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Four reasons to get excited about the B2SME market

You might call them the silent majority. The UK’s small and medium-sized enterprises (SMEs) generate more wealth than their larger counterparts, employ more people, and account for a greater proportion of the national economy. Yet they’re routinely ignored by many suppliers of products and services.

That’s a massive missed opportunity. The business-to-small and medium enterprise model (B2SME) has huge potential. Many of the leading B2SME businesses are highly profitable, exploiting the fact that they’re ignored by larger providers to win significant share with carefully tailored products and services. Here are just four reasons we consider it such a fantastic space:

1. A huge market of under-served customers

Official government statistics suggest the UK has 5.86 million active small and medium-sized enterprises. These companies are responsible for 60% of private sector jobs and account for 52% of all private sector turnover.

All too often, however, these firms are overlooked by other businesses, which are used to thinking in terms of the polarity between a B2C model that serves consumers, or a B2B model, aimed at very large organisations. As a result, the specific and discrete needs of B2SME clients are often poorly served; they’re expected to pay for products and services designed for much larger customers, or to work with very small suppliers that cannot fully meet their needs.

In the insurance market, for example, former Livingbridge investee company Kingsbridge was originally launched as the only broker dedicated to helping contractors, freelancers and other independent professionals to source insurance, even though these groups have completely different needs to either consumers or big business. Kingsbridge’s tailored services, designed specifically for this marketplace, saw it more than double in size during its two-and-half years in the Livingbridge portfolio.

2. Outsourcing is sought after

Many SMEs do not have the scale or resources to justify hiring specialist members of staff for a broad range of roles. Across almost every function of the business, they have little choice but to outsource more specialist work. This provides a valuable opportunity for businesses able to meet this need with high-quality services at an economically viable price.

Former Livingbridge investee company Key Travel, focuses very specifically on serving the travel requirements of charities, academic institutions and the faith sector, where organisations are very unlikely to have sufficient scale to employ their own specialists. Key has steadily expanded its range of services to meet clients’ broad range of needs, including booking airline tickets and hotels, but also supporting visa applications and offering risk management.

3. Service is a key focus

SMEs are particularly focused on high standards of service. Often, they will have been let down in the past by suppliers who regard them as less of a priority than larger clients. And with limited resources, they aren’t in a position to put these shortcomings right for themselves.

Businesses that can deliver high-quality service, often differentiated by use of tech and personalisation, can therefore build very loyal customer bases. One example is Reed & Mackay, the corporate travel management company where Livingbridge invested between 2008 and 2016, and how it made significant investments in a technology platform that enabled the company to provide much more personalised levels of service. This contributed to an extremely high customer retention rate of 97%, reflecting the quality of service it delivered to clients.

Price and good value for money does matter to SMEs, but few have the scale to support the sort of procurement function that mandates regular competitive tenders focused on saving money. Rather, SMEs that can find suppliers able to serve them well are likely to be highly sticky customers.

4. Opportunities for growth are all around

In a fragmented marketplace where every customer has specific and disparate needs, there is significant scope for B2SME operators to grow rapidly both organically and through strategic M&A.

Cross-selling and expansion into adjacent products and services all offer exciting opportunities to scale the business. Our growth acceleration team has worked with many B2SMEs and has seen a particular opportunity to drive customer growth through greater or a more sophisticated use of digital channels, and also to offer a unique proposition through convenient tech-enabled platforms.

During Livingbridge’s seven-year investment in corporate vehicle rental provider Nexus, for example, the company’s innovative intelligent booking system was instrumental in driving a five-fold increase in revenues.

Elsewhere, specialist pensions and benefits consultancy Broadstone is a good example of what is impossible with an ambitious acquisitions strategy in this sector. The business has completed five acquisitions since 2017, including 3HR Benefits Consultancy which provides specialist employee benefits and insurance to more than 200 Japanese, Korean and Chinese blue chip companies in respect of their European expatriate employees. This further strengthened Broadstone’s position to capitalise on emerging trends and opportunities to add scale in a buoyant sector.

The bottom line

B2SMEs operate in a fantastic space, often with relatively little competition and enormous potential to grow. By delivering high-quality products and services in a poorly-served marketplace, they are building strong, enduring and profitable relationships with their customers.

If you know a B2SME business that would be interested in meeting with us, please get in touch on investments@livingbridge.com.