Quick question: What’s an SMB (Small and Medium Business)?
If you’re like most people, you probably conjured up an image of a solopreneur working out of a home office, or a mom-and-pop retailer or B2B with 5-20 employees and revenue of about $1 million per year.
But what if I told you that autonomous systems manufacturer Aurora Flight Sciences is an SMB, a firm with roughly 550 employees and revenue of more than a $100 million? Or that consumer electronics maker Skullcandy is an SMB, even though it has 295 employees and average revenue of roughly $266.3 million?
When most people think about SMBs, they tend to imagine businesses on the tangibly small side. And even when they consider the “medium” in SMB, the image often is of a larger small business like medical device manufacturer, CeloNova BioSciences, which has 111 employees and revenue of $3 million, or automotive OEM, Plascore, which generates $69.8 million in annual revenue on 349 employees.
The actual definition of an SMB encompasses much larger businesses than what many of us assume.
Small businesses are defined as firms with up to 100 employees and $50 million dollars in annual revenue, according to market research firm, Gartner. Medium-sized businesses encompass organizations with between 100 and 999 employees, and those with revenue between $50 million and $1 billion.
Yes, your business could be bringing in nearly $1 billion per year and still be categorized as an SMB.
Why This Matters
Miscategorizing the size of your firm impacts government contracts and the metrics used to judge your business. But it also affects the resources a business chooses. We know this firsthand, because many SMBs with thriving businesses look to enterprise-grade ERP systems when really they should be eying an SMB solution.
A business that has 100s of employees, multiple manufacturing facilities and revenue in the millions might think that it is a larger firm and that it therefore requires a large enterprise ERP system that costs in the millions. But the reality is that this firm is an SMB, and there are ERP solutions that will meet the company’s need for a fraction of the cost and time it takes to implement a system meant for the likes of Coca-Cola and Apple.
The confusion over which ERP solution is best for a company is compounded by the ERP industry itself, which talks about the various ERP solutions using the precise definition of an SMB when many business owners do not. The CEO of a mid-sized company might see “SMB” and automatically rule out the solution because he imagine his company is a large enterprise, for instance, and ERP vendors often don’t clear up the confusion.
Buy a Solution that Fits Your Business
Because the definition of an SMB encompasses firms up to 999 employees and with annual revenue of nearly $1 billion, most companies fall into this category. And while ERP is often defined by large enterprises, it serves more than just multinationals. Roughly 80 percent of SAP’s customer base, the world leader in ERP software, is made up of small to mid-sized businesses.
Companies such as SAP offer more than just enterprise solutions. For businesses that know they are an SMB, there are better, more cost-effective solutions than the company’s enterprise solution, SAP HANA.
For small businesses, those with less than 100 employees and $50 million in revenue, there is SAP Business One. The cloud-based or on-premise solution handles everything from accounting and financials to operations, sales and customer service, and is built for faster deployment and less complexity than SAP HANA without sacrificing functionality.
Firms such as David Leadbetter Golf, a Florida-based golf coaching and product company with annual revenue of roughly $6.2 million, and California-based jewelry company, QALO, with revenue of more than $100 million, find SAP Business One the right fit for managing retails partners, centralizing operations and automating daily orders.
For firms that fall more in the mid-sized category, or want an industry-specific solution, there’s SAP Business ByDesign. SAP Business ByDesign is SAP’s mid-market solution for fast-growing businesses. It is an entirely cloud-based ERP system that comes with more than 255 integrations out of the box, and it scales better for businesses that are rapidly moving from SMB to larger enterprise.
Mid-sized businesses such as the aforementioned Aurora Flight Sciences use SAP Business ByDesign to manage government contracts and costing, work with multiple currencies and suppliers around the world, and track operations in a fast-changing environment.
Both SAP Business One and SAP Business ByDesign are labeled “SMB.” So even though they are the right fit for most businesses, the confusion over the definition of an SMB creates confusion and steers many firms to larger solutions that come with added cost and complexity.
So the definition of an SMB may sound academic, but it has real world consequences for software selection—especially in the ERP space. Make sure you understand the size category of your business so you can pick software solutions built for the actual needs of your business.