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Heiki Strengelsrud-5

Small and Misunderstood Businesses - underserved and undervalued

Written by Heiki Strengselsrud, Principal Consultant, Business Design.

It is common for financial services providers serving the SMB (Small and Medium-Sized Businesses) market to define SMB as a segment. Therefore, ask yourself: When was the last time you met someone saying they worked at an SMB? It is a simplification that ignores an ocean of diversity and — unsurprisingly — business owners feel misunderstood, underserved and undervalued. If 99% (Norwegian businesses with less than 100 employees) of your audience is in the same segment, your approach is probably wrong. Even if you refine by number of employees and industry category, the spreadsheet won’t tell you what really matters to these businesses or how to best support them.

The problematic discrepancy between decision-makers in large and small businesses, and even among businesses in general, is multifaceted. Let’s look at some of the challenges financial providers need to consider:

What does it mean to be rational?

 

Do you know that it’s rational for a smoker to continue smoking? In the very short-term it is. For the now-self. According to common knowledge, not so rational for the future-self. However, faced with fighting the urge for nicotine right here, right now, it’s rational to enjoy the bohemian breakfast. After all, it’s a huge cost to carry a terrible headache all day. Hence, the smoker has rational arguments for smoking. Moreover, if a smoker, after repeated efforts, fails to achieve the goal of quitting, her willingness to put forth more effort will decline.

 

Similarly, can a small business owner that fails — after repeated efforts to understand the world of finance and compounding interest — have a declining interest to try once again? In my experience the answer is Yes. Maybe even more so if she has burned her fingers and realised the fine print after a non-calculated event? Whether the unfortunate event happened to the decision-maker or a friend, or even a friend of friend, doesn’t matter that much. The psychologist Daniel Gilbert argues human beings learn from experiences they've never even had. Hence, it is critical to consider who influences your target customer as you’re empathizing with your potential customers. Will a CFO persona do the trick?

We feel our ways to reason

As a co-founder of a digital bank for small and misunderstood businesses, I have come across a handful of business owners, a.k.a. decision-makers, willing to educate me on how the world looks from the buy-side of the equation. Yes, you got it, it’s very different from the sell-side. “Sorry, but I’ve tried bank financing before, and it doesn’t work (for me)”. The list of stories is bottomless, and it surely does include not self-experienced stories.

 

Whether you are building and selling a product to a professional, CFO type decision-maker, or a jack of all trades type small business owner matter. A lot. The former takes (close to) rational decisions on behalf of a company, while the latter takes an emotional business decision also influencing her private life. Work-life balance is corporate talk. While loss-aversion is greater when your own future is on the line.

 

We all feel our way to reason, and up to 95% of human behavior happens subconsciously. Humans are not thinking machines, but feeling machines that think. However, a CFO is more likely to have time to access her cognitive brain, the neocortex, responsible for planning and intellectual control. Thus, whichever mechanism that suspends the impulse prone “monkey brain” changes the decision-making process. In addition, for a CFO, sound financial decisions are job #1. Stories based on these decisions define careers. Contrast this with decision-makers still looking back at math classes in secondary school with subdued enthusiasm.

 

Therefore, a supply-side perspective that focuses on the product and its features, facts and benefits are less likely to be successful. As these factors don’t impact decisions. When approaching small business owners we rather have to look at how the product will fit in people’s lives, their environment, and how it will make their lives better. Maybe the small business owner defines success broader than the financial outcome? Even though their business is an important part of their life, it’s still a part of a greater puzzle.

Using non-financial workarounds

Based on my experience, financial services providers also overlook the real competitors in the small business market. From an inside-out perspective, it’s easy to fall into the trap thinking those are similar to yourself. (Just) another financial services provider. Slightly different terms. Marginally different services. Somewhat different brand.

 

Whether you try to attract a segment that already has plugged financial products — beyond transactions — into their operating model or a segment that has not, plays a significant role in how you acquire, retain and grow your customers. Especially how to acquire. What your prospect is switching from helps to contextualize what forces you are up against. Make note that approximately 50% of Norwegian SMBs have less than 10 employees, and a sizable chunk of these are using non-financial workarounds to manage working capital. Probably the best-known financial problem in this market.

 

If you look beyond the attention seeking start-up community, funded by professional investors, a typical small business is founded and run by an American-like self-made man (primarily men, to be concise), taking pride in their work, praying to be debt free and dream of taking the family on a yearly vacation. Rational or not, decision-makers in this segment rather defer their salary, avoid hiring part-timers and postponing stocking up the warehouse than taking on debt. Maybe someone they know already told them that business finance is a thing, but somewhere someone is already complaining about it?

To the curious and courageous, please stand up!

To sum it up, the Small and Misunderstood Business market is characterized by its non-professional decision-makers, served by financial experts lacking empathy and understanding of which factors drive decisions. Consequently, after a decade with APIs and digitized banking business owners are still underserved and undervalued. For the curious and courageous the dissatisfaction represents a huge opportunity.

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Heiki Strengelsrud-5

Heiki Strengelsrud

Principal Consultant

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