Small Business: Cisco's New Ace In The Hole

It isn't often that Cisco is discussed as a small-business powerhouse, but the moves the networking titan has made in the past three years to solidify and grow its small-business approach are bringing it exceptional success in the market segment. So much so, in fact, that VARs and distributors that once might have dismissed Cisco's small-business engagement as tin-eared or out-of-touch are now putting their own muscle firmly behind it.

"They get it," said Dan Schwab, co-president of D&H Distributing. "They're investing in small business and also doing a lot of education, really trying to understand the market dynamics, whether it's talking to customers or making sure they're working with engineering to build the right price and feature set."

"The SMB sector for us, and our Cisco business with SMB, is on fire," said Gia McNutt, president and CEO of Special Order Systems, a Loomis, Calif.-based solution provider. "I've never gotten this many leads from Cisco, and some of them are really good. I think the product set is also where it needs to be, and that was not necessarily the case three years ago."

Small business accounts for $1.5 billion, or about 4 percent, of Cisco's overall revenue, and that number has steadily grown in the past two years, said Andrew Sage, vice president, small business and midmarket sales, at the vendor.

Cisco declined to break out exact small-business or commercial segment sales figures, but Sage told CRN the number of partners selling small business from Cisco has increased 15 percent year over year and the number of small-business deals has increased 15 percent as well. Cisco has more than 25,000 active small-business partners and 9,000 partners registered as SMB Select, the SMB-focused partner specialization it introduced in 2004.

Dating back to a $100 million investment Cisco made in dedicated small-business resources in 2008, Cisco's small-business growth has been an attack at every relevant level, partners said. It has fine-tuned its channel program, invested in training, developed and tweaked products and service offerings, and backed it all up with aggressive financing.

"Cisco looks at it almost as a distinct business," D&H's Schwab said. "They've been listening. The highest accolades I'd give them for this -- they're listening. They're not just dumbing down products and they're at good price points."

NEXT: Cisco's Difference In SMB Focus

The dedication to small business has been the difference-maker, VARs said. It was only in the past two years that Special Order Systems ramped up its investment with Cisco on SMB, said McNutt.

"We really didn't do them in SMB because there just wasn't a good solution," she said. "You could push these bigger products down into that market, but economically that didn't make sense. But right about the same time, we started a managed services practice, which made more sense for us to focus on that segment."

The combination of more SMB-dedicated Cisco products with the uptick on managed services -- and Cisco's ability to benefit partners who address the SMB market in that manner -- is what boosted business, she said.

"You're seeing this harmonic convergence because the products are there and 100-and-below companies need those comprehensive managed services," McNutt said.

"It's now much easier to do business with Cisco than it's historically been," said Ryan Halper, president of Cynnex Networks, a Seattle-based solution provider. "The engagement makes it or breaks it. You can have as many different programs and promos or whatever out there but, ultimately, the team itself, on the ground, is what organizes and propels business. That's one of the single biggest areas from Cisco [where] we get benefit."

According to Halper, who is a member of Cisco's Small Business Executive Exchange Advisory Board, Cynnex expects to grow its small-business sales with Cisco 30 percent this year.

Cynnex focuses exclusively on SMB customers, with a heavy emphasis on sub-100 customers, but Halper said Cisco is finding traction with the more specialized sub-50 and sub-25 bands as well. Cynnex's 2011, he added, is off to its fastest start ever.

A longtime channel executive and small-business specialist who asked not to be named said it was particularly in the past year that Cisco's small-business strength came into view.

"Their competitors paint them as out of touch with small business and too expensive or too much enterprise-level products pushed down too small," said the executive. "That might have been true many years ago, especially as they figured out what goes where with Linksys and all that, but that's simply not the case now. They're starting to kick ass here and the VARs see that."

NEXT: Technologies Driving Cisco SMB Sales

On the technology side, Cisco has been aggressively expanding its SMB portfolio over the past two years, with everything from needs-specific switches to emerging physical security products hitting the market.

Its most recent batch of updates included new managed Ethernet switches starting at $287, a network security firewall, and an update for its NSS300 smart storage products that includes fully integrated data backup via Mozy, owned by Cisco strategic partner EMC.

All of Cisco's major SMB product categories are growing, according to executives, and they're seeing increasing demand for niche specialties such as physical security and video, including WebEx, its online meeting and collaboration platform.

Designing products for small business is a tricky tightrope to walk, VARs said, because you have sub-25 customers, sub-100 customers and a range of other customers with markedly different requirements. A very small business might have minimal needs in some areas but might by the nature of its business -- health care or financial data, for example -- require advanced storage networking or security needs.

"You've got to understand it's an extremely diverse market down there," said Cynnex's Halper. "It's a huge mix of different kinds of businesses that have incredibly different needs and incredibly different outlooks on technology. That's very different from the large commercial market and enterprise market where IT decisions are made in similar forms across the board."

The products therefore need to be adaptable and sophisticated, but also easy to deploy, said Ian Pennell, senior vice president of Cisco's small-business technology group.

"This space needs to be able to put things together and have it all be relatively easy to understand," Pennell said. "It's partly about size. You do get some commonality in the sub-20 vs. a 50- or a 100-size company, but it's really more about what they're trying to do and how robust do they need to be. There's an awful lot of diversification."

Cisco's strength with a lot of its small-business products is that they're prearchitected to work together, Halper said. That's consistent with Cisco's macro-level architecture approach to technologies but is especially compelling with small-business customers who don't want to fuss with multiple point products, he said.

"Rather than the customer having to be somewhat responsible for creating the interoperability between vendors' equipment, you're taking that complexity out," Halper said. "You don't want to spend a lot of time on 'how is the switching going to play with this wireless' or 'how is the voice going to traverse my firewall.' "

The ease of integration comes up often among solution providers, agreed D&H's Schwab.

"It's in the sub-100 that they've gained the most traction, and the sub-25 they've had success, too," Schwab said. "I think one of the benefits is that they went after it not just focusing on a switch, but leveraging the full wherewithal of the Cisco portfolio: switching, routing, wireless, security, storage. It makes it easy for a small-business VAR to utilize them for a total solution vs. having to find multiple point products."

Specific to D&H's customers, the number of VARs that sell Cisco small business has grown quarter over quarter, Schwab said, and is now two and a half times bigger than it was two years ago.

"It just makes more sense for us to have an intimate relationship with one manufacturer here than try to create that partnership with three or four different players," Halper said. "VoIP, switching, wireless, we can do all of those things with Cisco with one customer. And then we get the additional benefits from the customer because it's an easy relationship to maintain."

NEXT: Cisco's Small Business Services Advantage

The services end of Cisco's small-business focus has similarly evolved. It's structured differently than any other services organization within the company, and services packages in small business are not the same as SMARtnet, Cisco's principal tech support service.

"The services business inside Cisco exists to scale the technology," said Sherri Liebo, vice president of segment marketing for Cisco Services. "We really rely on our partner network to do the scaling. SMB is adopting a services strategy a lot faster than those in the enterprise."

Along with sales and training resources such as the Small Business Service Center, VARs point to Cisco's fixed pricing -- a range of $19 to $999 depending on the depth and speed of the service package needed -- as a major benefit.

"Simplicity trumps flexibility," Liebo said. "It eliminates the back-and-forth around pricing between the partners and Cisco. It's predictable pricing, with not a lot of deviations. If partners are going through a long deviation process, it's costing them money and they don't want to deal with it."

Cisco executives also pointed to the November rollout of Fast Track 2. Based on Cisco's original Fast Track program, Fast Track 2 smoothes out sales of certain products for the 100- to 1,000-seat market segment using a partner-suggested price list and extra stock so distributors can better meet next-day delivery demands.

Part of this, according to Cisco, is fine-tuning the supply chain following last year's product shortage headaches, but overall, said Liebo and other Cisco executives, it gets SMB-targeted product to customers, and through the supply chain, faster and more efficiently.

"Time is money for the partner, so if they have to hassle with a protracted ordering system, they're losing money," Liebo said. "We needed to make it painless."

Cisco puts a lot of stock in its technology and market segment group councils, and Pennell is co-chair of the Small Business Council alongside Keith Goodwin, Cisco's senior vice president, worldwide partner organization.

Created four years ago, the council sets strategy and direction for Cisco's small-business products, services and partnering efforts and coordinates those efforts with the other Cisco councils. The council consists of 10 members, all vice president-level or higher, and has a full meeting once per quarter, with periodic meetings for long-range planning, and directors' meetings among council chairs.

Pennell, for example, actively coordinates with Ned Hooper, chief strategy officer and senior vice president of Cisco's consumer business, on the not-always-clear lines between consumer and small-business products and services. Logistics are also a recent focus, Pennell said, and there's a new group forming at Cisco focused on supply chain management that will come under Angel Mendez, senior vice president of customer value chain management.

NEXT: Cisco's SMB Financing Push

Another area where Cisco has been particularly aggressive in small business is in financing. Last year, Cisco mounted a hugely successful three-year, zero percent financing program for SMB deals between $1,000 and $250,000, covering everything from Cisco hardware and software to Cisco maintenance.

That program changed to a three-year, 3 percent-financing program -- it continues today -- and the deal ceiling is now $150,000. But earlier in February, Cisco revived the zero percent financing option for deals specific to unified communications. Specifically, Cisco will cover deals ranging from $5,000 to $75,000 where at least one of Cisco's SMB-geared UC systems, the UC540 or UC560, is part of the deal, and give $1,250 to customers who replace a competitive UC system with Cisco.

"Our customers continue to take advantage of both programs. Not categorically -- there are typically diverse financing needs for each, and many would rather just give you a check -- but it's been attractive," said Cynnex's Halper.

The majority of Cisco's small-business channel sales continue to be through VARs and also DMRs such as CDW and PC Mall, Sage said. Service providers, however, are coming on strong thanks to the growth of managed and cloud-based services with small-business customers.

As for products, switches, routers, wireless, IP telephony and handsets are all continuing to grow for Cisco, which declined to provider individual product category growth numbers or percentages. Physical security, data security, video and collaboration and remote backup and recovery are all coming on strong as well, said Sage.

Cisco's investment in small-business resources also will continue. In the past year, it has deployed field representatives -- Cisco calls them "road warriors" -- who actively reach out to smaller partners who have limited regular interaction with Cisco executives. Cisco also hosts free, small-business-focused training around the country and is looking to expand its small-business community and social networking resources.

"The small partners, it's amazing -- they talk to each other," said Rick Moran, Cisco vice president, solutions marketing. "A lot of large partners don't because they keep secrets, but with the small guys, the small biz communities and social networking have turned out to be hugely popular.’

The sub-200 customer segment is an $8 billion addressable global market, Moran said, and now that Cisco's been in the small-business trenches for a few years, the image of its products as "gold-plated" in terms of pricing is giving way to acceptance of Cisco as a small-business player.

"It's been convincing people we're not going to run off," said Moran. "If you're going into the small market, you need to build for the small market."

"Going back three years ago, I think there was still a lot of confusion, or fear, about incorporating Cisco into a small-business solution," said D&H's Schwab. "People thought that it was too expensive, or that it was overengineered, or they weren't authorized, and a lot of those barriers have been brought down now. It's resonating with the partners."