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SMBs demand attention from business apps vendors -- and get it

Competition is at a fever pitch in the SMB ERP market, and as a result, vendors are hitting it out of the park with products specifically for SMBs.

Small and medium-sized businesses (SMBs) are hip to the benefits of business applications.

The midmarket was meaningfully different in terms of its requirements.
William A. Soward
CEOAdapative Planning Inc.
Recent data from Forrester Research Inc. in Cambridge, Mass., shows that 83% of SMBs believe application software improves the efficiency of their companies' core operations and business processes; 80% believe software improves worker productivity, and 75% believe software makes their products and services better.

But until recently, the market has conspired against the little guys. Big-company software costs a lot, is complex and often requires extensive customization to work for SMBs. A new report from Forrester analyst Ray Wang provides ample evidence that software makers have wised up to the unmet demand. Brand-name vendors and challengers alike have invested significantly in new products and distribution channels.

"The result is improvement across the spectrum of industry-specific and last-mile capabilities, usability, rapid implementation, Microsoft Office integration and mobile solution support," says Wang, in his August 13 report, "Competition Intensifies For The SMB ERP Customer."

The headaches you have

It's axiomatic that companies with fewer than 1,000 employees often face the same complex business issues as large companies but lack the wherewithal to address those issues with new technology. According to Wang, many SMBs are making do with legacy enterprise resource planning (ERP) systems that fall short on a number of counts. These systems often require extensive customization, which in turn makes them difficult, if not impossible to upgrade or scale up.

Integration with other applications is a challenge, and when changes are made to the system, each integration point requires extensive and manual testing. The systems were designed originally for back office internal users, so the larger world of employees, suppliers and customers doesn't have access to the information, making collaboration hard. Training new employees on these systems is no fun. A generation used to "click-and-point" computing isn't going to take happily to the memorized shortcuts and "green-screen" environment of legacy systems, Wang said.

The vendors finally feel your pain, Wang said. As competition for the SMB market heats up, the offerings for SMBs will improve even more. In the meantime, Wang said, products like Microsoft's Dynamics are improving usability. Software as a Service (SaaS) vendors like Workday Inc. in Walnut Creek, Calif., offer applications that integrate Web 2.0 functions like Skype and LinkedIn with workflows and business processes. Some versions of Oracle apps use the friendly PeopleSoft Project Swan interface. Vendors are adopting middleware and service-oriented architecture to adapt their systems to business processes, and not the other way around, Wang said. Vendors have gotten serious about integrating with Microsoft office, and support for mobile workers is also improving.

In the trenches

The best and the brightest
Forrester analyst Ray Wang breaks down the new-and-improved SMB ERP vendors into three groups: established SMB vendors that specialize in "last-mile" software for particular industries; vendors with more than $1 billion in revenue; and SaaS providers.

Established SMB vendors: Includes Unit 4 Agresso N.V., Lawson Software Inc. and Syspro Impact Software Inc. These vendors have taken advantage of middleware platforms such as BEA Systems Inc.'s WebLogic and SAP AG's NetWeaver to stop dumping money into tools and really concentrate on delivering for particular SMB industry sectors and geographies (e.g., QAD Inc. for manufacturing; Epicor Software Corp. for retail).

Vendors with more than $1 billion in revenue: Includes SAP, Oracle, Microsoft and The Sage Group PLC. These vendors add SMB expertise by acquiring companies and forming partnerships to improve their distribution channels.

SaaS providers: Key providers include Everest Software, Intacct, Intuit, NetSuite and Workday. These vendors really put SMB users "in the driver's seat," Wang said. Rapid deployment means business benefits are realized in days, not weeks, and pricing by cost, user or the month means companies can consider licenses an operations expense rather than a capital expense. Wang pooh-poohs concerns about security and integration with SaaS but warns SMBs to be mindful of long-term storage costs and usage-based fees associated with SaaS.

William A. Soward and Chris Dickson are part of the market driving innovation in SMB business applications. Soward is CEO of Mountain View, Calif.-based Adaptive Planning Inc., a four-year-old company founded expressly to exploit the vacuum in business apps for SMBs, specifically in budgeting, planning and reporting.

"There were lots of companies selling performance management solutions to enterprises. But the midmarket was meaningfully different in terms of its requirements. The existing solutions were too expensive and complex to work with. There really was an unmet need," Soward said.

The other option for SMBs was to continue in Excel, which is better suited to small, static businesses, Soward said. Adaptive's goal was a product that was easy to use, afford and customize, and was highly capable. Adaptive has gained some 120 customers since it went to market in 2005.

Dickson, a business unit controller for a small manufacturing company, was familiar with enterprise products from Hyperion, Business Objects SA, Oracle Corp. and other big vendors from his prior jobs at big companies. But he quickly ruled them out as too complex and costly for Med-Eng Systems Inc. Ottawa-based Med-Eng makes bomb protective gear -- helmets, demining equipment, body-cooling suits -- for the military and law enforcement agencies. The company, with about $300 million in annual revenue, will soon be part of a publicly traded competitor. But when Dickson went looking for a budget and forecasting system he was looking for ease -- easy to use, easy to implement. And, assuming the CFO signed off -- a hosted system.

"To my delight he did. It meant we needed virtually no IT resources," Dickson said. That's a consideration when you have a staff of 11 IT people for 375 employees. Med-Eng has multiple locations and remote employees. "All people needed was a good Internet connection."

He researched a number of products, including Budget Maestro from Centage Corp. and Microsoft FRx Forecaster He said what he especially likes about his eventual choice, Adaptive Planning, besides its mode of delivery, is that the product shares the look and feel of Excel with more capability. "It has a familiar way of presenting data. It is taking some of the nasty part of the Excel out of it and leaving you with the good stuff," Dickson said.

Picky customers

Vendors may want to take note: SMBs are clannish, pragmatic, thrifty and cautious. When it comes to making a software purchase, Forrester found that SMBs rely on peers and not "vendor hype" for information. Case studies of companies in their particular industries and word-of-mouth success carry the most clout. And SMBs are practical, above all. Topping the shopping list for first-time purchases, as well as upgrades, is software that supports an "industry-specific process." In addition, SMBs intend to milk their prior investments for every penny: 63% told Forrester that "improving integration between applications" is their top initiative for 2007.

More on ERP for SMBs
ERP implementations may fall short for hasty SMBs

ERP software and systems for SMBs

ERP not just for manufacturers anymore

SMBs also are taking a wait-and-see approach to SaaS, preferring on-premise delivery. Indeed, 60% of SMBs surveyed by Forrester said they are "not at all interested" in SaaS because of concerns about integration, security, total cost, performance and lack of customization. The 10% that are adopting SaaS deployment look to NetSuite Inc. and Everest Software Inc. for end-to-end suites, according to Forrester. Taleo Corp. and SuccessFactors Inc. score high among SMBs for human resources applications, and Intacct Corp. and Intuit Inc. are popular for financial accounting.

Let us know what you think about the story; email: Linda Tucci, Senior News Writer

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