Techaisle Blog

I recently attended and "Small Business Analyst" event hosted by Cisco in which the Company talked to us analyst types about their strategy in approaching the SB market on a worldwide basis. The conference lasted a day, the group of attending analysts was small but well represented including leading names in the IT analyst market such as Gartner, Forrester and Yankee Group.

New products were showcased and strategies outlined and while I won't go into detail about new products due to non-disclosure conditions on many of them and also because it wasn't the products that impressed me the most. Make no mistake the products did impress me and my colleague - enough for us to decide that we should evaluate them for our own business.

What impressed me the most was the focus and disciple Cisco has brought to bear. Too often we see companies that are leaders in the enterprise space take on the SB market opportunity under the rationale that what's good for enterprise is good for SBs - with a few changes. Wrong. Too often we have seen it doesn't work and when it doesn't these firm redefine "SB market" to simply mean companies that are a little bit smaller than their traditional market and calling it SB or worse "SMB". The latter often used as a catch all for all those firms that are currently not being sold to be the comapny's sales force which is too boxed in in their thinking of who their customers are and how they should be sold. Its organizational inertia at work.

Cisco, themselves a leader in the enterprise space is approaching the market as any company in it's position should - with a strategy, products and organization designed to address SB needs. Here are some of the key elements

• Cisco has created an entirely new group to not just market products to SBs but to design products that fit SB needs. The product development group will re-think products ranging from simple routers, switches to telephony products keeping SB needs as their sole perspective. For a company used to enterprise style margins on products they have realized that they may not be able to gain the same kind of margins on thee SB products but the important point is that they are incorporating that reality into their strategy. This is a very difficult shift to make for most companies but Cisco realizes it is not just about how products are manufactured but how the organization is structured as well.

• Speaking of organization, the Cisco SB organization is in many ways a company within a company with its own set of priorities and complete in that it has its own sales, marketing, services, support and product development initiatives.
  
  
  • Marketing: Cisco has come to terms with some market realities such as the fact that the Cisco brand is not well known among SBs. Cisco's VP of Small Business Marketing Rick Moran, stressed this point as a major component of their SB marketing strategy. Here again we see Cisco's pragmatism, willingness to adapt and learn come through. For a company traditionally used to talking about speeds and feeds their SB marketing efforts exhibit a focus on SBs and the people running them. The importance of SB to Cisco as a company is evident from the fact that there is a link to a variety of SB related pages on the Cisco home page. Cisco has established a place where SBs can have a conversation with Cisco, its employees and its partners called Cisco Community Central. the site is less used to market Cisco products and more to help SBs learn about the developments relevant to them - technological or otherwise. It's a young site - barely a year old but a promising start.
  
  
  • Sales/Channel Development: Cisco has always relied on a strong network of channel partners to sell, service and support its products. Now Cisco has introduced a special certification for channel partners selling to SBs called "Cisco Select Certification". Achieving that certification requires taking training and an exam. Interestingly, Cisco has laid out the return in investment for a channel partner to help them decide whether it is worth it to achieve that certification or not. Achieving the certification comes with the usual benefits of support and market development funds.
  
  
  • Regional Sensitivity: Cisco is showing a lot of pragmatism by not taking a "one-size-fits-all" approach to SB marketing. The bulk of the current SB effort appears to be targeted towrads countries where Cisco has a leadership position in the enterprise space. In other words, given their penetration of enterprise markets its seems logical to go after SB markets in order to increase revenues from a region. Also not all solutions are being marketed aggressively to SBs in all regions. For example, in countries such as India where are large opportunity still exists among enterprise markets for solutions such as collaboration or enterprise network hardware, the SB market is taking a back seat - for now.
  
  
  • Services and Support: Cisco VP Sherri Liebo introduced the services and support offerings targeted towards SBs. These include add-on warranties and varying levels of support for channel partners as well as end customers. The support solutions range from entry level technical support (branded as Smart Foundation services) to ongoing monitoring of network resources (SmartCare and SmartNET). All have varying levels of support and hardware replacement options. These will also be sold through the burgeoning network of SB channel partners.
  
  
  

Bottom line - I believe Cisco is off to a good start in the SB space exhibiting the focus and discipline required to gain share in this very difficult market.

Abhijeet Rane
Techaisle

G20 SMBs to spend US$455 Billion on IT in 2010 accounting for 89 percent of Global SMB IT spend
G20 Consumer/Households will Likely Spend US$96 Billion on IT in 2010 with a Household PC Penetration of 44 Percent

 

 

 

 

 

 

 

 

On March 16^th US President Barack Obama unveiled measures to revitalize the small business economy in the US. The package includes several measures that look like are the right steps to boost small businesses. The package lays out approximately $730 million in spending towards small business.

The spending largely tackles costs associated with lending with over half of the money going towards fee reductions and increased SBA guarantees for loans.

Nearly 20 million small businesses have received direct or indirect help from one or another of those SBA programs since 1953, as the agency has become the government's most cost-effective instrument for economic development.

In fact, SBA's current business loan portfolio of roughly 219,000 loans worth more than $45 billion makes it the largest single financial backer of U.S. businesses in the nation.

 

Small Business Loan History

Over the past 10 years, (FY 1991-2000), the SBA has helped almost 435,000 small businesses get more than $94.6 billion in loans, more than in the entire history of the agency before 1991. No other lender in this country – perhaps no other lender in the world – has been responsible for as much small business financing as the SBA has during that time. Last year alone, the SBA backed more than $12.3 billion in loans to small businesses. More than $1 billion was made available for disaster loans and more than $40 billion in federal contracts were secured by small businesses with SBA's help.

So channeling the funds through the SBA makes complete sense. Overall, about 65% of the $730M is going towards offsetting the costs of the program and only 35% is going towards a new loan program to alleviate SB debt. At first glance it does not look like much but to be fair other components of the larger recovery package will have direct and indirect impact on the small business market.

Secondary market key to recovery: The administration is also allocating $15 billion to help unfreeze the secondary credit markets. Often primary bank lenders will seek to sell the SBA loans in the secondary market, allowing them to use the proceeds of the sale to make new loans to other small business owners. Over the last 14 months, it is this area of lending that has frozen leading to a decline in the number of loans made to small businesses (see chart right). The SBA has guaranteed approximately $20 billion in loans annually, but new lending this year is on track to fall below $10 billion. A 50% drop off in loan guarantees will clearly have a significant impact on the Small Business economy.

Note that the drop off does not largely affect new business creation. That is because most loans go towards existing businesses with somewhat of a track record to show to lenders. In this environment lenders will be even stricter in their evaluations of loan applicants so it is likely that the Small Businesses in most dire need of a loan may not receive funds. The program is likely to benefit large and small banks. The three banks shown below were the top three Small Business lenders in 2007.

 

Impact

Tax Incentives: The package doubles the amount small businesses can write off their taxes for new investments made in 2008, from $125,000 to $250,000. It also lifts the cap on businesses eligible for the deduction, expanding it to businesses making up to $800,000 (up from the current $500,000 limit). This is really good since it is likely to have an immediate impact. Additionally, Small Businesses earning up to $15 million will be allowed to claim losses for the past five years in the current tax year;

•  Can reduce estimated tax payments to 90 percent of the previous year's filing.

• Are allowed to take larger depreciation deductions within the first year of property purchases.

• And will see 75 percent of capital gains excluded for those who invest in small businesses.

Government Grants: Another long ignored aspect that will clearly have a significant impact on small businesses is to stop the abuse of and clearly enforce current regulation that sets aside 23% of all federal contracts to be given to small businesses. Under the Bush administration rampant violations of this law took money away from Small Businesses. Enforcement will have an immediate and positive effect.

Small Business Healthcare: For many years, the cost and availability of health insurance has been a top small business concern. Aspects of insurance that drive small business concerns are premium increases and administrative costs. Advocacy research shows that:

• Insurers of small health plans have higher administrative expenses than those that insure larger group plans

• Employees at small firms are less likely to have coverage than the employees of larger entities.

These results are confirmed by the Kaiser Family Foundation, which also finds that firm size is an important indicator of whether a firm offers health insurance. This survey shows that about half of businesses with fewer than 10 workers offer health benefits to their employees. The ratio grows to about three-fourths for firms with 10–24 employees, to almost 90 percent for firms with 25–49 employees, and to 98 percent for firms with 200 employees or more. Two-thirds of workers in firms of all sizes take health insurance coverage if offered. So in terms of granting cost relief, healthcare costs need to be addressed. While this is not part of the program, one hopes that the overall healthcare strategy and policies will help Small Businesses in the long run.

Impact of the broader recovery program: It is difficult to assess the precise impact of the broader program given all its complexities (see chart) but there is no doubt that the broad investment being made in infrastructure and other areas will benefit Small Businesses.

IT Spending

 

When the economy recovers, small businesses are the first to bounce back. Based on Techaisle’s recently completed surveys of small businesses it is expected that within the US market, the small business spending will grow by 3.4% in 2009 over 2008 which is two full percentage points higher than the expected growth rate by enterprises.

 

 When asked,“Which ONE of the following statements BEST describes the impact the current economic downturn has had on your business's performance? “, about 60% of small businesses mentioned that they have had some impact on their business.

 These small businesses also mentioned that once the economy improved and they had capital to purchase either through vendor financing of better cash flow including business improvement they would invest in servers, notebooks, business productivity software and upgrading their networks.

Entire Stimulus Plan Chart – Source: Flowing data