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SMEs are the future

The economic crisis that continues to send ripples throughout the world makes the future very uncertain. There is rising alarm that China may be on the verge of becoming a giant bubble which, when it explodes, will send a tidal wave of unfathomable force through the world markets. The only means to defend against it is to understand how everything is interconnected and how the chain reaction is likely to unfold. We are betting on the SMEs and for good reason.

Just like the ice ages, company size is cyclical. There are periods of conglomeration where smaller firms are incorporated into giants and periods where the giants collapse to make room for a myriad of small firms. That is where we are today and have been since 2008. In Iceland, the number of registered enterprises and organisations increased from 50,316 to 60,945 between 2005 and 2010. In 2008, they were 57,525. The primary legal form is Private limited company (2005: 23,481; 2006: 28,662; 2010: 30,188). The big ones have either perished or remain a mere shadow of their former self (unless the government stepped in through the banks and saved them which is a questionable practice).

Giant corporations are facing major threats that come from many different directions:

  • High degree of uncertainty in the capital markets as a result of bleak world economic outlook.
  • Climactic changes.
  • Shortages of food and water that drive prices up and increase pressure on already over-burdened governments.

With large overheads and global operations, the giants can hedge their operations and negotiate aggressively, but they are so intertwined with global affairs that they may be running out of time. Sooner or later, they will run out of options and fragment. Enter the SMEs with low overhead, high ambition and cutting-edge products and services driven by survival instinct. Failure does not mean a drop in stock prices; it means death.

The SME market in Europe contains well over 20 million enterprises employing close to a 100 million people. The US has around 6 million enterprises and over 40 million employees. Adding Japan with its 35 million SMEs and over 250 million employees brings the total to a staggering 61 million SMEs employing close to 400 million people. Any product sold at $10 that manages to capture 0.5% of these firms will generate revenues well over $3 million.

Approaching the SME market calls for more than statistical projections, however. Most of these firms fall outside the scope of the majority of products or services on the market. For a business intelligence solutions developer like IceStat, the challenge lies in finding the common denominators that apply to this target audience. One is obviously price; another is value. These firms must exercise caution in their expenditure as every penny counts. The value has to address SME growth potential, which means that they are not buying a luxury item they could do without but something that will really help them transform into a stable business with long-term growth potential. If the product or service does not help SMEs grow, market penetration which be very low.

My bet is on the SMEs. If anything can turn the global economy around, it is these small, financially starved renegades.


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