Real SMB IT: Company Size Is The Wrong Metric

March 1, 2010

I want to revisit an old post titled;  SMB’s – We are Not All The Same.

When looking at your IT costs and IT investments, many managers in the small to medium enterprise (often encouraged by peers or consultants) look simply at the the size of their business in either revenues or staffing.

The logic simply being that if that other  business is doing approximately the same revenue as myself, and they are spending a certain amount of dollars on their IT – why is that so much? or should that be what I should be spending?

The short answer?

If you are simply looking at the size of your business, you aren’t using the right metrics to compare.

A more accurate metric can be taking a look at your businesses technology sophistication.  Put simply, this means; how dependent upon technology is your business?

Generally speaking, you can model your level of IT sophistication with a few simple questions. And the key factor here is that the less IT sophistication, in general, the less you need to be spending on your IT. (Note: there is one huge place this model will fail, but that is another post)

If you have 1 to 10 PC’s you may be at a lower IT sophistication level, more than 30 ? probably higher

If you have 1 or 2 Servers,  you may be at a lower IT sophistication level. A half dozen or more? again, probably higher

If you have 1 office or facility, versus multiple remote sites, you may be at a lower IT sophistication level.

If the only software you use is purchased software (COTS) such as Quickbooks or MS Office, you may be at a lower IT sophistication level. Customized enterprise tools? (ie ERP) Probably higher.

If  your Web Site is a direct copy of your marketing brochure, you may be at a lower IT sophistication level. You do e-Commerce with online transactions? Probably higher.

The SMB Takeaway

Your business and mine may be almost identical in revenue, staffing or other metrics. But do not attempt to use those metrics to compare your IT spending. Because if you have a higher technology sophistication than I do, you are just comparing apples to oranges.

UPDATE: I warned that there is one place this model fails? That is now here.

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