To be clear, Nick does not hate SMEs! As a technology investor, he has learnt to be a bit cautious about backing businesses that sell to SMEs.

In this third startup success video, Nick highlights the importance of the network effect. In advanced technologies, he doesn’t think it makes sense to see SMEs as a market. Your solution needs to focus on sectors so it can build up that vital self-referencing momentum through replicable customer experiences.

Check out the video and see Nick’s Q&A below for more.

What do you mean by SME plays?

Businesses that say their target market is Small- and Medium-sized Enterprises (SMEs), typically with up to 250 staff and less than £50m revenue. This excludes larger enterprises and government agencies.

What are the red flags for you?

Don’t refer to your target market as SMEs. If you mean insurance brokers, then say insurance brokers; likewise, if you mean building supplies companies, then say so. Different sectors behave differently; plumbers’ merchants will not be interested in advanced cyber security solutions in the way that a hedge fund might, but both are SMEs.

How do you mitigate this?

Pick sectors that have an acute need for your product and explain how you will move from one sector to an adjacent sector. If you are starting with building supplies, it may be relatively easy to move on to construction, to architects and designers. The critical thing is to be utterly compelling to your initial smaller target sector; being “quite interesting” to a broad market is no good.