HR Tech Trend Brief: HR Technology’s Push to SMB — a Trend with Big Implications

Will HR Tech in the SMB Market Help HR Get Down to The Business Of Getting Work Done?

Every year, I receive between 100 and 200 briefings from HR technology vendors. The most concentrated dose takes place at the annual HR Technology® Conference & Exposition. The event brings me face to face with hundreds of HR tech vendors and a large number of their customers. Over the course of three-and-a-half days, I take dozens of formal briefings. There are even more serious conversations “around” the event as I network through the largest single annual gathering of HR technologists at one time.

After the 2012 event, I noted an encouraging and emerging trend: HR tech vendors were entering the small to medium-sized business (SMB) market with products we had not seen there before. I predicted that some new leaders would emerge in the following 24 months. I think I might have met with a few of them at the 2014 HR Tech Conference last week.

Based on the number of products and go-to-market efforts being focused on the segment, 2015 may well be the year for HR technology to go beyond just payroll and job boards in the midmarket. Vendors in almost all segments of HR technology declared a dedicated product and/or go-to-market effort focused exclusively on the SMB market.

For the purpose of this piece, SMB is defined as companies with fewer than 5,000 employees, with companies with 100 to 5,000 employees being highly relevant to most vendors offering HR tech.

As companies grow beyond 100 employees, they tend to look for tools to manage their workflow that are more useful than an Excel spreadsheet. Companies even at the lower end of the segment are addressing issues across the employee life cycle. In an ever more global world, size is less and less of a qualifier for who needs enabling HR technology. That’s evidenced by several firms focused on enterprise solutions beginning to engage customers with as few as 1,000 employees. The “floor” on the enterprise has dropped from 10,000 employees to its current state over the last decade. Selling successfully and successful implementations do not go hand in hand, however.

The emergence of the cloud as a cost-effective platform for the SMB segment was the first door to open for HR tech in the midmarket. This made delivery of solutions to the segment viable. In the early 2000s, most vendors tried to deliver “lite” versions of enterprise software, inherent with enterprise complexity in their interfaces, into the midmarket. That didn’t go well for most implementations. In the midmarket, simplicity trumps complexity.

Now, we’re seeing the results of social networks, social media, mobile, and the consumerization of applications across all product segments making HR technology easier to adopt for the SMB market. These same trends are helping customers find HR technology solutions.

The midmarket solutions emerging now have a consumerized — and sometimes gamified — interface that offers users ease of adoption and use. But they are no less complex behind the interface. Some could scale to the enterprise market. The vendors have just chosen not to go there. Yet.

A Growth Opportunity

It’s easy to see why HR tech vendors would be looking to the SMB market for growth. The enterprise market is saturated with long-term and very well capitalized incumbents. Sales cycles are long — extending as long as 12 to 18 months for true enterprise-wide sales. The cost of sale is high as well., requiring investment in infrastructure and staff to support a high-touch, complex sales environment. For a new vendor, going to market in the enterprise segment remains an opportunity but requires a level of patience that most investors don’t have. Successful vendors in the SMB market don’t experience the same infrastructure issues that extend time to revenue and cost of sales. Sales cycles can be under 30 days, and the sale can be as close to frictionless as possible — with some vendors opting to invest in customer success before ever considering a sales rep, if at all.

The market is also HUGE. According to the latest U.S. Census data, there are 42 times more firms with 100 to 4,999 employees than with 5,000 or more employees and seven times more companies with 500 to 4,999 employees than with 5,000 or more.

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*Source: U.S. Census Data

The Bigger Implication

But the opportunity isn’t just for vendor revenue growth and faster time to revenue. I see an opportunity for HR technology to become more like mainstream B2B tech and less like a fragmented niche market.

Companies in the SMB market start with a business issue that HR then partners to solve — if there is an HR team present. Compared with its enterprise counterparts, HR in the SMB market really feels more like it’s in the business of getting work done.

SMB customers set out looking for solutions and, many times, have no knowledge of the HR technology vendor landscape. They aren’t attending the industry conferences that we frequent in the enterprise space. They start their process by searching the Internet, querying their professional and personal networks, and visiting business publications online. 

We’re seeing glimpses of customers with more than 5,000 employees leave complexity behind and start to adopt tech developed without compliance or other considerations inherent in enterprise-level HR. 

Could the midmarket start to drive the enterprise tech vendor landscape in the next five years?

If the user adoption and engagement continue to be on the rise as a key buyer focus, the midmarket HR tech offerings may lead the way.

This really isn’t out of the question. Customers in the middle market have some compelling brands to choose from. Surf the websites of vendors serving the midmarket and you’ll see brand names from finance to tech to retail, healthcare, service, and hospitality that are viewed as innovators and leaders in their fields. Many of them aren’t planning to stay in the midmarket, either. 

The charge is being led by new vendors such as Namely, SmartRecruiters, HRAcuity, Zip Recruiter, BlackBookHR,  BambooHR, Greenhouse.io, TinyPulse, Zenefits, and more.  All are offering new solutions across the employee life cycle. And legacy vendors, such as Ceridian DayForceHCM, LBi Software, SAP SuccessFactors, ADP, iCims, and a cadre of others, are offering new and/or re-engineered solutions in the segment.

Possibly The Biggest Challenge For Vendors

After getting the product right, go-to-market execution looks to be one of the biggest risks for vendors catering to this customer segment, which rejected being force-fed enterprise software in the early 2000s. The SMB market also typifies the newly empowered B2B buyer, with many reporting that up to 57 percent of their buying process is taking place before they contact a vendor and that their trust in vendor content is low.

Getting traction with this segment is about more than investing in the right SEO strategy. Those are table stakes. It takes a deep understanding of the buyer and a commitment to offering insight and value to the market. Context is everything in gaining market velocity in the SMB segment. You need to deliver the right message at the right time to the right buyer.

Based on what I heard at the 2014 HR Technology® Conference & Exposition, a number of vendors are about to show us how it’s done, while several others skin their knees with old-school strategies and tactics that don’t deliver results.

One thing is certain: I can’t wait to check in over the next six months and see how they’re doing.