Technology Evaluation Centers 11/2013
The ERP software market for large organizations and mid-sized companies is dramatically different from its small business software counterpart, which consists of business management solutions for small family-operated companies or slightly larger micro-businesses. But recent technology shifts are transforming the market, and solutions that would not have been appropriate for a small business in the past are now becoming a better fit. First let’s go through some of the major differences between the two markets, and then look at the changes happening in the market today, followed by an introduction to how TEC’s revamped Small Business Software (SBS) model addresses current software selection issues for small companies.
The differences between the market of “big ERP” or mid-market and the market of typical solutions for micro and small businesses include:
- Offerings for small companies are mainly bookkeeping or accounting packages or solutions that originated from them and have some extended functionality to be capable of managing other aspects of business. Such solutions often include basic non-accounting functionality that small businesses typically need (for instance, elements of inventory management, sales and purchasing, and invoicing). Small businesses have been able to meet their needs through these offerings instead of full-scale mid-market or even “Big” ERP solutions for years.
- Unlike the bigger ERP market, with its well-known global leaders and tier distinction, there are no clear micro-business software global market frontrunners that dominate over other solutions in functionality available or that oversell the majority of potential competitors. Such leaders surely exist, but typically within a certain country or region, not globally.
- As opposed to the larger ERP market, which is considered to be global—i.e. the same solutions with small variations are generally available in multiple countries, the small business applications market is mainly local—each country or region predominately has indigenous small business software offerings that often surpass global brands locally (if those are present) in terms of sales numbers by an order of magnitude. So there are hundreds and even thousands of applications developed to cater to small businesses globally, but those offerings target customers that operate in particular regions, use languages specific to those regions, and must comply with specific regional norms and legislations. It’s quite difficult for global software vendors to compete at this level as it requires building heavily localized versions of software along with a strong infrastructure or partner network in many countries, with uncertain potential output for all that input.
There is definitely a general feeling of anxiety regarding “ERP” solutions among micro-business owners and managers, as these systems are typically looked upon as extremely expensive, overly complex, and generally overwhelming initiatives. This statement, unfortunately, holds some validity. However, many small and micro-businesses also realize great benefits from ERP, ERP-like software, or a company-wide specialized business management solution—often a necessity for smaller companies in order to remain competitive with their peers in today’s aggressive marketplace. Unfortunately, small companies generally have the most problems obtaining access to sufficient financial resources to purchase such a solution and to hire professionals who have the appropriate knowledge and experience to perform proper software selection, implementation, and go-live scenarios.
Looking at it from the other side, large ERP suppliers are not in a hurry to serve smaller companies for a number of reasons. Their products are generally designed for larger businesses and it doesn’t always make sense economically to scale those down; it takes ERP vendors almost the same scale of efforts to sell and implement a solution for a small company as for a large enterprise, while the revenue input is weaker than from their typical larger clients; and, finally, the cost of keeping multiple small clients is higher than just a few large customers.
However, while all of these small business software market differentiators are still valid, the advent in recent years of numerous cloud-based and multi-tenant applications has brought significant changes to the expectations of owners and managers of micro-businesses, and significantly lowered the affordability and accessibility bar for having a decent business management solution. Nowadays, a notable percentage of small business solutions are delivered via the cloud—over 50 percent according to a variety of estimates. Global vendors of cloud-based applications are taking advantage of the technological shift to the cloud and expanding their cloud systems into new countries and regions, seizing new customers in areas where local companies traditionally have dominated.
As a response to this growing interest in software solutions for micro- and small businesses, TEC is revamping its existing model for small companies, to help make the selection process easier and more relevant in today’s SMB software market. The software model is called Small Business Software (SBS) and covers all of the major functions that small companies might require. The SBS model includes the following functional areas:
- Accounts Payable
- Accounts Receivable
- Fixed Assets
- General Ledger (GL)
- Job and Project Costing
- Multinational Accounting
- Order Entry
Although the SBS model does not look simple, there is nothing particularly complex about it—major business processes are described at a basic level, and anyone who is looking for a software solution for their small business can easily include only the functionality he or she needs and eliminate whatever is not required via the prioritization function, with multiple levels of priority that can be assigned to certain features and functions.
Our revised Small Business Software evaluation center will be available for use in a few weeks; stay tuned to the TEC blog for an announcement of the SBS model launch. Until then, we invite you to use the TEC Adviser tool to evaluate software solutions and simplify your selection process.