What it takes to build a successful SME Tech startup
How startups solve the most pressing challenges of small and medium-sized enterprises (SMEs) by combining a unique set of traits.
Current challenges faced by SMEs represent opportunities for tech startups
Small and medium-sized enterprises (SMEs) face manifold challenges that can be solved using technology. Based on our assessment of the SME market, first-hand interviews with SMEs carried out by our colleagues from the Signal Iduna Group and the Institut für Mittelstandsforschung (IfM) Bonn, we derived the following:
Common traits of successful SME Tech startups — How SME Tech startups succeed
Having a closer look at the most successful players in the SME Tech space, it becomes clear that they share common characteristics that give them a competitive edge.
Go-to-market strategy — For startups in the SME sector, it is particularly challenging to find the right go-to-market strategy and to acquire and on-board customers with relatively low shopping baskets in a cost-efficient way. A one-size-fits-all approach is not the right path for industry-agnostic solutions. Instead, a target group-specific approach must be chosen. This includes addressing target groups via the right channels, e.g. target group-specific media and multipliers such as associations, and tailoring the industry-specific communication to them.
Customer Acquisition — A low CAC with a coherent go-to-market strategy, customer development, and marketing plans is crucial for SME Tech startups. This requires self-onboarding opportunities for customers through multiple channels, so that there is no need for hiring highly experienced & expensive B2B sales reps at an early stage. Compared to enterprise customers, SMEs bring shorter sales cycles, which makes it easier for SME Tech startups to control their CAC. Further, the most successful players make use of virality in B2B. Thus, many successful SME Tech startups apply a freemium pricing strategy.
Market — The fundamental business model of a market that has a small number of multi-billion companies with a small customer base is proven and long-established. These big companies do not serve the long-tail market as it is deemed unprofitable and cumbersome. Hence, there is less competition at the lower end of the market for SME Tech startups. The most successful SME Tech startups operate in very large markets that have been overlooked by enterprise tech.
Product — Leading SME Tech startups share a consumer-centric product development with super simple UX, straightforward product functions, features, and uncluttered design. Their solutions focus on core business systems and use it as a hub for additional data and functional integration, including wider marketplaces to create “stickiness” (e.g. by implementing 3rd party services via open APIs). SME Tech startups have faster iteration cycles compared to enterprises, meaning that it is easier to test hypotheses and achieve milestones. Their customer’s IT stack has less complexity (e.g. data integrations or migrations), requires less compliance checks (e.g. certifications) etc. That means that investments go directly into the product use case.
Why do we show SME Tech love and why are we a great match?
Targeting small and medium-sized enterprises is a challenging task. Our goal is to facilitate access to the SME sector for startups and support their future fundraising goals.
We are passionate, experienced, and have a 100-year track record of excellence in the SME sector. How? signals is an innovation ecosystem that consists of the signals Startup Client, signals Pre-Seed, and signals Venture Capital (adjacent € 100 m venture fund). It was set up by one of Germany’s largest insurance companies, SIGNAL IDUNA, founded by craftsmen 100 years ago. Today, SMEs are still among the company’s most important customers. We therefore see ourselves as facilitators and door-openers to these networks, providing an unfair advantage and synergetic relations for the startups we invest in.
Door opener and partner in various ecosystems
- Network player and trusted partner in the SME ecosystem
- Access to Signal Iduna business units & sales force as well as access to an SME platform (see the sales cooperation with our portfolio company Meisterwerk)
- Access to SME associations (within construction, retail, hospitality etc.)
Access to Signal Iduna as a potential customer, business partner, and door opener
- Insurance partnerships: insurance of assets as part of the business model (e.g. insurance for Circ, Miles) or development of new insurance products (e.g. added-value cyber security policy). Find further example use cases here.
- Access to Signal Iduna as a customer or partner via the signals Startup Client
About signals Pre-Seed
signals is your trusted business partner, mentor, and investor in one. We support founders with more than money.
The signals Pre-Seed Program invests in B2B software-based solutions for small and medium-sized businesses as well as in category-defining solutions for enterprises in the DACH region. We invest up to €250k to provide early-stage founders with an adequate runway. In addition to this, we provide founders with individualized mentoring and office space where and when needed so they can concentrate on what matters most — working on their product and gaining customers.
Want to dive deeper into the SME Tech topic? Make sure to also read Peter A. Nartey’s analysis and outlook on the SME Tech market here.
