestyle businesses” as many in the startup community derisively refer.  However, once a business gets to a plateau of being profitable and generating decent cash flow, most people become content.  Given the toil of starting the business and reaching the plateau, this is understandable.  Becoming big would require even more time and resources and most people do not have the desire to take that risk.

Small businesses are small for a reason.  Instead of fostering delusions of helping them “defeat” the 800 lb. industry gorilla through technology, how about creating technology that simply makes their business operate better?  How about providing tools that take the drudgery out of common tasks and arduous processes?  What about systems that help folks make better business decisions without having to understand arcane and complex subjects?

Small business owners have no illusions of going all Don Quixote to take out industry titans.  So let’s give small businesses technology that allows them to become better equipped and capable business owners and cuts out the business friction.

In the rush to be a “lean startup”, we may be missing the boat when it comes to the business technology market.  Many startups have become blinded by the holy MVP which somehow is supposed to magically validate the product-market-customer fit leading the founders onto the glory of a big exit and Internet riches.  The problem is most business customers, particularly small and mid-sized businesses, are not much into your idea of a minimally viable product.

Small business owners are for the most part, not very technical, are not minting cash, and only have limited time.  They are not willing to spend time on using a product that does not immediately fit their needs.  If it is too limited, too confusing or too difficult, then they are moving on.

It is from this vantage point that SMB technology providers need to start.  While building an MVP is useful, it is only the starting point for conversation with potential customers as to what the real product will do, which includes a much richer feature set than you might initially have envisioned.  Whereas the consumer web startups can take more liberties and make a more aggressively “minimal” product, SMB require something more robust from the very beginning.

This leads to the next point, which is choosing a vertical focus.  If you do not figure out early on which vertical markets to focus on, you might find yourself building a product with conflicting feature sets and quickly creating a bloated and complex product.  Services companies have very different HR and accounting practices than retail product based companies.  The way doctors manage customers is different than contractors or restaurants or real estate agents.  The language is different, the work flows are unique and the regulations industry specific.  If you decide to go horizontal, your climb is going to be that much more difficult unless you are picking something that is relatively new, such as daily deals or social media, where the obvious features are still evolving.

If your startup is targeting the SMB space, build your MVP, but realize that is merely step one before you get to a product that SMB owners would be willingly to pay for en masse.