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Helping Small and Medium-Sized Businesses Navigate Retail: The SMB Operating System

As our Internet-based economy continues to drive commerce to the Web, small and medium-sized businesses (SMBs) across both retail and wholesale industries face ever-increasing competition for customers.

With the assortment of challenges SMBs face, they need all the help they can get to be more productive. They need cost-effective business applications that enable them to manage and track their business operations both online and offline, from Web storefront to the front and back office - with implementation time measured in weeks, not months.  The benefits of such solutions generally include improved financials and resource utilization, lowered reaction time to markets, reduced risks and improved profitability. In short, they embrace anything that helps to reduce complexity while improving their productivity, enabling both SMBs and their shareholders to derive better value from their business.

I estimate that my SMB customers depend on their software to manage roughly 97 percent of their operations. For many, that usually means Microsoft, but that's just a start. A growing number of larger enterprise resource planning (ERP) and niche application vendors billing themselves as software as a service (SaaS) or on-demand providers are clamoring for their share of this substantial - and growing - business segment. Supported by brash marketing campaigns, they have tried to deliver a one-size-fits-all SaaS offering and failed. This is not because the technology is flawed, but because it largely caters to the small-office/home-office business that outsources as much as possible to minimize overhead expenses. Most SMBs, however, want to grow their business their way so, like Microsoft, I'm just fine with providing both on-premise and SaaS options.

The challenge for the ERP or SaaS-only providers in effectively penetrating this market is that many SMBs use a variety of disparate, self-contained systems which are unable to effectively share information. They may run one application for accounting, another for customer relationship management (CRM) and yet another for their point-of-sale or inventory management system. Thus, although many companies have built a viable SaaS business to manage some business operations, that may or may not be the way SMB customers want to access their solutions.

SMBs need their applications to all work together as one unit or platform; not through expensive, patchworked integrations, but as what I like to call a true SMB operating system. The customer is king, and right now, they are saying they want to own their systems, primarily due to security and data integrity concerns. In fact, the bulk of their core revenue, 95 percent or more, is still retained on premise by design, provided they are trying to run their entire business on a single solution.

While CRM, by default, will primarily continue to adhere to the SaaS model, email, point-of-sale, accounting and inventory are all mission-critical applications comprising mission-critical data, so they need to work for the customer as the customer sees fit. This means both the customization and configuration that are only enabled by an on-premise solution. The SMB operating system lets the customer choose, rather than dictating how to access their applications.

To be held captive to a SaaS-based solution that may provide lower total cost of ownership in the short term but not long term simply doesn't make sense for our customers. By the same token, SMBs also want more than just an on-premise provider, because there are today - and will be tomorrow - additional applications beyond CRM that they are comfortable outsourcing. The main consideration is whether their key applications require costly and complex integration to talk to their other systems. If so, the SaaS option is a non-starter.

But don't just take my word for it. According to IDC, while SMBs are intrigued by the promise of SaaS, their willingness to embrace this uncertain business model is another matter.1 Although IDC expects that worldwide spending on SaaS will reach a staggering $10.7 billion by 2009, SMBs have not, in contrast, been adopting SaaS as quickly as anticipated. IDC also noted the challenges SaaS providers face in targeting SMBs, including establishing appropriate sales channels and deciding how best to market to them.

Beyond IDC's assessment, the fact is that, few, if any, of the ERP providers in SMB clothing can actually provide an SMB operating system. This concept, unlike the traditional operating system, is more than just software. It's a fully integrated suite of applications, either on premise or on demand, that provides SMBs with a virtual dashboard view across the full spectrum of their operations. And it doesn't stop there. It also empowers them to transform and grow their business from traditional retail to "e-tail."

An SMB operating system, whether implemented on premise or on demand, helps drive improved employee productivity, workflow and cost savings and, therefore, increased competitiveness. Like corporate portals or extranets, it offers a variety of resources and services, such as customer forums, but that's where the similarity ends. It also supports a broad range of online e-commerce, inventory and supply chain functions, among other key sales, marketing and customer-service activities. This system comes in one box and manages the entire business. For example, if a business owner changes the price of an item in inventory, then the price is changed throughout the system and, most importantly, on their Web storefront. This system is even flexible enough to account for varying prices based on the channel.

The return on investment from implementing an SMB operating system can be considerable, particularly in regard to streamlined operations. Centralizing information in one easy-to-access solution helps facilitate workflow and supplier/distributor collaboration, and that's just for starters. For retailers with either an established or new Web presence, delivering customer service via this system can help them get closer to their customers, both during and after the sales process. Personalized customer service that helps support lead-generation and close sales is just one tangible example of its business benefits that help companies serve their customers more effectively and differentiate themselves from competitors.

Diamond Designs Jewelers, for example, successfully implemented an SMB operating system, opting for the on-premise option. While they considered the SaaS route, they found over the long run that purchasing everything up front is much more cost-effective than the outsourcing alternative. Given the high-volume of business they do via the Internet, they also found that e-commerce could be much more customized when they owned the servers. With on-site installation, the company has direct access to their data, so they can do their own backup and then also run their own reports on their Web storefront data, without the added expense of paying an outsourcing vendor to provide this critical service.

When they stop to look behind the curtain of the formidable SaaS marketing machine,SMBs like Diamond Designs quickly find that several of the so-called FUD (fear, uncertainty, doubt) factors increasingly associated with on-premise solutions don't really hold water. They want to access their technology solutions in a way they helps them, not the vendor.  The key is to deliver such solutions to them in the fashion that best suits them, while providing additional value in the diverse business capabilities that a true SMB operating system can enable.

Ultimately, the SMB operating system can provide a significant competitive advantage to growing companies, especially once the illusion of real cost savings through SaaS is laid bare. This applies whether they remain a bricks-and-mortar business, have staked their fortunes on the Web or opt for the best of both worlds.

Reference:

  1. "The Adoption of Software as a Service in Small and Medium-Sized Businesses: Perception Versus Reality." IDC. March 2007.

Edwin Miller is president and CEO of Everest Software, a Dulles, Virginia-based provider of business management software for small- and medium-sized businesses. He may be reached at emiller@everestsoftwareinc.com.

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