One of the ongoing reminders for opportunity and headroom in SMB SaaS — beyond the sheer size of the market — is how far behind many SMBs are. Though the world of cloud-based enterprise software has elevated considerably over the past decade, model practitioners are mostly larger organizations.
SMBs by comparison are famously time-starved with proprietors that wear many hats — owner, operator, and webmaster. That often renders their operational software mix sub-optimal. SaaS has alleviated that to some degree given software push updates… but what about SaaS adoption in the first place?
In other words, many SMBs are still stuck in the pre-SaaS days of legacy software systems. And it goes beyond software as their entire stack can be outdated, including hardware and operating systems. Sometimes upgrading requires elevating entire systems which gives transformation that much more friction.
Adding another layer of difficulty, the new operational realities of the Covid era — including remote-work protocols and applications — render legacy systems even more outdated. Add it all up and some SMBs can be woefully behind — which presents both opportunities and challenges to SMB SaaS players.
Disparaging Results
To validate much of the above, a new HBR study quantifies the state of SMB SaaS adoption. Starting with the survey portions of the study, 66 percent of inside sales pros (n=500) prefer onerous tasks — going to the DMV, jury duty, spousal disputes and cleaning the bathroom — to using their companies’ front-office systems.
That’s quite a disparaging result considering these universally-despised life activities. Specifically, the front-office systems these pros were asked about include (in order of popularity) social media, email, word processing, and CRM. The latter is the most striking, as it’s a critical component of inside sales.
The issue here isn’t just the level of legacy decay in SMBs’ software systems — which the report did not quantify — but rather the sentiments of the end-users proposed to apply these tools. Outdated systems aren’t just ineffective in performance, but their UX deficiencies prevent them from being used at all.
In many cases, SMBs are well-intentioned in their desire for digital transformation. However, they aren’t technically savvy enough (or have enough time) to do it right. “Doing it right” means well-vetted point solutions, and — more importantly — integrated apps that can talk to each other (think: CRM and POS).
“Businesses are tired of stitching together apps and hoping they’ll all work together,” Zoho product evangelist Raju Vegesna told HBR. This common practice is an ingrained habit among SMBs — they adopt the next bright shiny object but don’t vet its applicability nor integration with existing systems.
Benchmark Bytes: When Do SMBs Prefer Automated SaaS Purchasing?
The Art of the Constellation
The key word above is integration. But this is also the most elusive component for non-savvy SMBs. The issue is that you can’t quickly gain integration instincts and no self-interested software vendor will sell the optimal mix. There’s a certain art to creating a SaaS constellation, and it’s different for every business.
Beyond the core software functions mentioned above, HBR specifically names workflow, analytics, journey mapping, and content management. Because the optimal tools in each of those categories may be from different vendors, SMBs are sort of on their own to generate code that knits them together.
That fundamental challenge is at the heart of SMBs’ failing collective letter grade for SaaS prowess. But again, this pain isn’t felt as acutely in larger organizations, as they have dedicated IT pros to take care of it. So the question becomes how to bring that capability to SMBs to optimize their multi-vendor SaaS mix.
One answer has always been IT consulting firms, but the unit economics at the SMB level aren’t as attractive as the mid-market and enterprise world. So the market that serves SMBs isn’t as robust, nor as capable. The bottom line: filling that down-market gap continues to be one of SMB SaaS’ biggest opportunities.
But the fact that the challenges are so sizeable — including unforgiving margins — is why this gap exists in the first place. For anyone who can solve this dilemma while staying agnostic, a sizable payoff potentially awaits. Meanwhile, software vendors that serve SMBs directly are making strides (another post).
