Archive for June, 2012

Small Business Leaders “Do The Math” When Making A Purchasing Decision

June 3, 2012

Small business leaders “do the math” when making any buying decisions as a little known Government Accounting Office (GAO) report demonstrates.

While in this case a healthcare benefit purchasing decision was involved, the GAO report just released chronicles what many small business leaders do when faced with a buying decision – they have certain criteria that are often at odds with what marketing gurus think.

As the GAO reported, small business owners look well beyond the immediate benefit and examine what the total cost will be when making most buying decision.

The particular part of the Obamacare provisions was one to encourage smaller enterprises to offer healthcare insurance to employees in return for tax credits.

But as the GAO reported, many owners did not take advantage of the tax incentive figuring the long-term additional costs far outweighed whatever tax benefits were being offered.

According to the GAO, the tax incentive was too modest to encourage small employers to act.  This opportunity was particularly spurned by the very small (under-10 employees) sector. 

In our follow-up to this report, we talked with the head of a small, elite security firm.  He told us it was less expensive for him to pay the penalty then to offer the Obamacare insurance; by his rough calculation it was $2,000 penalty versus $8,000+ for the insurance for each employee.

One other fact was that the benefit was in place for only two years and its continuance was unsure.

Leaving aside the benefits to employees, small business managers did the math and saw significant additional cost associated with participating in this aspect of Obamacare, according to the GAO.

A complete account of the GAO report is available on our website.

For those wanting to sell to small businesses, this example has particular relevance.

In our research over the past seven years, the GAO report is a demonstrated example of the what, how, why, where, and when small business managers make their buying decisions.

We wrote in our book, The Janus Principle, on selling to small businesses that small business buyers have a hierarchy of purchasing decisions that begins with “what is cheaper: to buy or to do it themselves?”

Second, does the product or service mimic closely “how we do (the task) now and why do we need to change it.”

Next in their hierarchy is “in where do we find the money or financing to pay for the new product or service and how best to conserve cash.”

Finally there is one more important criteria. Small business leaders want tried and proven concepts and do not want to be “beta testers.” The when is after the concept is proven.

In doing some follow-up research, we found that companies that refused to buy, often cited the fact that they knew no other company that was already using the product or service.

Taken together this Obamacare attempt at business engineering clearly demonstrates the pitfalls when offering a new concept, product, service or idea to small business.

Small businesses “do the math” first and make sure the overall costs will survive their analysis and benefit them.