Building Security Products for SMBs

Building security products for SMBs differs from enterprise markets in distribution, pricing, and product design. Vendors who merely repackage enterprise solutions at a lower price point struggle, while those who design around the segment's constraints find a large and growing market.

If you’re building a security product for small and mid-sized businesses, the challenges differ from enterprise markets. Distribution is expensive, pricing must work for buyers with modest budgets, and most SMBs lack the security expertise to evaluate or operate complex tools. The long tail of SMBs rewards vendors who design around these constraints rather than repackaging enterprise products at a lower price point.

My guide for creating cybersecurity products covers the universal framework. This article focuses on what’s unique to the SMB segment, specifically the distribution mechanics, buying triggers, and platform dynamics that enterprise-focused approaches miss.

• MSPs and VARs Address the Distribution Challenge
• Channel Concentration and Pricing
• Insurance and Compliance as Buying Triggers
• SMBs Favor Platforms Over Point Products
• AI Could Change the Economics
• Assessing Your SMB Fit
• Questions for Product Teams

MSPs and VARs Address the Distribution Challenge

Managed service providers have become a leading delivery channel for SMB security. Instead of selling to millions of small businesses one at a time, vendors now sell to thousands of MSPs, each serving dozens or hundreds of SMB clients. Recognizing this, Huntress and Arctic Wolf built large businesses by selling through the MSP channel. Others shifted to an MSP-first model after struggling to scale direct outreach.

The MSP channel is often your most efficient path to market. This means designing for two distinct user personas:

• The MSP technician who deploys and manages your product across many clients. They will evaluate it on whether it’s easy to deploy at scale, simple to manage, and profitable to resell.
• The SMB end customer who ultimately benefits from your product. They will judge it on whether it addresses their security needs without requiring the operational expertise they don’t have.

When evaluating your product, MSPs will expect integration with their RMM/PSA platform, multi-tenant management from a single console, and the ability to interact with your product through APIs and from their AI agent stack.

The differences between MSP and VAR channels affect product design and pricing, which the next section covers.

Channel Concentration and Pricing

The MSP ecosystem is concentrating around a few dominant platforms. Kaseya’s $6.2 billion acquisition of Datto consolidated the two largest platforms that MSPs use to run their businesses. The top three RMM/PSA platforms now hold over 60% of that market according to Canalys. Kaseya, for example, bundles EDR, MDR, and ransomware rollback into the same subscription MSPs already use to manage their clients’ IT environments.

This concentration creates dependency risk. For example, SentinelOne’s annual report showed one channel partner accounting for 20% of total revenue, with a second partner reaching 10%. If an MSP partner consolidates onto a competing platform or drops your product, you lose not one customer but every SMB client that partner serves. Diversifying across MSPs, VARs, and direct channels limits this exposure.

Value-added resellers remain a significant channel for larger SMBs with some IT staff who want help selecting, procuring, and integrating security products rather than outsourcing operations entirely. Analysys Mason found that VARs accounted for 43% of SMB cybersecurity spending in 2022, but MSPs and system integrators edged past them by 2025 as the lines between the two models blurred.

VAR-channel products need to work alongside whatever the customer already runs, from identity providers to SIEMs to network infrastructure. MSPs prioritize multi-tenant management at scale instead. Pricing models also differ across channels. MSPs need wholesale margins that make your product profitable to resell alongside their managed services, while VARs expect markup room per deal. Direct-to-SMB pricing must be low enough to compete with bundled alternatives without requiring a sales team to close every deal.

Insurance and Compliance as Buying Triggers

Beyond perceived risk and existing regulations such as HIPAA and PCI DSS, two newer forces are driving first-time security buyers among SMBs.

Cyber insurance is growing into a buying trigger for SMBs:

• Insurers require specific controls as conditions of coverage, typically MFA, endpoint detection and response, encrypted backups, and an incident response plan.
• SMB adoption of cyber insurance remains relatively low. But when SMBs do apply, insurers evaluate specific cybersecurity controls as part of the underwriting process.

Enterprise customers increasingly expect their SMB vendors to carry cyber insurance, turning it into a requirement for security investment. Some SMB buyers will arrive with a capabilities checklist driven by an insurance application rather than their own risk assessment.

Compliance requirements are also cascading down through supply chains. For example:

• The DoD’s CMMC program requires companies in the defense industrial base to meet defined security maturity levels, flowing to subcontractors at every tier.
• U.S. states with comprehensive privacy laws have grown from five at the end of 2022 to nearly twenty, several with thresholds low enough to bring mid-sized businesses into scope.
• In Europe, NIS2 includes supply chain security requirements that extend to smaller suppliers through contractual obligations.
• Enterprise customers increasingly require SOC 2 reports from their SMB software and service vendors.

SMBs that can demonstrate compliance get access to enterprise supply chains and government contracts. Look for ways to help SMB customers achieve and maintain compliance affordably.

SMBs Favor Platforms Over Point Products

SMBs gravitate toward integrated platform suites rather than assembling a stack of standalone tools. SMB Group’s survey of SMB decision-makers found that their top criteria when shortlisting solutions were cost-effectiveness, compatibility with existing systems, and ease of use. A 2022 Gartner survey found that 75% of organizations were already pursuing security vendor consolidation. SMBs with limited staff to manage multiple tools face even more pressure to reduce vendor count.

In practice, this plays out in two ways:

• Some SMBs choose a platform directly. For instance, Microsoft bundled endpoint protection into Microsoft 365 Business Premium, reaching millions of SMBs who already paid for email and productivity tools. For these buyers, the security decision was made when they chose their productivity suite.
• Other SMBs get their security bundled through an MSP, where the customer doesn’t see or care about which individual products make up the stack.

If you’re building a standalone security product for the SMB market, you need a clear answer for why a customer should buy it separately. Platform vendors and MSPs already bundle similar functionality into packages the customer owns. Your product must deliver measurably better outcomes in your domain, or a platform vendor will eventually bundle it away.

AI Could Change the Economics

An MSP that uses AI to automate security work, such as alert triage and investigation, can serve more clients with fewer analysts, reducing per-client costs without reducing protection. AI tooling extends the MSP distribution advantage but introduces its own tensions:

• AI might make it possible for more SMBs to manage their own security, weakening the role of MSPs if AI agents can handle the work with the right efficacy, ease of use, and costs.
• The high costs of vendors selling directly to SMBs make it likely that even in such cases, the vendor will find it more practical to sell through MSPs, VARs, or platform marketplaces.
• Though AI dominates conversation in enterprise and technology circles, direct AI adoption among SMBs “remains relatively low compared to other digital technologies and to larger firms” according to OECD.

The gap between AI enthusiasm and AI readiness runs deeper in the MSP channel, creating an opportunity for security products that deliver pre-packaged AI capabilities for MSP workflows. In OpenText Cybersecurity’s 2025 Global Managed Security Survey, 90% of MSPs reported readiness to support AI-related security needs in 2024. By 2025, that self-assessed readiness fell below 50% as MSPs confronted the operational complexity of delivering on those commitments.

If you’re creating an AI-enabled security product for SMBs, focus on making your solution easier to operate and cheaper to deliver.

Assessing Your SMB Fit

Before pursuing the SMB long tail, assess whether your product’s economics and delivery model fit the segment. Make sure you’re not trying to force an enterprise product into an SMB sales motion.

If most factors land in the rightmost column, your product economics don’t fit SMB. You can either redesign the delivery model or stay in the enterprise market where those economics work. If your results are mixed, prioritize adjusting deployment and sales cycle. Those affect every deal, while pricing and support models can be adapted incrementally.

Products that deploy without per-client setup, targeting companies with fewer than 100 employees, generally fit the MSP channel. Design for multi-tenant management and wholesale pricing. This is often the highest-leverage starting point for SMB security products.

Products targeting companies with 100 to 500 employees that integrate with existing IT infrastructure usually fit the VAR channel. These buyers have some IT staff and want help selecting and integrating security tools, not full outsourcing. Design for compatibility and per-deal margins.

Direct sales to SMBs rarely scale unless your product supports self-service onboarding at a price point low enough to avoid a sales team on every deal.

Questions for Product Teams

If you’re pursuing the SMB long tail, these questions complement the broader framework in my guide for creating cybersecurity products:

• Is your go-to-market designed for the MSP channel, or does it assume direct sales will scale?
• Does your product support both MSP operators who deploy across dozens of clients without per-client customization and VAR-channel customers who integrate into their own environments?
• How concentrated is your channel? If your top two or three partners dropped your product, how quickly could you replace that revenue?
• Can your product help an SMB meet the controls that insurers, regulators, and enterprise customers require?
• Does your pricing model work for organizations with modest security budgets?
• What happens to your value proposition when a platform vendor bundles similar functionality?
• If your product uses AI, can you demonstrate measurable outcomes with independent evidence?
• How easy is it for an SMB to evaluate and trust your product without a dedicated procurement team?

MSP consolidation, insurance requirements, supply chain compliance, and AI automation are reshaping how security reaches SMBs. With current cybersecurity solutions at roughly 10% penetration of the total addressable market, the vendors building for this segment’s constraints now will define the market as it grows.