The numbers can be deceiving.
SMB is short for small and midsize businesses. Most attention in the media and B2SMB world is given to the small part of the SMB market. Everyone’s definitions of SMB and the small and midsize sub-segments are different. At RSL, we define small businesses as those with fewer than 100 employees and midsize as those with 100–1000 employees. However you separate them, midsize businesses present distinct opportunities for B2SMB marketers.
Consider the numbers. US Census data shows 23.8 million private firms that are sole proprietorships and 5.7 million firms with 1–100 employees. Of 107,000 firms with more than 100 employees, 81% (87,000) of those have 100–499 employees. The 5.7 million firms with fewer than 100 employees (small businesses) account for 41 million employees while the 87,000 firms with 100–499 employees (most of the midsize business market) have 17 million employees.
So while there are 65 times more small firms than midsize firms, midsize businesses employ 30% of all SMB headcount.
Here’s why this is important to marketers: in many sectors, the revenue potential of an SMB prospect is proportional to the number of employees. Think seat licenses, health insurance premiums, or workstations equipped. Thus, the relatively small number of “larger” SMBs—the midsize companies—represent a disproportionate opportunity for sales volume. How, then, should you approach them? Not the same way as you’d market to a smaller firm.
Why not? In midsize businesses:
- The owner is much less likely to be involved in most purchasing decisions.
- The level of automation and tech-savvy-ness is likely to be higher.
- Budgets are more likely to be used and adhered to.
This has implications for how you market to this segment. While the need for a distinct product line for midsize businesses will depend on your particular offering, your messaging and go-to-market approach will need to differ. It will need to be targeted toward decision makers other than the owner, and those decision makers may need to involve others in the company. It also may be more important to show how your products and services can integrate with existing legacy systems and processes, which smaller business may not have.
Here are some other considerations to keep in mind:
- Using employee size to position your products or services has the advantage of being objective. However, regardless of where you draw the line, number of employees may not be the best way to segment SMBs, even when used along with other demographic data. We have been saying for years that firms sometimes can be better segmented by behavioral (psychographic) data or discernable buyer-intent information such as previous purchases or content consumption. Admittedly, this is harder to come by at scale.
- Sub-segments matter significantly, particularly as you get toward the smallest-sized companies. A one-person shop will often be quite different than a 10-person firm, and a 10-person firm will be different than a 75-person firm. As I mentioned above, employee size should not be all you look at. Ownership and culture matter, too. I know a 100-person manufacturing company that is still run like it is 1997, and an 8-person real estate business in the real estate space that is tech-savvy and run like a much larger company. The age of the owner can also play a big part in how the companies are run.
- The owners and SMB decision makers themselves may not self-identify with the terms “small” or “midsize,” so avoid using those words.
When it comes to presenting your product or service options, you have choices to make. Some offerings are best directed toward businesses of all sizes that have specific needs or are at a particular stage of evolution (think about silver, gold and platinum SaaS offerings). Other offerings may need to be more specifically aligned with size. Depending on the nature of your product or service, it could be either or both. What’s important is that you consciously consider size as one factor in positioning your offering and the messaging with which you go to market.