But
for every great challenge worth achieving, a long hard battle
must be fought. The small business market is a slippery
prize that easily wriggles from the hand of the most skilled
marketer.
However, the problem with calling the small business sector
a market is that markets traditionally have something to
bind them together - a common theme about which all members
generally agree. The small business market, on the other
hand, is extremely diverse to have a common thread running
across them. The very first thing needed, is thus, a way
to slice and dice this market into chunks that are more
homogenous. The number of employees a company has is a quick
way to judge a company's size. And firm size - though it
may seem to be too simplistic - is still how some of the
world's best business-to-business marketers segment. The
existence of employees as a gauge of the business owner's
seriousness is not perfect, but in the absence of more accurate
measure, it can be the most effective way to determine the
size of the business.
The biggest mistake done by marketers, about segmenting
the small business market, is that they tend to segment
these small businesses attitudinally. They reason that the
market is too diverse; therefore they need to understand
what makes the different entrepreneurs tick. The result
is a beautiful presentation lumping the small business owners
into a variety of segments that usually make the marketers
feel good for a while, before it hits them back; as they
cannot map these qualitative attributes back to a company's
database - result that these profiles are seldom used.
So, before the qualitative research is commissioned, the
small business customers and prospects should be categorized
into groups defined by something that is actionable. And
how actionable something is, comes down to one word - data.
The best data possible is the historical customer data as
it allows calculating a client's profitability. Simply put,
if the revenue generated from a customer is taken, subtracting
the cost of goods or service sold to them and also deducting
the cost of acquiring or servicing the customer is taken,
that gives the profitability of a customer. Assume that
all your customers fall in one of the three buckets as shown
in the figure below. In addition to understanding the profitability,
the potential of each client also needs to be assessed.
Assign high potential to customers who buy from the competitors
much more. Assign a customer as low-potential if the particular
customer is estimated to buy most of their purchases from
your company. Once the profitability of the customers is
calculated, various analyzing and marketing programs can
be designed for targeting them. The behavioral segments
will help to access the needs of the clients whereas the
profitability and potential helps in designing a desirable
strategy.
After the segments based on the behavior and the potential
value of the customers is created, the main question that
should be answered is that what binds these buckets together.
The common thread running among all the small businesses
needs to be known. In addition to do a qualitative research,
a number of other ways exist by which the buckets can be
analyzed easily:
* Demographics of the owner: looks at the owner of the business
and includes age, gender and so on.
* Firmographics: a made up word that business-to-business
marketers use when referring to a company's characteristics
such as the number of employees, growth rate, revenue etc.
* Vertical: refers to the industry in which a small business
operates.
The key is thus not to pick just one method to look at the
customers of a particular segment - successful marketers
to these small businesses constantly tries to focus to the
similarities of the companies in a particular bucket, trying
to find out some useful similarities.
The first step in segmenting the small business market is
to look at the customer base behaviorally and divide the
customers into buckets based on how profitable they are
to the business. The immediate procedure following this
is the traits that make each bucket unique. That trait often
comes down to what these customers buy, but it may so happen
that the most profitable buckets have other similarities,
including demographics like age, gender and ethnicity, or
firmographics like employee number or industry.
Mountain
climbers, Freedom fighters and Craftspeople
The very next step is to get into the heads of the entrepreneurs
in each of the customer segments. Recent studies show that
the small business owners can be categorized into one of
the three attitudinal profiles - the mountain climbers,
the freedom fighters and the craftspeople. Of the 21 million
businesses in the United States, the propositions of these
three categories are as shown in the chart titled “Psychographic
Profiles of Small Business Owners”
Mountain Climbers are so named as these entrepreneurs are
motivated by growth and achievement. For them, owning a
business is all about growing something and achieving something
important.
Freedom fighters, on the other hand, are motivated by independence.
To these free spirits, who dislike being told what to do,
owning a business is the ultimate career choice.
Craftspeople are independent professionals who choose to
practice their crafts independently as opposed to working
for others.
Although the mountain climbers are the smallest segment
of the market, they are also the group whom the marketers
find most attractive. The mountain climbers, motivated by
the growth and achievement, view entrepreneurship, as being
about achieving the impossible. They climb mountains in
business only to reach the peak and look for the next highest
point on the horizon. They are never satisfied and have
an average annual growth rate of twenty per cent or more.
The mountain climbers have an interesting relationship with
the money. They typically use it as a yardstick for measuring
their success but are rarely motivated by it themselves.
The mountain climbers are most likely to look at money as
a growth fuel - the more they have, the faster and further
can they push their businesses. This relationship with money
often drives their decisions; they are most likely to lease
equipment, minimizing their monthly payment, in an effort
to keep up as much fuel at their disposal, and they lease
office space instead of tying up their cash in a deposit
on a building.
The mountain climbers generally tend to accept, even embrace
failure. They choose to look upon failures as priceless
learning experiences, certainly nothing to be embarrassed
about. They are able to spin utter disasters into educational
experiences. The ego of these kinds of entrepreneurs is
their invaluable assets. It is often this ego that acts
as a shield in times of intense turmoil. They tend to be
hasty decision makers, making decisions quickly, based on
a limited amount of information, unlike other managers who
build a well documented case to support the wisdom of their
decisions against probing superiors. Nothing speeds up the
decision making process for a mountain climber more than
a solid endorsement from a respected peer. They are motivated
by the desire to prove someone wrong - usually an overly
critical parent or a former boss. Dr. Stephen Berglas from
Harvard School of Medicine, a management consultant and
clinical psychologist, calls it “Entrepreneurial Avenger
Syndrome".
The freedom fighters, on the other hand, are always motivated
by independence. They do not want to build an empire - just
a business that works. They generally run companies that
have between one and fifty employees. They tend not to change
from year to year, with flat annual revenue or modest growth
of less than twenty per cent a year. They just cannot stand
having people tell them what to do. Before starting on their
own, they often spend years working for someone else, constantly
dreaming of ways they could run a better business if they
were in charge. This fierce sense of independence is why
most of them leave good jobs to work for themselves. Compared
to the mountain climbers, who are more autocratic in nature,
the freedom fighters are consensus builders. They tend to
hire friend and families or treat employees as if they were
one of their family members. Freedom fighters often display
this paternalistic style by continuing to employ weak employees
despite poor performance. This closeness, akin to that in
a family, makes firing someone emotionally difficult.
At its worst, the freedom fighters' independence streak
can manifest itself in a form of paranoia for anything they
consider “establishment". They see the world through
an intensely skeptical lens, referring to big businesses
and government as “them" and looking suspiciously
at almost any action “they" take.
When it comes to money, the freedom fighters are more concerned
with the bottom line than they are with the top. The freedom
fighters live in the moment, preferring to maximize the
profitability today. This price sensitivity also means that
they are less likely to lease products in an effort to minimize
their financing expenses. Their sense of independence also
makes them wary of being beholden to a financing company.
Freedom fighters are less obsessed with the idea of achievement
and therefore often don't feel the need to grow to the top
of the line at he expense of the bottom line. Although some
celebrated examples of entrepreneurs are known for their
flashy displays of wealth, most successful freedom fighters
are modest about their money, using it as an internal gauge
of their success as opposed to an external beacon.
Craftspeople are so named because mastering their particular
craft motivates them. They do not think about themselves
as a small business owners or entrepreneurs, but think of
themselves in the context of their particular skill or service:
as jewelers, plumbers and photographers, as an example.
This category of the small businesses has seen the largest
growth over the past decade. This explosion has been caused
by a combination of factors. First, technology has become
so inexpensive that the individual can now afford to outfit
a home office with computer equipment so powerful that the
largest of companies could not have afforded it thirty years
ago. The second most important factor was definitely the
recession that struck in the early nineties. Whether you
call them free agents, hired guns, free-lancers, SOHOs (small
office/home office), consultants, or gurus, craftspeople
are reluctant entrepreneurs who would much prefer to practice
their craft than think about managing a business. The biggest
chunk of the small business market is made up of individuals
who do not even think of themselves as small business owners.
This
category happens to be most price-sensitive, when compared
to the other normal categories. The Craftsperson's stinginess
stems from a simplistic approach to business.
Most of them do not distinguish their personal and business
bank accounts in their mind. Many of them have separated
their business banking on paper; in reality, however; they
see their money as one big (or small) pot. As a result,
purchases that would be considered a cost of doing business
from freedom fighters and mountain climbers are postponed
and considered for months by the craftspeople.
Marketers, who are price leaders, in their category, should
move full steam ahead. If, however, the marketer is a premium-based
product, think twice about selling to the craftsperson market.
The above article has been extracted and condensed from
“Drilling for Gold - How companies can successfully
market to small businesses” by John Warrillo, John
Wiley & Sons Inc., New York, 2002. All rights of the
authors and publisher are reserved.
Marketing to small businesses
