Why Middle-Market Companies Are the Strongest Drivers of the U.S. Economy

Often huge conglomerates garner the greatest attention. However, middle-market companies are the strongest drivers of the U.S. economy.

Global economic growth is nearing a five-year low.

Mid-sized entrepreneurial firms are nimble, flexible and capable of maximizing opportunities. Collectively, their worldwide impact is huge.

The middle-market – typically $100 million to $1 billion in revenues – is actually more accurately defined by non-financial characteristics. Defining qualities for these companies: 1) private ownership and 2) providers of specialized products or services.

The U.S. is the global leader of mid-market companies. (1) Approximately 55,700 companies contribute 17 million jobs – 13% of U.S. employment – and $1.7 trillion in revenues (2012). Nationally, wholesale and retail represent the greatest number of companies.

Often what makes mid-market companies ‘tick’ isn’t well understood. Example, when evaluating obstacles to potential expansion, it’s far more important to determine whether the company would lose key advantages driving today’s success (e.g. agility) than to use revenues to gauge barriers – a typical assessment method.

Distinguishing Characteristics

Typically these firms are specialists working directly with customers/clients – not through a third party. Therefore, their understanding of their customers’ businesses – and needs – is deep and broad. Given their entrepreneurial and problem-solving mentality, they readily adapt to new trends that better serve their customers.

The considerable understanding they possess in their areas of specialty can sometimes create risks when they consider expansion outside that area of specialty.

They lack the deep pockets of large corporations. Any sizable failure – products/services, new geographic market – can create serious financial distress.

Large companies often outbid them for desired talent. And, when expansion is desired, having the right talent in place is critical.

Successful Growth

When mid-market companies successfully grow, it’s often due to:

Extensive preplanning – detailed plan of action, contingencies, serious consideration of risks and their potential impact

Inclusion of all relevant stakeholders – senior leadership, board and often potential customers

Early inclusion of banking partners – working together to determine how much capital is needed and parameters for availability

Ways mid-market companies can mitigate some risks:

Begin with small and/or short-term tests/experiments – learn and adjust

Work closely with customers, offering them incentives to be a ‘beta’ for new products/services (inclusive of sharing data they collect)

Consider partners/collaborators – approach suppliers, customers or others that would benefit from the expansion and discuss possibilities (with a NDA in place)

Primary Ways Mid-Market Companies Drive Growth (2, 3, 4)

Market diversification – based on factors of importance to customer base
a. Quick turnaround on custom orders
b. Ability to handle small jobs/low volumes efficiently
c. Expansion into niches adjacent to the primary niche where the learning curve is low and/or needs are essentially the same
d. Ensure no customer uses beyond an established amount of capacity; identify and profile other customers to serve and grow

Innovation
a. Identify other needs for products/services you offer
b. Engage frontline employees in ideation sessions; they often have ideas that aren’t typically heard
c. Create a flexible, yet formal, innovation process that operates on an ongoing basis

Continuous Improvement Programs
a. Based on improvements, identify what additional customers can be served
b. Grow niche markets already being served, profitably
c. Solve the issues driving why you lose orders to competitors

Looking Forward

Given the importance of mid-market companies to the health of the U.S. economy, understanding needs, obstacles, and actively positioning for growth is crucial.

Consider hosting a series of facilitated sessions with like-minded business owners representing varied markets, customer bases, products vs. services, can bring to light a variety of potential opportunities in a non-competitive setting.

Action Items:

Evaluate your company’s “key advantages” that help your company succeed. Ensure they are 1) protected, 2) enhanced whenever feasible and 3) fully utilized for competitive advantage.

Assess across different customer segments the primary reasons your company “wins” relative to competition, and reasons your company “loses” competitively. To what extent can the “winning” reasons be amplified, and the “losing” reasons minimized? Is it possible “losing” sometimes occurs not because your company lacks whatever the customer seeks? They simply were not aware of your capabilities in that area?

Are there potential differentiating factors from your competitors that you’ve not yet fully put in place? Tailor your offering as closely as possible to illustrate the benefits of importance to customers where your offering exceeds what your competitors are capable of offering.

Ensure your potential “partner” relationships are being well cultivated – key customers, potential new customers, bankers, community leaders…

If not already in place, evaluate the potential value of an advisory board made up of those with expertise in areas not currently available within your business , but of importance when considering growth opportunities.

Sources:
1. Richards, Martin, The Growth Challenges Facing Middle Market Companies, Global Trade, January 19, 2016
2. Stewart, Thonas A., Patrick, Dawn, Three Ways Middle Market Manufacturing Executives Can Drive Profitable Innovations, IndustryWeek, December 11, 2015
3. Collins, Michael, How to Drive Growth Through Market Diversification, IndustryWeek, October 19, 2015
4. Collins, Michael, How to Expand Your Continuous-Improvement Program to Drive Growth, IndustryWeek, October 9, 2015