Everyone is obsessed with SMEs and startups – but you can't treat them like IBM

Derek du Preez Profile picture for user ddpreez July 10, 2014
Summary:
The technology world has gone SME and startup mad, everyone wants to find the next innovative company to take the market by storm. But buyers need to realise that they need different treatment.

Everyone I speak to at the moment wants to talk about SMEs and startups. They're getting a hell of a lot of attention. Every time I meet with a vendor regarding a

social media, social utility
strategy update they have some sort of SME programme that either involves getting them to work on their platform, or giving them free software in the hope that if they grow they will then be tied into that company. Equally, customers are obsessed - particularly those working in retail, finance and the public sector. Every event I go to and every customer interview I do, buyers are talking about the latest piece of cool technology that they've managed to source from Israel, Berlin, TechCity or Silicon Valley.

Just today I noticed that Google is planning to invest £58 million in European startups, and a couple of weeks ago it was announced that the spanish bank Santander would be opening up a venture capital fund for the same amount. Everyone wants in on the action. And to be honest, I love it. It's really refreshing to speak to people about true and interesting innovation, rather than some heavily marketed technology update that has been thought through to the nth degree. I like the idea of an new underdog disrupting some of the biggest players out there (which is one of the main reasons I joined diginomica) and I like the lack of corporate awareness amongst the SME community – which means you get to have real conversations with people, they aren't always trying to hide or PR their shortcomings.

However, a recent story emerged in the UK about how some government departments are beginning to blame the SMEs they procured for a major contract, following some teething problems they experienced during the transition. This is probably a big political play more than anything from some of the larger suppliers involved, in an attempt to hit out at the current government's policy of incorporating more SMEs to do business, but I do think the story should serve as a warning nonetheless. Before I move on I really don't want this piece to put anyone off working with SMEs and startups, there are some great benefits (enthusiasm, agility, innovation, etc), but I do think expectations have to be managed.

The popular saying, 'no-one ever got fired for hiring IBM', really springs to mind here. You can't enter a contract with an SME and expect them to operate in the same way as a huge corporate beast that has been in the market for 100 years. And that's a good thing. That's exactly why you want to work with smaller companies. However, this also means that they do need some special treatment and more often than not you as a buyer need to look at a lot of your procurement and sourcing processes and give them a rethink when working with SMEs.


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When I had the idea to write this piece this morning, I did what I usually do, and started to Google some keywords to see what else has been written on the topic. But I was surprised to find that I couldn't really find a great deal? Maybe I'm just crap at search engines, but I really couldn't find any succinct pieces of advice for the buyer. And yet I do often hear about pain points from both sides. Now this list isn't going to be comprehensive, and I'm sure I've left some bits and pieces out (please feel free to contribute in the comments section), but these are just some areas that have come up in conversations that I've had in the past few months with companies and people that are currently engaging with the SME market.

Be prepared to engage differently – Procurement is one of the biggest challenges for SMEs trying to get in with large organisations, particularly in the public sector. I've heard of examples of year-long procurements, that have cost the SME thousands and thousands of pounds, which they eventually get to the end of and then they are expected to hand over some IP and aren't made any guarantees. If this doesn't bankrupt a smaller business, it will just piss them off. As much as an SME or a start-up may want to work with you, and you may want to work with them, they just don't have the funds, lawyers and procurement experts to jump through hoops for months on end. Big corporates are happy to do this day in and day out, largely because it keeps people in jobs on both sides, but an SME just can't. Be prepared to run separate events, or hold separate discussions, with the smaller companies that interest you, to find out what they can offer your company and how you can find a way to get them involved. There are a number of initiatives happening out there, where organisations and quangos are trying to connect startups with big business, so do some research and take advantage of these. Just don't expect that because you want to work with smaller, innovative companies, that they will come. I've heard of numerous examples of SMEs walking away from contracts because they just can't face the ordeal of getting to the point of signing on the dotted line.

Scale – As much as everyone goes on about the benefits of working with SMEs e.g. innovation and agility, there is a legitimate concern that they don't have the resources to scale up if required. They just may not have the resources, even if they want to. Especially if they are in the early stages of their business and they are figuring out how to scale themselves. Both sides need to be aware of the expectations (as much as possible) over any given period and buyers need to be aware than an SME may just say yes now and worry about it later, given the prospect of a big fat cheque. Big companies do this too, but they generally have the ability to scale up quickly if they need to. Just something to think about.

Where's my dollar? - Cash flow is everything to a small business, it's their main concern. Where the next bit of money is coming from is always front and

man giving money
centre of their minds. As a result, companies can't always expect an SME to do a piece of work for them, for which they will only get paid a year later. I've heard examples of smaller companies working for big government departments for months on end, without receiving a single penny. This may be fine if you're HP or Accenture, but it's not going to be okay if you're a start-up that needs the cash to plough directly back into the business. Think about creating new ways to pay SMEs for pieces of work incrementally – this may not be easy to do, but if you want to incorporate innovation into your organisation, it may be an essential requirement. You don't want an SME working for you to go bankrupt half way through a contract.

Skills and the corporate edge – This is also one of the best reasons to work with an SME or startup. They will provide you with working relationships that are personally tailored to your organisation – you will probably be able to call up the CEO directly if you need to, they will probably try extra hard to please you and they will more than likely bend over backwards to cater to your needs. There's probably a lot less bullshit too. That being said, this also comes with its faults. Having corporate processes and securities in place are a comfort. If something springs up after you've gone through procurement and signed the contract, more than likely you could purchase a change request, an additional feature or additional skills from the company you are dealing with. If you're dealing with some of the biggest companies out there, they have 10s of thousands of people at their fingertips. This isn't the case for an SME, so be aware that they may not be able to do *everything* you demand of them.

They're an SME for a reason – I went to an event a few months ago where a consultant was speaking and he gave some words of warning about working with start-ups and SMEs, where he said that they're not a silver bullet to success and that they're an SME for a reason. He said that people need to consider that they may not have grown into the next big company, because they may not actually be the best out there. They also may be out of business in a year, so have a backup plan. In essence, they haven't been trialled and tested by a bunch of other companies all over the world and you may be taking a risk by working with them. That risk may pay off and you may end up with a competitive edge, but it's a risk nonetheless. 

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Verdict

As I said at the start of the post, I'm a huge SME advocate and I think that companies should be out there trying to find innovation in markets that are currently unexplored. Mostly because I think this is how, in a world where technology is becoming increasingly commoditised, you can gain some competitive edge.

However, it's just as important to not go in all excitable and be blind to the risks and challenges involved. Think it over, change what you can internally and just be prepared for a different (and exciting) ride.

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