I’m Martin Wootton, Research Director at RS Consulting,
Today I’m going to be reporting criminal activity. It’s happening all over the world, probably every day. What’s more, most B2B researchers and their clients have been guilty of it many times.
I’m going to begin by sharing three extracts from recent research findings. Exhibits A, B and C, if you like. These are all from published, publically available reports from some simple Google searching I did a few weeks ago.
I’m not sure what on earth this means, but it’s seemingly important enough to be part of a press release!
What’s a small business? What’s average? What are IT skills?
So many things are wrong with this.
Not only do the totals only add to 97%, but what exactly is a SME? And what on earth does it mean? Different people have different thoughts?
Perceived cost of what? What is meant by international expansion? How on earth is this newsworthy?
And yet again, what on earth is an SME?
Three examples, there, of criminal activity. They are all poor uses of research, because they are boring, poorly defined and vague. It’s the kind of thing that gives the research industry a bad name.
All three refer to SMEs or small businesses, but none actually define this.
I would expect most of us here today know that SME stands for small and medium sized enterprises. But this is by no means a universal definition. Some might refer to SME as small and mid-sized establishments.
But more importantly, what ARE SMEs, other than the victim of crimes in their name? All of the companies above can be classified as SMEs. Yet they’re all wildly different, and, wait a moment, isn’t Starbucks more of a large corporation…? Let’s put it another way, what do a shepherd, a plumber and Starbucks have in common? Lots of things, according to this classification. Presumably, they all think cost is the main barrier to international expansion!
Should I really trust research that tells me 37% of these organisations have above average IT skills?
This is an age-old chestnut. How exactly do you define SMEs, or “Small businesses”?
As a professional researcher, naturally the first place I looked was, erm, Wikipedia. Happily this is a well maintained Wiki, compiled from recent, reputable sources and simply tells me the ‘official’ government definitions of SMEs from around the world.
And obviously, they are wildly different, as you can see.
I’ve not even bothered to show the UK government definition. There’s a simple reason for this – there ain’t one.
The official UK government line is: For the purpose of Research and Development Tax Relief HMRC define an SME as a business with not more than 500 employees and an annual turnover not exceeding £100 million. However the rest of the UK government does not use this definition. For the purposes of collecting statistics the Department for Business defines SMEs as companies with less than 250 employees. For accounting purposes Companies House defines a small business as employing less than 50 people and a turnover under £6.5 million and a medium business as less than 250 employees and a turnover under £25.9 million. - To further complicate things other parts of the UK government use the EU definition of an SME… I could go on, but you’ll be pleased to hear I won’t.
So why bother about this? Why is this important?
For the simple fact that SMEs are simply more numerous and economically important than larger enterprises.
Yet this is often at odds with client organisations, who often have plenty of resources , marketing budget and sales staff targeted at large companies. While at the same time, they have only a fraction of the budget or resources to look after SMEs.
Some even bundle SMEs in with consumers, because they mistakenly think that SMEs don’t have much spending power. Individually they don’t, BUT…
Micro businesses alone (as defined by the EU), represent almost 9 million employees. That’s a QUARTER of the whole UK workforce alone.
Here are some UK government statistics from 2008, showing the number of employees working in each sector and size band.
SMEs – as you can see – account for 44% of the entire UK workforce – more than 15 million people.
And look at the size of the home office and self-employed - more than three million people.
It’s not just the UK. In the US, in particular, the importance of the small and medium sized business community is quite clear.
The sheer size and variety of SMEs should be enough to tell you that it’s crimi nal to lump them into one category. Yet, it happens time and time again. Why lump your local newsagent alongside a national restaurant chain assuming they behave in the same way? Or grouping a statistician with a top-20 full service agency!?
So we’ve seen that SME research can be BLAND, VAGUE and MISLEADING. It’s precisely the kind of thing that gives the research industry a bad name., and one which can punish our clients most harshly. Clients can easily put trust – and millions of pounds of marketing spend – in action plans based on the findings of SME surveys, but when the research if flawed, clients become victims. While some surveys are well crafted, carefully designed and relevant, there’s plenty of weaker research – often with very large sample sizes – resulting in clients taking the wrong decisions. If the research mis-understands the size of the market opportunity, or generalises about the behaviour of businesses, it’s really easy for a client to launch the wrong products and services at the wrong target markets. Even Apple! This is the Apple Newton, a personal organiser product from the nineties. Their research suggested people would be prepared to pay upwards of $1000 for this – but they didn’t talk to the business buyers who were buying Palm pilots at half the price! Getting it wrong has severe consequences for us all: A loss of trust – it just takes one bad product – or project – to ruin a reputation A loss of face – credibility takes a hit Loss of clients – particularly if they have lost their job! We’re in the business of helping clients make more intelligent decisions, so we should be intelligent in our research design too. Yet so often we’re not!
As B2B researchers, we need to do two things:
Make sure clients know the importance of their smaller customers – especially if they don’t believe they are important. Make clients aware that you can’t treat all smaller businesses as one amorphous group.
The first is easy. There’s loads of statistics publically available that prove the point.
The second is more challenging.
The key thing is to stop talking about SMEs. It’s a dangerous generalisation, and pretty meaningless as we have seen. What about using turnover or profit instead? Nice idea, but it’s fundamentally flawed. Regulatory and tax reporting influences how companies classify themselves. People lie to avoid tax penalties – particularly smaller businesses. There are suspiciously high numbers of Italian businesses saying they have 99 or 499, just as the tax rate increases for companies with 100 or 500 employees ! And then there’s the whole issue of multi-nationals and how they report their business statistics. According to Hong Kong’s equivalent of Companies House, there are more companies than employees! And then what about companies who use serviced offices, or outsource some functions? How do you handle franchises? Where are the decision-makers there? This is getting very complicated, very quickly. No, the key is to bring this down to industry sector or vertical markets. Small retailers , or mid-sized financial institutions for instance, will largely have the same issues and challenges, and it makes sense to group them together. But each sector is different. Defining ‘small’ or ‘medium’ within each sector could be done by number of employees or turnover, but it’s better practice to use other, more behavioural distinctions, more appropriate to each sector. Here are some examples: that have worked well, as proxies : - Managed vs. unmanaged environments - Recent spend on a particular kind of product or service - Fuel tariffs - Banking arrangements - Number of people enrolled in pension schemes - Number of Directors or people in specific roles
Careful thought about how to classify businesses results in clearer, better defined and ultimately much more interesting and newsworthy findings. So to wrap up, here a few top tips for those of you undertaking B2B surveys. Think about WHY you want to survey SMEs as a whole. It is of course perfectly fine to survey SMEs as a whole as long as the findings are reported individually by sector, and your definitions are crystal clear. DON’T GENERALISE – the ONLY accurate classifications and meaningful findings are sector-specific. And even sub-sector specific. Even market research companies are different. A focus group facility is quite a different beast from a web panel provider. Number of employees can be really misleading – AVOID if possible. A field agency may only have 6 permanent staff, but 100 interviewers, so what size band do they fall under? Be creative with sub-classification. Think what is an appropriate way of segmenting your target sector or vertical. How do your clients or their competitors do this? How should they do so? Don’t ignore home workers, franchises, and serviced offices. A classic issue is business products being sold into homes, or through consumer channels. Why? Often this is the home worker, self-employed, start-up category which some research simply stumbles on!
Thank you very much. We’re happy to answer questions at the end of this session.
BIG conference presentation on SME segmentation
SMEs – why size
Martin Wootton, Research Director
“The research identifies that only 37 per
cent of staff in small businesses have above
average IT skills”
UK Federation of Small Businesses,
Digital Imperative Survey, published 2013
“A third of SMEs think their turnover will
increase in the next 12 months, with another
third thinking it will stay the same, and 31 per
cent thinking it will decrease”
2009 Survey of SMEs
UK Department of Business, Innovation and Skills
“A survey of 750 UK SMEs found that the
main reason holding businesses back is
perceived cost, with 90% of respondents
indicating that international expansion is too
Baker Tilly survey of UK SMEs, published 2014
How to define SMEs?
AUSTRALIA US EU
Minute/Micro 1-2 1-6 <10
Small <15 <250 <50
Medium <200 <500 <250
Q. Why are SMEs important?
A. Because they account for the large
majority of all businesses
In the US, small business (<500 employees)
accounts for more than half of private sector GDP
and around half of private sector employment
Office Self employed 1-9 10 - 49 50-99 100-249 250-499 500+ Total
Agriculture 18,620 170,661 103,855 24,970 4,053 26,498 21,330 1,298 475,140
Mining and quarrying -5,140 2,836 3,068 1,920 26,398 28,966 16,435 87,599
Manufacturing 57,737 164,953 360,897 494,440 237,258 322,874 266,774 1,189,396 3,455,226
Electricity, gas and water supply -3,064 5,197 5,622 3,518 30,741 46,596 61,129 161,064
Construction 41,741 774,292 686,841 364,004 86,591 90,404 62,783 350,552 3,144,049
Wholesale and retail trade 84,341 350,857 1,073,898 587,289 155,444 165,942 122,519 2,128,971 5,743,159
Hotels and restaurants 54,729 58,939 382,806 187,472 48,867 46,034 29,739 483,777 1,675,169
Transport, storage and communication 18,849 222,521 209,364 165,703 56,705 71,851 64,884 1,137,637 2,156,878
Financial intermediation 28,222 29,996 73,559 56,774 22,952 36,049 33,402 905,088 1,259,601
Real estate, renting and business activities 165,088 499,124 933,234 474,118 155,289 175,742 131,806 812,021 4,279,656
Public admin and defence - - 4,139 4,033 2,809 11,570 36,109 2,119,518 2,182,317
Education 92,219 - 428,970 521,993 298,508 407,841 265,530 995,093 3,439,124
Health and social work 41,849 191,614 357,534 692,421 172,374 108,991 62,124 2,309,628 4,294,069
Other community, social activities 32,086 328,190 536,931 223,330 60,774 71,417 52,287 416,034 2,257,980
Personal Services 41,882 21,870 79,213 12,859 3,999 - - -239,036
Total 677,363 2,821,221 5,239,274 3,818,096 1,311,061 1,592,352 1,224,849 12,926,577 34,850,067
8.7M 3.8M 2.9M
The consequences of poor SME research
• Loss of trust
• Loss of face
• Loss of clients
For both agencies and clients
Advice for crime prevention
1. Make sure your clients know the importance
of their smaller customers – especially if they
don’t believe they are important.
2. Make your clients aware that you can’t treat
all smaller businesses as one group.
Alternatives to SMEs
Select a specific sector or vertical market
Add a behavioural classification to that sector or market
Banking or pension
Recent spend on
Tips for best practice
DON’T GENERALISE – the ONLY accurate classifications and
meaningful findings are sector-specific
Number of employees can be really misleading – AVOID if
Be creative with sub-classification
Don’t ignore home workers, franchises, and serviced offices!
Think about WHY you want to survey SMEs as a whole
(classified as both a small and a mid-sized business by the EU!)
(and don’t have nightmares)