Too small to serve to too large to ignore: SMEs, the new frontier for digital vendors?

SMEs have been the focus of several initiatives taken by the stakeholders, including the government, financial institutions, and technology companies, in the past few months

Published: Aug 7, 2020 09:33:52 AM IST

kheyti agritechKheyti provides technology solutions for small farmers
Image: Courtesy Kheyti

The current crisis has led to the rapid adoption of digital technologies by Small and Medium Enterprises. However, a majority of the technology vendors have never targeted to exploit this segment. Can smart strategies help digital vendors conquer this untapped, but fragmented, market?

Small and Medium Enterprises (SMEs) are the backbone of the Indian economy. They account for nearly 30% of the Indian economy and 40% of the country’s workforce. However, when compared to their larger counterparts, SMEs have always lagged behind on digital adoption.

The COVID effect
The COVID-19 crisis has brought a drastic and sudden change to all of this. The loss of business has forced SMEs to adopt digital technologies rapidly. We have all witnessed our neighborhood Kirana store going online and our favorite Dhaba moving to digital menus and contact-less deliveries.

SMEs have been the focus of several initiatives taken by the stakeholders, including the government, financial institutions, and technology companies, in the past few months. These initiatives have ranged from deferred interest loans to free digital webinars and onboarding onto digital platforms. Evidently, digital has emerged as the preferred means of survival and growth for SMEs.

Old wine in a new bottle?
Researching on the digital transformation of SMEs, we spoke to many SMEs and technology vendors across the country. Our findings show that the current crisis has forced SMEs to cross the digital chasm. They are seeking to find the right strategy and technologies that will help propel their growth.

On the other hand, traditional technology vendors, except for a handful, have not focussed on SMEs for the following reasons. SMEs represent a diverse cross-section of industries, are financially constrained, and lack the basic technical know-how. Also, they are geographically dispersed across the country, are difficult to access, and have a high cost of sale. As one ERP vendor told us:

“It takes me the same time and cost to sell to an SME as a large company, and my realization per sale is much lower. It is just not economical for me to sell to SMEs.”

On the other hand, the SMEs we met felt that the technology landscape was too confusing, and vendors were not offering them customized products. The owner of an auto-ancillary manufacturer well summarised this:

“All the vendors did was take the product they sell to large companies, hosted it on the cloud, and claimed it was an SME product. It was just too cumbersome for us to implement or use.”

Can vendors afford to ignore SMEs?
Tapping the fragmented segment of over six crores SMEs in India offers a host of advantages. First, the majority of these are micro SMEs but are still potential users of technologies. Second, there is limited competition among vendors targeting this long-tail. Third, decision making in SMEs is limited to the promoter/owner. If targeted correctly, the sales cycle can be short. Finally, SMEs are the potential “non-customers” described in strategic management theories like Blue Ocean© and the theory of Disruptive Innovation. Targeting SMEs can lead to innovations anticipated to become mainstream and dislodge incumbent large company vendors eventually. As the CIO of a large pharma company told us:

“We have a large IT vendor supporting us. However, our team also works with a few smaller vendors who focus on SMEs. This helps us keep an eye on the innovations being done by smaller players in our industry.”

Companies like Intuit, Tally, and Zoho have built successful global businesses around targeting SMEs. Also, Facebook, WhatsApp, and Jio are targeting to tap  B2C SMEs through innovative solutions.

Start-ups are getting ahead
SMEs are also good targets for start-ups. Kheyti, an agri-tech start-up, leveraged technologies such as text messages, voice messages, voice calls, LinkedIn, YouTube, social media, and WhatsApp to connect farmers with relevant stakeholders. Even during the pandemic, this digital network allowed Kheyti to reach 9323 farmers and provide them with solutions to sell their produce, as well as actively offer them the latest market prices, loans, and input for better farming.
 
Krishworks, an ed-tech start-up (accelerated at ISB DLabs as part of the Jumpstart Social Enterprise Program), helps rural kids to learn - read, speak, and write - English. The start-up is a classic example of using simple technology for radical societal impact. In the last few years, Krishsworks has taken education to 10 districts of West Bengal and Tamil Nadu and onboarded 2000 students interested to learn English.

Another SaaS-based start-up, Smartwinnr (an ISB alum start-up), is helping salesforce across companies from India, Japan, Europe, and the US to digitize their sales strategy. They offer a novel solution of gamifying salespeople training, skill development, and sales contests. The end outcome of this gamification strategy confirms significant improvements in product-knowledge, selling abilities, and performance of salespeople.

The opportunity
To successfully target SMEs, vendors need to go beyond cloud hosting only “large company” solutions. These easy-to-use solutions, with simple implementations, need to take into consideration the unique characteristics of SMEs and their end-customers. Since less-tech savvy customers of SMEs, even many from remote areas, will use the majority of these solutions, the SMEs need to be able to handle a hybrid online-offline mode of working and also have non-English language capabilities.

As the owner of a farmland company told us:

“Most of my workers are 7th or 8th class. We don’t have a localized version of the app, so we have made a provision of audio messages. The workers touch the button and record their reports. At our central office, the audio file gets converted to a customer report. Technology should be implemented in a way that is useful for the person using it, and not for the one who created it.”

SMEs, too, are not tech-savvy, and vendors need to go beyond offering licensed technology to newer business models like “business process as a service.” Given the financial constraints faced by SMEs, one-time licensing models need to be replaced with various models with flexibility to scale. One of the biggest challenges to sell to SMEs is the fragmented nature of the market. Vendors need to find innovative channel partnership models to service their customers effectively. Channel partnership with firms offering non-competing products and targeting the same clients is a newer way of competing. For example, one SME ERP vendor successfully tied up with a financial institution to market its products. This partnership was a win-win-win for all players involved, with the SME getting the right ERP solution, the risk department of the financial institution getting better accounting data, and the vendor reaching hundreds of SMEs through the financial institution’s existing SME relationships. Another possibility is partnering with telecom companies that already have large bases of SMEs. Vendors can co-brand services with these companies to reach SMEs.

SMEs are a difficult market for most vendors. However, our study has shown that, with the right solutions and business models, and innovative channel partnerships, vendors can build successful SME-focussed businesses. Can they afford not to?

About the Authors

•    S. Arunachalam, Assistant Professor of Marketing and Academic Director - CIE, Indian School of Business
•    Srinivas Pingali, Professor of Practice, Indian Institute of Management, Udaipur
•    Kiran Pedada, Assistant Professor of Marketing, Indian School of Business

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[This article has been reproduced with permission from ISBInsight, the research publication of the Indian School of Business, India]

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