Why Small and Medium Businesses (SMBs) Are a Big Opportunity for Business Analytics

Diego Klabjan Partner
Read Time: 4 minutes apprx.
managerial analytics

Fortune 500 companies are big enough, and have enough resources, to assemble and run their own internal analytics teams. In today’s environment, it is impossible for a large corporation to succeed without employing analytics. The situation is completely different if we make a step down to small and medium business (SMBs), which are typically corporations with less than 500 employees and revenue in hundreds of millions of dollars. Most SMBs do not have enough resources to deploy an internal analytics team. Lack of resources is definitely not the prohibitive argument for why they don’t use analytics. The conventional wisdom ‘we have been successful for many years so why do we need analytics now?’ is just now being challenged. It is the growth driver that should spawn the adoption of analytics. With analytics, SMBs can expand the market share, intelligently manage operations, drive down costs, and gain a new competitive advantage. In layman’s words, analytics can increase the bottom line for a few million dollars.

As mentioned, an SMB typically lacks the size to have an internal analytics team and thus they are ripe for using external software solutions. There is a big opportunity for independent software vendors (ISVs) offering business analytics solutions to target SMBs. If an SMB was established more than five years ago, they most likely only use business intelligence for basic reporting, or Google Analytics if they have an e-commerce site.

The situation is different for most recent start-ups and SMBs since many of them built their business models around business analytics and from the very beginning it became a key component of their business strategy. They clearly include all the start-ups in the software space and those using other technologies. In addition, this is also evident in many companies, for example, using social networking data or data from sensors such as telemetry and smart meter data.

ISVs offering analytics-based solutions have a tremendous opportunity in targeting SMBs in pretty much every vertical: from transportation to healthcare, retail, CPG, manufacturing, etc. SMBs are overshadowed by their big brothers since typical analytics projects cannot drive hundreds of millions of benefits as is the case for big corporations. However, despite a lower per project ROI, the total market opportunity is enormous due to the large number of SMBs in the U.S. (there are more than 25 million SMBs in the U.S.) While percentage-wise, it is not as high as in many European countries, they still represent a major chunk of the U.S. economy. Since every corporation has sales and marketing, low-hanging fruit is in the areas of marketing and customer intelligence analytics.

It is well known that in a successful data-driven corporation, everything starts at the management level. The management has to embrace analytics and then trickle it down throughout the entire organization. SMBs are no exception in this regard. The big advantage of SMBs is the fact that their organizational structure is more shallow and narrower in size. For this reason they are usually quicker to buy into analytics. Let us make no mistake; the buy-in from management in SMBs should not be taken for granted.

To summarize, analytics success stories in SMBs are not sexy – they will not appear in the Bloomberg Businessweek and will not lead to feature films like Moneyball, but nevertheless, they can make a dent in the economy. The opportunity for ISVs to target SMBs is definitely big. One does not have to look further than Intuit to get inspired by focusing on SMBs as a major market segment. Despite traditionally being focused on ‘accounting,’ Intuit now embeds analytics in their solutions such as the online personal financing software Mint and conducts analyses across their customer segments.