Why Stealing Customers Doesn't Pay

The No. 1 strategy for winning new small to mid-sized business (SMB) customers is typically to steal them from an incumbent supplier. How’s that working out? Apparently, not so well. Why? Because the odds are stacked against you. In fact, they’re bad enough that it’s worth rethinking how you target new SMB customers.

According to new research presented this week at the Enterprise Council on Small Business (ECSB) Summit in Miami, 93 percent of SMBs will not switch suppliers in a given year. This is because SMB owners are essentially “inert.” They don’t have time to rethink a decision once it has been made. They’ve moved on. The SMB owner is way too busy juggling multiple urgent issues. Unless you have something they are focused on right now, they’re just not listening.

This year’s comprehensive ECSB study of over 3,500 business owners was designed to unearth the most findable windows when owners are in buying mode. While the study revealed owners rarely switch once they’ve made a decision, it also revealed two predictable moments in the life cycle of a business where the SMB has a high propensity to purchase and they’re basically up for grabs:

1. The first purchase equals the most important purchase. The big, special opportunity is the first purchase because owners tend to remain loyal to their first supplier. Eighty percent of first purchases made by start-ups happen in the first year, regardless of category. But appealing to start-ups is typically not a priority acquisition strategy because most large companies immediately think, “Start-ups have no money!” Here’s the reality, based on data from the Kaufman Foundation, SBA Office of Advocacy and ECSB research:

-Tenured SMB companies spend $70 billion per year; start-ups spend $14 billion per year.

-Start-ups are 100 percent open territory in that all-important first year, where only 7 percent of tenured SMBs will switch suppliers in any given year; 68 percent of tenured SMBs will never, ever switch.

-Therefore, tenured SMBs represent a $5-billion-per-year opportunity; start-up businesses represent a $14-billion-per-year opportunity.

Not only is the pool of potential opportunity almost three times larger per year among start-ups, but the sale also has a better chance of turning into a lifetime commitment. Acquisition strategy equals retention strategy when you look at start-ups.

2. The new owner equals new opportunities. The second point that ECSB research revealed is that SMBs have a higher propensity to purchase after a change in ownership. New owners are a type of start-up that most companies don’t think about targeting. The new owner is often looking to reevaluate everything and is very much in buying and switching mode. According to ECSB, there are 500,000 businesses that change hands every year and 33 percent of these new business owners are looking to switch suppliers. Furthermore, these owners are typically “established” entrepreneurs who already own more than one business, have more resources and larger lines of credit than the initial start-up.

Bottom line: When it comes to targeting the SMB, the first purchase is the most important purchase, and new owners act like start-ups. Oh, yeah, and stealing doesn’t pay.

Judy Begehr is senior vice president of account planning at gyro

Originally published at Ignite Something on the Forbes CMO Network