Recovery Brings Opportunity to the SMB Market

New trends have emerged within the small to medium business sector as a result of the economic recession. As the economy moves into recovery, vendors will find new types of small business entrepreneurs, owners and employees who all have diverse requirements and expectations for technology solutions.

Mass unemployment and layoffs during the recession motivated many workers to start their own businesses as a source of income. According to outplacement firm Challenger Gray & Christmas’ quarterly Job Market Index¹, an average of 320 out of 100,000 adults created a business each month in 2008 — representing approximately 530,000 new businesses a month. Of job seekers who gained employment in the second quarter of 2009, nearly one in 10 (8.7 percent) did so by launching their own businesses. That start-up pace is up from 6.4 percent in the first quarter and is twice the rate reported in Challenger’s 2008 second-quarter update.

While the entrepreneurial trend spans all age groups, it is particularly high among baby boomers.

Entrepreneurship among workers between ages 55 and 64 rose to 93,000 in 2008². At the same time, entrepreneurs 65 and older increased to 213,000.

The recession also sparked an increase in the number of Generation Y SMBs. With a 16 percent unemployment rate for workers between the ages of 20 and 24³, a growing number of recent college and graduate school graduates are becoming self employed.

According to a 2008 report⁴ from the U.S. Bureau of Labor Statistics, SMBs started by workers within the prime working group ages 35 to 44 dropped by 70,000. This is in contrast to the bureau’s 2006 report that predicted that the number of workers within this group would rapidly decline through 2020, as more opted to start their own businesses.

The recession had a major impact on several technology-driven industries like real estate, financial services, transportation and professional business service⁵. With the bulk of the unemployed workforce coming from these industries, new SMB owners will already be acclimated to technology as well as how to leverage it to maximize business results.

The influx of diverse entrepreneurs also will prompt a more diverse workforce with different needs. Baby-boomer entrepreneurs and workforce will likely prefer more traditional technologies, while Generation Y as well as older, tech-savvy entrepreneurs, will favor newer, more advanced ones.

What’s more, new SMBs typically hire younger, cheaper labor as a cost-saving measure. Because they will have to recruit from the millennial (or Gen Y) labor pool, they will employ workers who have been raised on technologies such as the Internet, cell phones and social networking. This will generate greater demand on SMBs for technology products and services, both as a condition of employment and during ongoing efforts during startup operations⁶.

The SMB’s changing composition creates opportunity for communications technology vendors to secure new customers and set the foundation for the market’s leading-edge technology adopters. The recent impact I’ve seen in my own channel is a 25 percent increase in UC sales since September 2009.

In part, this is because businesses are starting to spend again, and financing is becoming more available. Further, IP communications support the plethora of advanced technologies that SMBs seek, like SaaS (News - Alert), cloud computing and virtualization. On-premises, software-based communications solutions designed and priced specifically for the SMB can offer tremendous savings over Centrex, especially when deployed with SIP trunking services. Unified communications enable better collaboration and make it easier to find, share and use information. What’s more, the value of UC expands even further when integrated with business processes and daily workflow.

Historically, SMBs recover from recessions faster than larger enterprises. SMBs are ready and willing to make technology investments, but only for solutions that will enable them to operate more profitably, grow revenues, increase productivity and/or save costs. As the composition of the SMB evolves, technology vendors will need a value proposition that resonates across different segments of the market. A SMB market made up of a diverse mix of traditional and tech-savvy owners and workers will require vendors to apply a greater level of expertise and deliver solutions proven to increase efficiency, profitability and strategic value. IT

1 Challenger Gray & Christmas, Inc. “Challenger Job Market Quarterly Index.” January 2010

2-3 Giunta, Joseph. “Funding a Small Business during a Recession” www.suite101.com

4-5 US Bureau of Labor Statistics. http://www.bls.gov/

6 Harmon & et.al. “A New SMB Market Phoenix is Rising.” Frost & Sullivan. February 2009

Larry Levenberg (News - Alert) is vice president and general manager of national channels at NEC Corp. of America (www.necam.com).

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