Why Other Companies Should Take A Page From The Middle-Market Playbook

John and Anne had worked together to grow a mid-market business for more than 20 years. This married couple built a company that serves Fortune 100 companies with brick-and-mortar renovation needs.

The husband, an Army veteran, had no MBA or venture capital behind him, but he did have a motto. He had gotten it from a superior in the U.S. military: “Amateurs talk strategy. Experts talk logistics.” By the time they were ready to transfer their company, they had almost $100 million in annual revenue, a testament to their grit and can-do attitude.

Companies like this power the U.S. economy post-Covid, allowing the U.S. to outpace all other industrialized nations in economic growth. Collectively the segment represents one-third of private sector GDP and produces over one-third of U.S. employment.

 

These middle-market, privately owned companies with revenues between $10 million and $1 billion have been the pragmatic engines of the U.S. economy, little understood and underappreciated. What makes them tick, and what can other entrepreneurs learn from their success?

Economic Powerhouses

A new survey from the National Center for the Middle Market (NCMM) sheds some light on this “Mighty Middle Market.” First of all, mid-market companies overperform when compared to multibillion businesses. Last year, according to the survey, middle market companies reported year-over-year revenue growth of 12.4%, a number higher than the estimated earnings growth rate for the S&P 500.

Headquartered across America in suburbs, exurbs and Rust Belts—rarely occupying prime real estate in big cities and gleaming towers—companies like that owned by John and Anne are owned and operated by a tapestry of Americans. Because this is the market I serve, I know their diversity is part of their power. They are veterans, husband and wife teams, immigrants, scientists with an idea, a band of friends with a new service.

According to NCMM research, most mid-market companies have been in business for decades. These companies—and their owners—have served as a stabilizing force during hard times for this nation. During the financial crisis of 2007-2009, large businesses shed 3.7 million jobs. But during that same period, John and Anne actually added workers. That aligns with others in the middle market who actually added over 2 million new jobs during that time frame.

Now, with the pandemic in the rear-view mirror, the most recent NCMM survey shows a similar trend. Even though many middle-market companies were still battling post-pandemic headaches such as supply chain issues, owners like John and Anne had high confidence in the U.S. economy. At a time when some economists were predicting the U.S. was headed for a recession, almost 60% of mid-market owners increased their workforce at a whopping average growth rate of 9.6% last year. In contrast, last year many of America’s largest companies shed workers.

The assessment of middle-market owners turned out to be the right one: America was on the rebound. I’ve found that middle-market companies typically prefer to operate with a long-term vision rather than managing for short-term earnings calls…

 


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Sharon Heaton is the CEO of sbLiftOff, a national M&A advisory firm that serves GovCon companies and founder-led businesses.