Despite the intensity of interest, the SME segment continuously defies a consistent definition, thereby posing interesting problems for the IT industry. While there is a theoretical ability to create solutions which could handle this diversity, the ability to make such a system 'usable' is extraordinarily challenging.

SMEs (Small and Medium Enterprises) have been at the forefront of the IT industry's interest world-wide for over 2 decades. There is even greater interest in this segment in emerging markets, where the massive scale of SMEs remains an elusive source of monetization.

Strangely, despite the intensity of interest, it remains a segment which continuously defies consistent definition. Like the proverbial elephant, the person you talk to gives you one narrow viewpoint of a narrow sub-set of this marketplace. The sheer diversity and size prevents people from getting their hands around it, and it variously gets represented as the trunk, the tail, the ears, the legs, the body – and each definition seems contradictory to the other.

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This is further aggravated by the environments in which these businesses operate – and the characteristics of SMEs in emerging markets (epitomized by India), and emerged markets (typically termed as Global), differ significantly because of this.

In particular, the sheer unpredictability of SME behaviour in India – even across common business lines – can be contrasted with the far more stable business behaviour in the developed markets. My favorite illustration of this is to imagine starting a small/mid-size business in the US in 1990, and capturing the steps required to get it up and running.

When someone else wants to start a similar sized business in 2010 – even in a different line – over 90% of those steps will remain the same. However, if you were to start one in India, and within 3 months, another business is started, probably less than 20% of the steps will be replicated!

This poses interesting problems for the IT industry. While there is a theoretical ability to create solutions which could handle this diversity, the ability to make such a system 'usable' is extraordinarily challenging. Coupled with the need for affordability of the solution, it is generally concluded that the investment to make this attempt is futile.

Therefore, the most common approach devolves into creating solutions for niche segments or niche problems. This then further aggravates into increased cost of customer acquisition, as finding the customers in the ocean of businesses becomes a steep upward climb.