SMB economic factoids useful for technology consultants

Hello – I am Harry Brelsford, the author for the SMB Consulting Best Practices book, and I like to hold virtual book readings! Today are some passages with very interesting economic factoids. Please enjoy the ride!

Economists, while practitioners of a dismal science, love statistics. Here’s some SMB numbers to chew on for a while.

• There are 22 million “businesses” as defined by the U.S. Small Business Administration (SBA at www.sba.gov). Figure 5-6 displays the SBA Web site for defining “small.” Basically this is a tool for determining what businesses fall under the purview of the SBA. Typing the term “computers” resulted in the information displayed in Figure 5-7. See the “Best Practice” below for converting these numbers into meaningful values for SMB consultants.

Notes:


Chapter 5 SMB Marketing

Figure 5-6:

The SBA’s small-business-size Web page.

Figure 5-7:

Results on a small business search term.

5-25

Visit http://www.microso{t.com/technet {or the latest updates {or any Microso{t product.


·           Under the SBA’s definition of “small business,” there are numbers that are more on the mark for you to consider. There are 16,000 businesses with 500 employees or more. There are 100,000 business with over 100 employees. This would suggest the bulk of businesses (say 21.9 million) have fewer than 100 employees. This is a huge SMB marketplace opportunity for you.

·           Small businesses contribute 39% of the US Gross Domestic Product.

·           Small businesses create two out of three new jobs.

·           More than half of the technological innovations come from small businesses.

·           An older IDC study (late 1990s) reported that 74% of small busi­nesses have one or more PCs. This number should be adjusted upward now.

·           The same study reported that 30% of small businesses are networked. Again, this number is out of date and should be adjust upward.

BEST PRACTICE: If you refer to Figure 5-7, you’ll see that the SBA’s definition of “small business” is fairly generous and really con­verts to SMB for our purposes. If you look closely, you’ll notice that a computer analog manufacturing firm (the first entry) could have up to 1,000 employees. The SBA has established a size stan­dard for most industries in the economy. The most common size standards are as follow:

·                       500 employees for most manufacturing and mining industries

·                       100 employees for all wholesale trade industries

·                       $6 million for most retail and service industries

·                       $28.5 million for most general & heavy construction industries

·                       $12 million for all special trade contractors

·                       $750,000 for most agricultural industries

Note that Brian Headd from the SBS was quoted in a USA Today article on March 10, 2003, as saying there are 5.6 million small


businesses in the USA that create the majority of jobs and typi­cally lead the USA into economic recovery after a recession. The bottom line is that beauty is truly in the eyes of the beholder. One man’s small business sector is another man’s SMB sector. You get the point.

Microsoft’s SBS partner page (www.microsoft.com/partner/sbs) offers the following interesting statistics for consumption.

·           4.1 million small businesses in the United States have more than one personal computer with no network installed, providing a strong market opportunity for Small Business Server as first and primary server.

·           Microsoft Small Business Server sales are rapidly growing over 30 percent per year.

·           Nearly 1.65 million servers are expected to ship into the worldwide small business market this year.

BEST PRACTICE: Just between you and me, you need to engage in a little expectation management here. Based on a collection of conversations around Microsoft, I believe that much of the growth in SBS is from overseas in international markets. The USA isn’t driving SBS; rather it’s hanging on to the tail and being dragged along. Hats off to the Aussies and others for banner years with the SBS product.

I’ve got more numbers to share below in the “Volatility” section.

Notes:


Sectors

Microsoft has some well-worn slides from public venues on small business customer segmentation. These are shown in Figures 5-8 and 5-9.

Figure 5-8:

Small Business Customer Segmentation

Notes:


Figure 5-9:

Small Business Segmentation by Customer Size

The message in Figure 5-8 is that there is some low hanging fruit out there to target your services toward:

·           Professional services are a prime SMB market to target as they spend the most on computers and technology.

·           Production/Operations include manufacturing and have the largest value for firms planning to implement more technology solutions.

·           The trades are not considered to be an exciting opportunity for SMB consultants. You might reconsider making this your niche segment!

·           Retail has an exciting statistic in that, when technology is deployed, it is aggressively deployed. This is noted by having the number of “Internet users” closely match the number of PC’s deployed.

Figure 5-9 has a different view. It’s the number of small businesses as acknowledged by Microsoft (7.4 million small businesses) and the number of people employed by those small businesses (67.3 million employees). Over 55 percent of the people employed in the US are employed by firms with between 20 and 49 employees. Approximately 30 percent of the employees are in firms that fall within a sweet spot for SBS: 20 to 49 employees.


Micro

Whereas all politics are local (so the old saw goes), one could say all economics apply to the firm (the singular firm being the focus of micro economics). So while hypothetically the national economy might be in the doldrums, specific firms might be having a banner year, which is a good thing for you, the SMB consultant. How can this be after the sobering macro economic discussion above? Micro economic influences (like a massive oil field being discovered just up the road from you and spurring development activity by surrounding it with industry-related firms) shouldn’t be underestimated. There’s nothing like being in a boomtown or inside an individual company that is booming. It’s both fun and rewarding.

One place that you’ll truly live micro economics is your own SMB consultant practice where “you” are the firm. You’ll learn firsthand what you’re willing to pay for goods and services provided to you, what your propensity for consumption of these goods and services are, and so on. You learn at times that being in business for yourself as an SMB consultant brings no financial guarantee. While I’m a big advocate of your becoming an SMB consultant and earning a large income, I want to balance that idealistic view with the stark realities of your being in business for yourself. Once you’re a successful SMB consultant, having avoided the numerous pitfalls that await you, you will truly take pride in both your professional and financial accomplishments.

Volatility

It should not be lost on you from these readings or your own work experience that there is significant volatility in the SMB sector. Businesses start and fail all the time in the SMB space, many without fanfare. Here today and gone tomorrow is the rough and tumble fact of life in this arena.

This translates into opportunity for you and your services, as you can go sell the same client group several times over in a period of a few years. Each small business of any decent size needs a computer network to be competitive. This is a good thing and might help you make decisions about the type of services you’ll provide.

Contrast the volatility of the SMB space with the enterprise space. With a few notable exceptions (United Airlines, US Air, Air Canada, Enron), very few enterprises fail outright and disappear (and even my examples above


include some Chapter 11 bankruptcy cases as of this writing, not outright liquidations). Practically speaking, the Fortune 1000 list of enterprises remains fixed at 1,000 enterprise entities without much change.

USA Today reported encouraging words that new company failure rates aren’t as high as we were all led to believe (including the old myth that 90 percent of all startups fail in the long-run). In its article titled “Study: New company failure rate not so high” published February 18, 2003, USA Today shares the results of an SBA study (that surveyed 12,185 companies) where, according to Brian Headd from the SBA, the 90 percent failure rate is debunked. Instead, the study found 67 percent of start-ups successful after four years in operation.

Allow me to explain. The study totals 100 percent. Of this, 33 percent of small business start-ups were outright failures within the four-year study period. That leaves 67 percent remaining, a number that needs further explaining. Subtract 17 from 67 to reflect the 17 percent of owners who closed their businesses due to retirement or via merger and you have 50 percent of all small businesses remaining in business after four years. The 17 percent value is important to understand as it’s not a reflection of failure but either the sale or disposition of a successful business. Whew!

Other interesting tidbits from the SBA study include:

·           The need for $50,000 US in start-up capital. The USA Today article tells the story of Ted Jordan, a 42-year-old Cleveland-based com­puter consultant who set aside $50,000 US to cover his start-up costs in 1998: salary to him, computer equipment and travel. He achieved profitability in 2001. This maps closely to my Brelsford’s Dozen in this book about having 12-months cash on hand when you start your SMB consulting practice.

·           Correlations between education and success. Being better educated gives the entrepreneur access to more resources and better business planning. This was a success factor.

·           Home offices are cool. Not surprisingly, entrepreneurs that com­mence company operations at home have lower startup costs and don’t have to pay rent. The commute is shorter and early-stage


business owners like it. Later, when image demands it, a bona fide business office might make great sense.

BEST PRACTICE: Be sure to consult with your accountant on the deductibility of certain expenses for home offices (say part of your mortgage payment being treated as de facto rent). I’m told this is a major audit flag with the IRS in the US!

cheers….harrybbbb

Harry Brelsford, CEO at SMB Nation

MBA, MCSE, CNE, CLSE, CNP, MCP, MCT, SBSC (Microsoft Small Business Specialist)

PS – my Small Business Server 2008 (SBS 2008) book is now here! J

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