Doing IT Services Business with SMBs and Startups
Date: Monday , August 02, 2010
SMBs and startups are the engines of growth in advanced economies. The Fortune 500 companies will continue to dominate IT spends, but because IT has become much more affordable, its adoption is now happening at a faster rate among SMBs. If you are a small to medium IT services provider yourself, you will find it difficult to break into the Fortune 500 club as they are dominated by bigger and established vendors. So focusing on the SMB market makes sense and this sector has its own advantages. The sales cycle to close a deal with a Fortune 500 company is typically long. In comparison, SMBs and startups make quick decisions as there is less bureaucracy. However, successfully doing a project with SMBs and startups and making a profit on it is a challenge. SMBs count their beans and seek value. So how do you engage with them profitably? Below are some tips on how you can successfully conduct IT services business with SMBs.
Do Smaller Projects
Every one likes to win big projects and close big deals. With SMBs, however, you should look for smaller and longer engagements than bigger and shorter engagements. Do not try to do a large fixed-cost project with them. An SMB may want to IT-enable their entire operations at one go. Typically business owners want to get everything done within 6-9 months and then go into maintenance mode. In practice, this won’t work. It is prudent to break the big project into smaller ones. Finish each project, deploy it, get the business use it, get the payment, and then go for the next one.
Develop the Solution Iteratively
Adopt agile development methodologies (see http://agilemanifesto.org/) for delivering projects. Develop software iteratively with each iteration or sprint lasting for 2 to 3 weeks. During the initial days of a sprint, provide mocks to the client so they know what to expect. While executing the project, keep in touch with the client on a daily basis. Do not sign-off a requirements document, go away and develop software in an isolated environment without client involvement.
Deliver working software at the end of each iteration. Let the end-users use the application and provide feedback. Never force your solution on the client. You may be the IT expert, but they are the domain experts. Listen to them and take their viewpoints seriously.
Change management methodologies used in large enterprises will not work in the SMB - startup world. Even if you have worked out a detailed contract and have scoped the project to the minutest detail, changes are inevitable. In the small world, you have to be comfortable with rapid changes. You wouldn’t want to nickel-and-dime every small change request, but small changes quickly add up landing you in red.
So how do you handle changes? One of the principles in the agile manifesto is ‘collaboration over contract’. This principle is very important in the context of small businesses. If the user requests a minor change do not show them the contract or the signed-off requirements document and make them go through complicated change request processes.
However, you need to protect your interests too, so it’s about convincing the customer of the time and cost implications of a change. It’s also a good practice to record changes, even if you decide not to charge the customer. The important thing is to be flexible, do not raise a hue-and-cry over every change request. At the same time, make the customer realize that changes cost time-and-money.
The best practice is to plan short sprints and agree beforehand with the customer not to make major changes during the sprint. Change requests can be taken up and implemented in subsequent sprints.
Hire a Different Kind of Developer
If most of your customers are from the SMB segment, you should consider carefully the kind of developer you want to hire. Developers hailing from bigger organizations serving Fortune 500 customers may not work well with smaller customers. Those developers are more comfortable working in a silo environment where a business analyst documents the requirements, an architect designs the solution, and a QA team validates results.
In an SMB environment, developers should do more than coding. They will need to directly interact with the customer. They should be business analysts, solution architects, and usability experts all rolled into one. They shouldn’t just write code and expect QA to find the bugs for them. In short, you should be hiring the kind of people who can interact directly with your customers and can take full ownership of the problem. They shouldn’t be mere technical experts.
Reduce Total Cost of Ownership
Very often solutions providers make the mistake of trying to reduce the immediate cost of their solution, but not the long term total cost of ownership. This may work in the short term, but if you want to earn the trust of your client and do continuous business with them, you should be willing to make short term sacrifices. Most clients are themselves happy to make short-term sacrifices in return for long term savings.
For instance, you may be able to reduce the immediate development costs if you purchase a commercial, instead of free open source, database. However, if you add up the license costs and the future costs of upgrading licenses and buying more licenses as the system grows, the long term cost of ownership could be higher for a commercial database. You have to educate your client on the pros and cons of commercial versus free open source and help them take a decision. Not that free and open source is always better and cheaper. On the contrary, there are many situations where commercial software provides lower cost of ownership over the long term.
Embrace the Cloud
For SMBs and startups it might make sense to avoid investing in capital items like servers and firewalls. Running their own datacenter, however small, is an expensive proposition as they could end up hiring a full-time person for running it reliably. An attractive alternative is to sign-up with a cloud computing service provider like Amazon, which offers a pay-as-you-go model. The advantages include zero upfront capital investment and the ability to scale as the business grows. Most cloud computing providers have datacenters in multiple geographic zones; you can setup backup servers in other zones to ensure high-availability of mission critical systems. There are also data backup services available on the cloud, where you can reliably backup data.
Provide Mobile Access
Most small and medium business owners and employees do not spend their working hours in front of a computer. Many of them are on the field, traveling between locations or meeting clients. This means that providing a solution that can be accessed only through a desktop browser is not the most effective. Since most business owners carry a smartphone, it is now possible to provide them with realtime data, alerts, and reports so that they can quickly take decisions, even while on the move. This means that your solution architecture must be based on Application Programming Interfaces (APIs), which can be accessed in a secure manner from browsers, smartphones and tablets alike.
Choose Open Systems
One of the decisions to make while building an integrated system is to buy or build subsystems. There are plenty of Software as a Service (SaaS) choices in the market today. For example, there are SaaS applications that provide project management, document management, timesheets, expense tracking, accounting, and payroll services. Leveraging them can often speed up the system development process. So how do you choose the right subsystem? The most important consideration is that these SaaS applications must provide programmatic access through APIs. Your job is to make the different applications talk to each other and create an integrated system experience for your client. Also, there should be a way to export application data in a portable format, so that in case you decide later to discontinue the use of a particular SaaS application, you will still have all the data. You should not get your client locked into a particular SaaS vendor.
SMBs and startups are demanding clients, but that is where the growth is. The practices described in this article provide you with a roadmap on how to successfully and profitably engage with this fast growing sector.
The author is CEO and Co-Founder, QBurst