July 17, 2012, 8:16 PM — Everybody likes small businesses all of a sudden. Conventional business-school wisdom has, at least over the past few decades, held that it's better to have a handful of million-dollar clients than to have a bucketful of hundred-dollar ones. Today, that wisdom is being turned on its head.
But first, let me clarify what "small business" really is. I'm talking about what Waterstone Management Group calls the "micro-SMB segment", or companies with 25 or fewer employees; and this is where the real growth is going to come from in the foreseeable future, and companies that ignore this do so at their peril. There are two reasons for this focus:
1. The painful recession and slow recovery permanently changed how companies, especially large companies, do business. Nobody wants to do everything in-house any more, even if they do have the resources, and outsourcing has become de rigeur as a standard operating procedure. But let's not be too quick to dismiss outsourcing, or confuse it with offshoring. Outsourcing has already begun to give rise to a tremendous level of small business growth. Suppose for example, you're a large company, and the CFO's axe falls, among other places, on the in-house PR and marketing department. What you're left with is a bunch of MBAs running around crunching numbers, and a bunch of engineers running around creating marvelous products, but nobody is left that knows how to write a press release. Small PR companies rise to the occasion and fill the gap. It's the same across every department. Micro-SMBs are turning up to take the place of those once-internal departments, and the rapidly growing number of micro-SMBs is now in itself presenting a distinct marketplace to which larger companies now market.
2. The mainstream acceptance of the cloud has diminished the possibility of even a Fortune 500 company needing a multi-million dollar software installation. Traditional ERP systems that commanded huge fees and integration costs are now being delivered in modules over the cloud at dramatically reduced cost; and smaller companies are now demanding the same sort of functionality that was once limited to their much larger counterparts. Software providers have seen the writing on the wall, and are now filling this demand with offerings that are either scaled-down versions of their enterprise systems, or better yet, systems that are built from the ground up to service the micro-SMB market.
Singu Srinivas, partner at Waterstone Management Group, has already noticed this trend. "I was meeting with some executives at IBM and for the first time they are talking about it, and they have a GM for small businesses under 1,000. That's a big step for IBM. You see these large enterprises now, and they are creating groups that are focused on this."