In my experience, most lower-middle-market companies don’t decline because of one bad decision. They sometimes decline because the leadership team learns to live with small inefficiencies for too long. Getting a handle on the slow leaks may be a solid opportunity worth exploring to increase a company’s valuation.
The writer Gurwinder Bhogal put it well: “Often we fail to improve our lives simply because things don’t get bad enough. If your new job is hell, you’ll leave it, but if it’s just unsatisfying, you’ll likely grind it out.” The same thing happens inside companies. Catastrophes get fixed. Slow leaks become part of how the place runs.
Walk into almost any middle-market company, and you can find them in an afternoon. The ERP system everyone complains about, but nobody replaces it. The executive who isn’t quite bad enough to remove. The product line that breaks even. The customer segment that accounts for 40 percent of service hours but only 8 percent of the margin. The standing meeting that should have ended two years ago.
None of these will kill the business this quarter. Together, they explain why growth has been flat for three years.
Andy Grove built Intel partly on this instinct: “Success breeds complacency. Complacency breeds failure. Only the paranoid survive.” His worry was the slow erosion, the kind that never shows up on an agenda.
Mediocre problems are dangerous because they don’t force a decision. They settle into the culture, compound a little each quarter and give leadership permission to wait. The waiting is what gets expensive. A persistent 3 percent operational drag sounds survivable. Over five years, it shows up as lost share, thinner margins, lower enterprise value and competitors who spent those same five years getting better.
Bankers and private equity buyers see this in diligence constantly. The companies that earn premium multiples usually aren’t the ones that survived a crisis. They’re the ones that refused to accept friction that everyone else waved through.
Left alone, tolerated inefficiency stops feeling temporary and even starts feeling like identity. Teams build workarounds for broken systems. Reporting lines grow to cover for weak accountability. People stop asking whether something should exist and just optimize around its dysfunction.
Leaders usually know this. They avoid the fix because it costs political capital, creates short-term disruption, requires spending or means admitting an earlier call was wrong. All understandable and all still expensive. The practical challenge is surfacing those problems that aren’t loud enough to surface on their own. Three habits help.
At a previous middle-market company that I ran, my team and I had a “not working” list. This was a list of any item that was an issue — no matter how small or big in any function or department. We reviewed progress on the list at every staff meeting. The initial list was four pages long. It’s no surprise that the EBITDA percentage grew over the course of time.
Set a dissatisfaction threshold. If margin, retention, cycle time or NPS stays flat for two straight quarters, treat the flatness itself as the signal. Waiting for a visible decline is usually waiting too long.
Separate maintenance from acceptance. Running a legacy system while you execute a replacement plan is a strategy. Running it because replacement feels uncomfortable is a tax you pay to avoid a hard conversation.
Companies that compound value handle disasters well and refuse to live with the merely unsatisfying. That’s the work. ●
Sanjay Singh is a Board Advisor and Private Investor
