I spent the last year as CMO of Nextiva, a company that sells cloud communications to the SMB, and thought I would revisit and update my post on How to Build a Business on the SMB Without Going Out of Business, with some new thoughts and insights. Nextiva was particularly interesting from a SMB GTM perspective because, unlike other companies where I have worked which targeted the SMB in addition to the mid-market and enterprise, this company only targeted the SMB. Try to build a $250M+ revenue business on an ARPA of $20 per month and you'll learn the true nature of SMB GTM and scale.
There is a lot to cover, so I’ll divide this topic into 2 posts. This first post will cover the nature of the SMB and acquisition strategies. And in the 2nd post, we’ll cover how to scale up an SMB business.
The Nature of the SMB
The first thing to understand is the nature of the SMB market that you are trying to sell to. Remember that SMB’s are typically defined as less than 100 employees and $100M in revenue. These are small businesses, e.g., financial advisors, auto parts dealers, doctor and lawyer offices, restaurants, etc. They are typically run by an owner whose primary focus every day is on running their business and meeting the needs of their customers. It’s not buying your B2B solution, which in fact may be a huge distraction to running their business. The business owner is probably the main contact and decision maker. Their assistant or office manager will likely play a significant role in the proceedings. If they have more than about 50 employees, they may have an IT person or consultant to handle technology solutions.
Unlike larger companies that have teams dedicated to purchasing all sorts of products, and working directly with vendors, SMBs are typically in full boot-strap mode when it comes to technology solutions evaluation and vendor management. And this drives the purchase process as well. It might be a quick snap decision due to a critical and immediate need, or it might take months for them to decide. In either event, this purchase process is a much much lower priority than running their business. So you need to make it super easy for them to buy with a super simple offering, crystal clear messaging and value proposition which can be quickly delivered, and a very attractive price.
Most SMBs are highly price sensitive since money to a vendor typically means less money to the owner(s). So they spend every dollar like it is their own, because it is. Unlike larger accounts, there is not much upside to most SMB accounts. They don’t have other divisions, or international operations that you can sell to. Upsells or add-on sales are typically pretty modest compared to larger accounts, but not zero. So you can increase revenues from SMB accounts if you are creative, it is just a bit harder than larger accounts.
Also SMBs will churn at higher rates compared to larger accounts because they are more susceptible to economic cycles. Many SMBs were hammered by COVID and the resulting economic slowdown and forced out of business. Larger companies were able to weather the storm much better. Unfortunately, SMBs don’t have a lot of cushion when hard times hit.
How to Effectively Acquire SMB customers
Cost-effective acquisition of SMB customers is critical because, as noted above, deal sizes are small, there is typically not much upside to most SMB accounts and they will churn more often than larger accounts. In addition to what was already covered in How to Build a Business on the SMB Without Going Out of Business, some additional lessons I learned on SMB acquisition are below.
Price is a huge factor with SMBs, much more so than with larger accounts even if you are talking about as little as $20 a month. Every small business that stays in business watches expenses like a hawk, and they rarely have as much free capital as they would like to spend on things. So an effective pricing strategy must be a critical part of your GTM plans.
Most small businesses are much more price sensitive at the time of purchase than they are in renewal if the product is working for them. They won't churn to save $5 a month if everything is working fine, but $5 or even less could easily be the difference in the initial purchase decision. Just as you are not likely to change your internet service provider or cell phone carrier to save $5 a month if it works well, but that $5 could be the difference in the initial purchase decision.
If you are in a commodity market, pricing will be the main driver of the purchase decision. To avoid this, and a race to the bottom, make sure you find some way, any way, to differentiate your product from the competition, and not be considered a commodity.. At my last company, our key differentiators were reliability and amazing service. Not earth-shattering, but we made customers feel more special and cared-for than our larger competitors did. That gave us something to talk about other than price. If you have strong differentiation over the competition or an established market leadership position, you can command a premium price with an effective value proposition. But pricing is always front and center with SMBs.
Publicly posted pricing on your website can be tricky. You often need to publicly post pricing otherwise many SMB customers will not even engage. At RingCentral and Nextiva, our pricing page was by far our most heavily trafficked page on the website. The balance here is to get the public pricing right so you can acquire non-price sensitive customers and non-competitive sales deals at a higher price points, but not price so high that you turn away price-sensitive customers. Because ideally you want to engage price-sensitive customers in a sales cycle and have the ability to discount down to a lower price that will convert them. This takes tremendous sales and marketing coordination and on-going research into the critical price points in the market and expectations by different customer segments, as well as competitive pricing strategies.
In pricing strategies, you will often see the market leaders pricing higher than most competitors because they have the brand recognition and will be able to win many deals right off their website pricing with very little competition. Usually it's the market challengers and lesser known vendors that are leading with low pricing because they can’t compete on brand awareness or reputation. But at the same time, you will see the market leaders compete fiercely in competitive sales deals and undercut challengers on price during sales cycles particularly in strategic segments because they can go low on price without tanking their business. And they are experienced at getting more revenue out of customers over time with price increases, the expiration of promotional pricing and by selling other products.
Of course you want to track and measure everything related to acquisition costs and LTV. As mentioned in How to Build a Business on the SMB Without Going Out of Business, CAC/LTV is still the best metric in my opinion. But remember that while you do want to acquire customers as efficiently and effectively as possible at good price-points, the LTV of every customer you lose on price = 0.
Even if you initially acquire a customer at a crazy low price-point, there are ways to increase that price-point over time, as we’ll see in the next section on scaling up an SMB business. For example, I purchased a DirecTV subscription about 15 years ago for $39 per month for 200+ channels. Which I thought was a great deal. Now I pay $270 per month with all sorts of premium channels, sports packages and additional services, and I am sure my LTV is through the roof for DirecTV. An acquisition at even a very aggressive price gives you the opportunity to create a profitable long-term customer. Losing on price at the outset leaves you with nothing but sales and marketing expense.
If I were to summarize the best digital acquisition strategy for an SMB, it would be “Be Everywhere!” The more places you are, the more awareness you’ll generate, which will speed acquisition when your prospect needs your product.
When attacking the SMB, or any market for that matter, most companies will pursue a digital strategy of SEM and SEO and possibly other channels to reach prospects, and draw them into their website for engagement and conversion. Many companies will have three different teams dedicated to working on each of SEM, SEO and their website and all too often that results in three strategies for this critical area rather than one.
Your digital strategy, including SEM, SEO, website and any other channels, needs to be one strategy not three. Each digital channel needs to complement each other and work together. SEM and SEO are really the ying and yang of your digital strategy in that one is highly targeted and managed and optimized daily, and often hourly, and the other is long-term in nature, takes time to achieve impact and is not quickly redirected. Search terms deemed too expensive to pursue via SEM can be targeted via SEO and vice versa if both teams are working together. And both must be in sync with the website journey and content to be most effective. Put them all under one strong leader to make sure they are working together.
In addition to digital channels, when targeting the SMB, you need to be everywhere on social media. LinkedIn, Facebook, Twitter, Youtube, TikTok, everywhere! Wherever there are people and eyes, you want to be there. Because the key to SMB acquisition is for the prospect to know who you are and have a positive impression before they need your product. Yes you can accomplish this via brand as well as we’ll discuss below, but social can be a very powerful complement.
And don’t forget that your customers and prospects are going to weigh in on social media for whatever they feel like saying about your company and products, whether positive, but often negative. Make sure you track this religiously, engage the community and respond to comments. Some issues are legitimate and can be addressed to the customer’s satisfaction. And they can often be convinced to update their comments to acknowledge the vendor’s response.
Review sites have become huge in recent years including G2, Capterra, TrustRadius, Google, Apple and Android app stores, Gartner, Yelp and others. Everywhere people are reviewing and commenting on your and your competitor’s products. And prospects can’t help but find them when they start their diligence on your products. As part of your “be everywhere” strategy, you need to rock these reviews. Make sure you not just monitor them, but have a strategy to make sure you show well. Don’t just be reactive to a run of bad reviews. Good scores do not happen by themselves. Work with your sales and customer success team to programatize the on-going generation of good reviews across all of these sites. Otherwise, you’ll be left to the whims of the marketplace and your competition, who is working to improve their scores.
In addition to all the above, brand is key for SMBs. You need prospects to come to you or at least know of you when the need arises. This will lift the performance of all acquisition channels. Advertising is not cheap and you need to get the most out of this spend, particularly if you are not a large company with big budgets. This area of brand spend is so deep, that I will dedicate a future post on how to get the most out of your brand spend. Stay tuned for that one. Communications is also key and often overlooked in the SMB in favor of digital channels. Media (what’s left of it), bloggers and other influencers and domain experts do have followings and can be leveraged to help build awareness and establish a reputation. Don’t ignore this.
Being everywhere can be a tall order, especially for smaller companies so you’ll likely need to prioritize where to get the most bang for the buck. But no matter how many channels you activate, make sure you run integrated, cross-channel campaigns across all of them, or as many that makes sense. Many companies inadvertently organize acquisition channels into silos, each with independent managers, and have them optimize individually and as a result they operate fairly independently. This might look great for individual channels but the overall impact is muted compared to an integrated campaign, which will deliver 15-20% better performance.
In summary, to nail SMB customer acquisition, you need to attack the market programmatically. You need to go broad and build a tried and true GTM machine that is highly mechanized to run prospects through to be effective. This requires very tight sales and marketing coordination, which essentially become one integrated team instead of two independent teams. This will also help you scale up when you add marketing spend and more sales reps because you just plug them into the program. More on scaling up in Part 2 of this series on how to sell to the SMB.