Summary Bullets:

• Identifying the most valuable enterprise customers is a challenge, but in a highly competitive world, service providers must exploit smarter segmentation to survive and thrive.

• One-size-fits-all targeting based on number of employees is easy, but complacent. Growth comes from identifying small and medium-sized businesses that are the 10% driving productivity.

UK government number crunchers for the Office for National Statistics (ONS) have found that ‘the most efficient 10% of businesses were responsible for 63% growth in UK labor productivity between 2011 and 2019 (1998-2007: 49%).’

The causes seem many and varied: There is the tendency toward status quo – not every company is hell-bent on growth. The impact of the COVID-19 pandemic both interrupted business and made many employers and employees recalibrate their priorities – there is plenty of evidence of a switch to a better work-life balance among those that could afford it, causing what has become known as ‘The Great Resignation.’

The challenge to the UK’s economy has become evident with politicians now relying on economic growth to pay for the mounting costs of running a country with an aging population and increasing demands on health and social care. These challenges are mirrored across mature economies worldwide.

In the UK, the ONS analysis found that the growth (‘frontier’) businesses saw both productivity and profitability increase over the period.

Following the recent impact on ‘Zombie’ businesses (i.e., those that were just making ends meet due to low interest rates and government support) following both the 2007/08 global financial crisis and the pandemic, there has been a period of sorting the wheat from the chaff of businesses. This is of concern to service providers (many of whose enterprise ambitions have pivoted toward small and medium-sized businesses) and startups (which have been seen as the engines of growth – and therefore opportunity). But that must be put into perspective: small business ‘births’ are the source of new enterprise creation, but 20% of new businesses fail during their first two years, 45% during the first five years, and 65% during the first 10 years (US Bureau of Labor Statistics).

For service providers, this makes life tricky. Clearly, the goal is to identify the survivors and, ideally, those that deliver productivity growth as they are both likely to be in expansion mode and more than likely to be intensive users of technology.

Today, most service providers segment the enterprise market by number of employees – a very blunt and dull instrument. It is time for segmentation to get smart and use market insights rather than databases of employee numbers. The ideal target cluster is growth businesses. This can be achieved by looking at growth in the number of employees, or revenue growth; however, a combination which identifies growth both in revenues and revenues per employee will help target the most attractive segment (‘stars’). Other customer clusters should still be maintained as cash cows offering steady revenues (flat or growing in low percentage terms). With intense competition and pressure on service provider overheads, a smart approach to segmentation will produce better results than the easy option of lumping together groups of highly disparate businesses just because they have, say, 32 employees.