Techaisle Blog

Across geographies (US, Germany, Australia and India) and across different years, small businesses are showing remarkable uniformity and consistency in their response to which value statement best describes their business.  We first asked small businesses in 2010 (for India in 2012) to tell us which one of the following statements best described their business success:

• Business success depends upon a strong relationship with the customer & being responsive to their demands

 

• Business success depends upon implementing highly efficient & optimized processes to deliver products/ services at the lowest possible cost

 

• Business success depends upon implementing cost effective IT solutions to improve productivity, efficiency and profitability

 

• Business success depends upon ability to consistently innovate and bring cutting edge products to market

We did expect customer relationship to be garnering highest number of responses. What we did not expect was the rapid rise in efficient process implementation with the size of business. We certainly did not expect the same sentiment to be represented across four different countries – US, Germany, Australia and India.

In 2014 we repeated the question to a completely different random sample of small businesses and we got similar responses across all countries.

The data clearly shows that for very small businesses, business success is dependent upon customer delight whereas for 50-99 employee size businesses, process efficiency and optimization also become important. The data consistency exhibits that irrespective of size or maturity of country, small businesses have similar mindsets in what defines their business success. With this foundation in place small businesses systematically build their business but the rate at which they are able to truly scale and achieve their value statements becomes dependent upon the absorption of IT. In fact, the role of IT has increased by an average of 38 percent between the two years of comparison. In today’s market, IT is generally delivered in the form of systems that improve sales process efficiency and visibility, collaboration, project management, analytics and social marketing systems that capitalize on connectedness within an economy that increasingly relies on person-to-person, cloud-enabled communications.



 

There is tremendous future interest within SMBs in cloud-based marketing systems, sales systems, and solutions supporting business operations. Availability of cloud-based business solutions will drive tremendous growth in automation across seven functions:

1/ Marketing solutions
2/ Sales systems
3/ Customer service solutions
4/ IT Operations solutions
5/ Solutions supporting business operations
6/ Solutions supporting financial operations
7/ Solutions supporting HR/talent management

And when we further consider that each solution area can (and often does) incorporate multiple applications, and that some cloud applications are outside of these seven areas, we will see that both the scope and depth of cloud workloads will increase to support small business value-statements.

Techaisle’s recently completed US SMB Cloud Computing Adoption Trend research shows that Cloud computing – which IT suppliers often position as a means of reducing cost – is viewed by 80 percent of US SMBs as a solution that contributes to business growth. This is a huge departure from previous years when reducing cost used to be the overarching objective. It implies that cloud vendors and resellers should expand their marketing dialogue beyond the cost and CAPEX vs. OPEX motivations for cloud adoption and focus on ways in which cloud-based solutions enable SMBs to expand their reach to new markets and customers. In fact, over 40 percent of SMBs state that business agility and new capabilities are driving SMB cloud adoption.

This new trend of SMBs adopting cloud for business growth creates a “perfect storm” of opportunity for cloud computing. It satisfies the demand for new technology-enabled business capabilities such as mobility, social media, business intelligence/analytics and collaboration by providing a platform for supporting these initiatives. At the same time, as IT continues to struggle with cost control, cloud provides a clear means of reigning in CAPEX and reducing management costs.

Techaisle’s survey data shows that while there is broad recognition of the importance of business agility as a cloud benefit, a “mid-SMB” niche exists – stretching from 50-250 employees – in which IT productivity is the overarching cloud objective.

The key reasons for using cloud and benefits realized vary by size of business as well as issues that are of critical concern to SMB organizations. For example, small businesses (1-99 employees) focus tightly on business benefits: increased business agility is the most compelling cloud benefit, followed by obtaining capabilities that would have been cost/time prohibitive, reducing business process-related costs, and improving business staff productivity. Mid-market businesses (100-999 employees) also appreciate these outcomes – but the highest-ranked benefit of cloud is IT related, with “make our IT staff more productive” cited as a compelling cloud benefit by nearly 60 percent of mid-market businesses.

Drilling down into the different sizes of businesses the 1-9 micro-business group also places a high value on using cloud to reduce process costs, which makes a great deal of sense, since these tasks are likely not automated in any fashion today. Respondents in the 250-499 employee size segments prioritize use of cloud to increase business user productivity, while the 500-999 employee segments is focused on cloud delivery benefits such as capabilities/agility and IT productivity. Analyzing the data by BDMs and ITDMs, the study finds that these groups have different perspectives on how cloud delivers value to their companies.

Marketers can use this data to establish broad themes for the US SMB market, and then tailor their appeals to specific sub-segments based on demonstrated needs and expectations. For more details or to learn about Techaisle’s SMB Cloud Computing Adoption Trends report please contact This email address is being protected from spambots. You need JavaScript enabled to view it.

Techaisle’s SMB Channel Partner study shows that while cloud drives recurring revenue, profitable cloud channel members report that they drive more than 40 percent of revenue from non-recurring sources (such as services and attached product sales). Channel partners that are overly-reliant on recurring revenue are not achieving success in their cloud businesses; the companies in the Unsuccessful group report that more than 80 percent of revenue is derived from recurring sources.

 It is important to drive revenue from multiple business lines. While more than 50 percent of revenue for successful SMB Cloud channel partners is derived from recurring sources, unsuccessful channel partners obtain over 80 percent of revenue from recurring sources. Recurring revenue is important because one can predict earnings thereby reducing risk; however, selling licenses alone does not create a high value or high margin business. Cloud profitability requires that SMB cloud resellers combine sales of cloud services with sales of one-off consulting and products.

The market currently is comprised of two revenue sources: a large but declining on-premise business, and a small but rapidly-growing cloud business. Successful channel partners will be those that participate in both revenue pools thereby finding real advantages over single-market competitors. For example, think about a situation in which an SMB is looking for a new email system. Those that propose only physical hardware and on-premise software will be very expensive. Those that propose only cloud-based services will be much less expensive, but will not enjoy a substantial amount of revenue (a Microsoft partner would get 18 percent for the core Office 365 email connection in year one, and roughly 6 percent in second/subsequent years). A partner blending both on-premise and cloud might get both the recurring Exchange revenue plus additional product/service revenue – laptops, MDM, security software, migration and deployment services, etc. They would also achieve better margins for the on-premise products than the on-premise-only provider, since it would be more difficult to do apples-to-apples price comparisons for solutions that blend cloud and on-premise equipment.

Techaisle’s SMB Channel Partner Trend study shows that there has been a big leap in percentage of SMB channel partners offering cloud computing services to SMBs in the last year across several countries. For example, in the US the percentage offering cloud services has jumped from 38 percent in 2012 to 64 percent in 2013 and another 22 percent are planning to offer cloud solutions. Similarly, in Australia the percentage has gone up substantially from 34 percent in 2012 and in Germany from less than 30 percent to over 60 percent. The biggest change is seen among the VARs. In 2012 only 34 percent were offering cloud solutions and in 2013 74 percent of them are offering cloud solutions to SMB customers. In Germany, the biggest jump has been within the SPs (Service Providers). However, not all channel partners (VARs, SPs, MSPs, SIs) have become successful in selling cloud to SMBs. Techaisle’s Winning Strategies of Successful SMB Cloud Channel Partners study finds that there are quantitative, meaningful and actionable differences between channel partners who are successful in the business of selling cloud and those that have not developed successful cloud practices.

Industry expertise and the ability to offer vertical solution is one such key area that is creating a distance between the successful and unsuccessful SMB cloud channel partners. Techaisle’s SMB studies have shown that SMBs are increasingly looking for vertical industry solutions but channels have been relatively slow in offering such solutions. Year 2014 will be important as this is the first year when SMB business issues have flip-flopped from reducing operational costs to increasing business growth and cloud-based line of business vertical solutions is an important area of investment.

Combining the data from Techaisle's SMB and Channel Partner studies we find that a significant gap exists between percent of SMBs adopting vertical cloud solutions and percent of SMB channel partners offering such solutions though it must be said that the gap has narrowed in the last 2 years as shown in the chart below.



The Winning Strategies of Successful SMB Cloud Channel Partners study data shows (chart below) that 21 times as many successful cloud partners are offer vertical solutions to SMBs as those that are not successful.



Most of the successful SMB cloud channel partners have product/service portfolios that are mapped to the full set of SMB technology needs: compute and storage infrastructure, applications, communications, support for test/development, and solutions addressing specific vertical requirements. The majority of unsuccessful SMB channel partners have limited their offerings to storage, backup, and basic SaaS offerings like Office 365 or Google Apps.

Some may argue that there is a ‘chicken and egg’ effect: that successful partners have broader portfolios because they have more engaged SMB customers. As with the chickens and eggs themselves, though, it may not matter where the cycle begins, if SMB channel partners that are not currently successful in the cloud wish to compete with those that are, they will need to develop portfolios that extend beyond IaaS to vertical-specific applications.



Above chart from the Winning Strategies study shows that 50 percent more successful cloud channel partners than unsuccessful partners report that vertical industry knowledge is a key component of the value that they bring to their SMB customers. These successful channel partners are able to demonstrate knowledge of the SMBs’ industry, and are therefore able to create confidence within their SMB clients. These channel partners are also the most likely to build and maintain long-term relationships with their SMB customers. Unsuccessful channel partners claim that they are able to demonstrate understanding of their SMB customers’ business needs – but at a technical level – and are constrained by a lack of vertical understanding. 70 percent of unsuccessful channel partners emphasize their technical expertise during interactions with SMBs as they lack the understanding of their SMB customers’ industry vertical to be able to offer sophisticated cloud solutions. They emphasize service quality without necessarily understanding what this means in a cloud context. In addition, many of the unsuccessful partners tend to stress price when positioning cloud computing solutions.

Therefore it is imperative for SMB channel partners to go beyond technical knowledge and really understand the dynamics of industries in which their SMB customers operate and become industry subject matter experts.

Techaisle’s Winning Strategies of Successful SMB Cloud Channel Partners study covers critical differences between the activities and approaches of successful and unsuccessful cloud partners in three key areas: Business Priorities and Resource Allocations, Current and Planned Cloud offerings, Sales and Marketing Strategies and Tactics

Techaisle’s SMB Channel Partner Trend report covers: Mobility, Cloud, Managed Services, Virtualization, Backup, Data Integration, Sales & Marketing including Social Media & Lead Generation