SMBs Spending Big on IT! Are They Spending Right?

Sometimes it seems like the prevailing thinking is that small and medium sized businesses don’t have the desire or money to invest in information technology. Perhaps it used to be that way. It isn’t anymore. SMB leaders are more and more recognizing that information technology is either an opportunity for competitive advantage or a threat. There is no in-between. Technology isn’t neutral to SMB competitiveness. SMBs must invest in IT to compete effectively against evolving larger businesses. But another important set of competitors are new SMBs that position technology as core to their differentiated value. It is good to see that spending stats are reflecting the importance of IT to SMB success.

Lauren Maffeo posted a very informative GetApp infographic that highlights some very interesting SMB IT spending statistics such as:

• SMBs account for 40% of total IT spending by businesses of all sizes.
• By 2018, SMBs will spend $1 trillion on external IT
• Through 2020, 50% of SMB IT investments will be for business growth not cost reduction.

So SMB leaders are investing in IT and Gartner forecasts that spending will grow at 3.6% CAGR through 2020. These statistics raise very interesting questions concerning both software buyers and software vendors. One, is how will SMB leaders spend those funds to advance their businesses. And another is how much will software vendors focus on serving the SMB market.

Exploring the first, In June 2017 we surveyed 699 US businesses under $100 million in annual revenue or under 500 employees to identify their biggest challenges to growth. Finding and keeping the right people, using the right technologies, managing increasing operating costs, remaining competitive, and data security and were among the top identified constraints to business growth.

Given these challenges, it is not surprising that over 90% of respondents in the survey listed human resources software, data security, and customer relationship management software as areas of planned investment. It is interesting that “using the right technologies” is number two on the list. Our research indicates that more and more SMB leaders understand the importance of software to their business success.

Historically, the software industry has focused on large enterprises and the consumer. This left smaller businesses to try to fit software square pegs into requirements round holes. See my post, “Do Software Vendors Want Your [Small] Business?” We are seeing growth in the small business software market but there is always the alignment question, “are software vendors really delivering what SMBs need or are they trying to be everything to all business sizes?” This alignment is something we’ll be watching and trying to influence.

Gene Hall, Gartner’s CEO, likes to say, “The rate of change will never be this slow again.” Good or bad, this is reality. I appreciate these words because it reminds me that the status quo is not good enough. In this age of rapid change, SMB leaders must track how technology is changing their business to identify opportunities and threats. And, of course, invest wisely.

In the past, IT was more of an afterthought, an expense to be minimized. It was the tactical means to a more strategic business goal. Now, technology is spawning new business goals, ideas and even new business strategies. According to our research survey, 37% of SMB respondents listed “advances in technology” in their top 3 most significant external factors shaping their business goals. SMB leaders should and are beginning to elevate information technology to the status of strategically critical.

Your thoughts? Are SMB leaders thinking strategically about information technology? Are vendors recognizing the revenue potential of SMB buyers and catering to their needs? Interested in your experiences.