The great American middle market is the growth engine of the economy. Midsized companies — with annual sales between $10 million and $1 billion — comprise about a third of nongovernment employment and output.
As we’ve noted before, the middle market is largely unknown: Big company doings fill headlines; startups satisfy our appetite for scrappy success stories; and those in the middle — solid companies, many family-owned — go about doing their job.
And what a job they do. In the last year, the middle market added jobs at a 4.3 percent rate, more than twice as fast as big business (2.1 percent) and 50 percent faster than small business (2.7 percent). Sales grew 7.4 percent vs. 2.9 percent for the companies in the Standard & Poor’s 500 index.
In the sweet spot
Why do midsized companies perform so well? They occupy a sweet spot between instability and stodginess. Small shops are inherently more vulnerable. Big companies run into the law of large numbers — it’s simply harder to grow fast — and consequently they tend to focus as much on cutting costs as on growth.
Here’s a telling sign: When evaluating operational-improvement programs, midsized companies are 27 percent more likely to emphasize the impact on customer satisfaction than big companies, which are 33 percent more likely to emphasize productivity gains.
Play to your strengths
Research by the National Center for the Middle Market uncovered four things fast-growing midsized companies do better than their peers:
- They invest in innovation. That isn’t just new products; innovative marketing, production and even back-office processes help companies get an edge. The key: matching innovation to strategy. Everyone can innovate, but not everyone should innovate in the same way. A low-cost retailer shouldn’t worry about cutting-edge science, but should look for novel ways to save time and money.
- They seek new markets. Many middle-market companies are local champions; the best win national and global customers, too. The Ohio Export Internship Program has helped companies in Central Ohio reap more than $10 million in new overseas sales.
- They build human capital. Every CEO says, “People are our most important asset.” Fast growers mean it. We’ve found strong evidence that superior performance management drives superior growth.
- They build customer capital. They cultivate relationships that turn customers into long-term assets, including partnering in innovation, linking IT systems and sinking roots into their communities.
Middle-market companies with these capabilities get the best of both worlds — small enough to be agile, big enough to compete with power.
Thomas A. Stewart is the executive director of the National Center for the Middle Market, the leading source for knowledge, leadership and research on midsized companies, based at the Fisher College of Business, in collaboration with The Ohio State University and GE Capital. Thomas is an influential thought leader on global management issues and ideas — an internationally recognized editor and publisher, authority on intellectual capital and knowledge management and a best-selling author.
