Mat Orrego, CEO of Cornerstone Information Systems, shares some pointers that might help new entrants or other tech companies in travel or expense management as they pursue the small and medium-sized market.
The small and medium-sized business (SMB) market within corporate travel is an enticing prospect for many companies in our space. This segment seems ripe for expansion, with many potential customers eager to optimize their travel processes and embrace new technologies.
However, despite the apparent opportunities, the SMB market presents unique challenges that can trap travel technology and services companies in a tangle of bureaucracy, limited resources, budgets and diverse needs.
The Allure Of The SMB Market
The SMB market is the sweet spot between small businesses, which may lack the resources to adopt sophisticated travel management solutions, and large enterprises, typically entrenched with legacy systems. On paper, SMBs appear to be the ideal target — companies that are agile enough to adopt new technology yet substantial enough to justify meaningful investment. According to the U.S. Small Business Administration, there are over 33 million small to medium-sized businesses in the United States alone, so the potential is enormous.
However, this perception can be misleading. The reality is that there are only 220,000 businesses with 50 to 500 employees, and only 18,000 with over 500 employees. While the number of mid-sized companies far exceeds that of giant corporations, the revenue potential must scale accordingly. For example, the average employee count for mid-sized companies hovers around 119, while large companies average 3,100 employees.
Given that the effort required to sell to an SMB is nearly as great as selling to a large enterprise, the return on investment is considerably lower.
If you’re working on a subscription or transactional model, this challenge grows as you juggle a smaller number of transactions to hit your numbers.
The Paradox Of SMB Bureaucracy And Budgets
One of the most significant hurdles is the paradoxical nature of mid-sized businesses. Although less sprawling than large enterprises, many of these companies have already developed internal processes, layers of management and bureaucratic structures that complicate decision-making. This bureaucracy slows the adoption of new technology, as implementing an online booking tool or expense and spend management system requires extensive coordination and retraining.
Folks wear multiple hats, and asking them to add another may be a stretch. When these key players leave the organization, the systems they managed often stumble, leading to costly cycles of reinvestment and retraining.
Moreover, SMBs often operate with tight budgets. They may recognize the benefits of robust managed travel solutions but need help to justify the cost. Compared with larger companies that can absorb the expense, SMBs are more cautious about investments that require substantial upfront costs and ongoing support. This combination of bureaucratic complexity and budget constraints creates a “worst of both worlds” scenario — long sales cycles with limited financial reward.
The Diversity Dilemma
Another challenge in targeting the SMB market is its lack of uniformity. Mid-sized companies vary widely depending on their industry, operational needs and maturity levels. For instance, a 100-person tech startup will have vastly different requirements than a 100-person manufacturing company. The former might be eager to adopt the latest tools and technologies, while the latter may be more conservative, with limited IT support and a preference for stability over innovation.
How an SMB uses its tech directly impacts how quickly and effectively it can adopt your solution. APIs, single sign-on and information security protocols aren’t just nice-to-haves — they’re must-haves, just like for larger customers. Seamless integration is essential to making your solution stick and increasing a customer’s lifetime value.
Diversity in this segment means that managed travel solutions must be highly customizable, which can erode profitability. A one-size-fits-all approach doesn’t work in the SMB market, and the cost of tailoring solutions to fit each unique customer can be prohibitive. Additionally, marketing efforts become more complex as segmentation by company size fails to address the nuanced differences driving purchasing decisions.
Strategies For Success
Despite these challenges, companies can succeed in the SMB market with a strategic approach. First, it’s essential to recognize that “mid-sized” is not a market segment. Instead, companies should focus on specific industries, pain points and customer profiles, creating solutions tailored to each segment’s unique needs.
Second, automation and scalable service models are crucial for reducing the cost of customer acquisition and ongoing support. By streamlining operations and leveraging AI-driven self-service options and open APIs, companies can serve smaller accounts more efficiently, making the economics of the SMB market more viable.
Finally, patience and persistence are key. The sales cycle in the SMB market may be lengthy, as is the implementation process when customer resources are often multitasking many job responsibilities. Still, with a clear understanding of the customer’s needs and a tailored approach, companies can successfully navigate the challenges and carve out a profitable niche.
Great article Mat and as usual, you are spot on! Sage advice indeed.
Thanks for sharing this.
Dave
Great insight, Mat. One other challenge in targeting these companies is that the decision maker varies from one organization to the next. Where is the pain point? Is it at the office manager side, finance, executive assistant or is the CEO or president the one looking for a more current travel solution? And depending on who you target, the pain points will vary from one to the next. So you need to have a different and compelling story to attract each persona. It cannot be a one-message-for-all strategy. Focus is key, both on the industry and the persona.
Curious whether small and medium is defined by number of employees or by total managed travel spend. Would you mind sharing what guidelines were used to define these categories in this article?
Thanks so much!
Dorothy
I based the definition on the number of employees, which tends to be the standard as defined by the Small Business Administration (SBA). It would be interesting to look at this based on the travel program’s size. It could be based on spend, the number of travelers, or even a combination of those, as I would think that there is a correlation between the number of frequent vs. occasional travelers in a program.
Great stuff Mat. Here are a few other challenges. The double sale — you should be managing travel, and you should be managing travel with us. So you have to be an expert on making the case for managing travel before, during and after the sale. You are constantly selling the concept to get the business, maintain the commitment, and to justify the decision. Then you have to sell why they should do it with you and your competition includes a wider range of options including travel anarchy. And as Mat says, the decision-makers are numerous as smaller companies have less control and less systems.
I found that my account managers were overwhelmed at times as they had so many accounts to manage. To justify a good return you need to keep the volume per AM at a reasonable level, and that reasonable level could include 100 accounts. So systemizing and automating as many functions as possible is key to giving decent service. The AM needs to keep selling the idea of managed travel too, and that’s something not all AMs like to do. Lastly, they often have no idea what they are spending, could spend, why they are no longer spending as much… That said, service is the key and with it you can retain SMBs for a longer time without RFPs…