The term “mid-size company” probably conjures up images of…well, maybe not much. Enterprise-sized companies run the world, small businesses are the heart of the American economy - and where does that leave the ones in the middle?
Pretty firm, actually. In fact, companies on either end of the size spectrum could take a few lessons.
“Inspired for Growth: Lessons from Middle Market Companies,” a new study by Forbes Insights in association with BMO Harris Bank, examined the perceptions of senior executives at companies with $50 million to $499 million in revenue to better understand what it means to be a middle market company in today’s economy.
And what it found was that these organizations are doing extremely well – better, perhaps, than most others. Executives at middle market companies are optimistic about the health and future of their companies. And with good reason: over the past two years, 61% experienced revenue growth, while a further 15% held steady. And three-quarters say their companies are poised for continued growth – more than four in 10 predict they will grow by 6% or more over the next two years.
Their optimism doesn’t extend to everyone else, though; 44% don’t expect the economy as a whole to recover until at least 2013 – or beyond. In other words: My flower garden is doing just fine. I’m just not sure about how all the farms’ crops are weathering the drought. “I have far more confidence in own ability to grow,” said Harry Herington, CEO of NIC Inc., an e-government focused organization, in the report. “Than I do in prospects for the overall economy.”
But why? What makes the experience and outlook for mid-market companies so much rosier in their eyes than anywhere else? Why are they so optimistic?
Maybe because their size enables them to a few things a bit better. Their relatively larger size compared with small companies provides them with deeper pockets for weathering difficulties, funding innovation and hiring key talent. And their relatively smaller size compared with larger enterprises makes them more agile, puts them in closer contact with customers and enables them to retain a bit of that entrepreneurial spirit.
But there’s more to it than that.
Nearly three-quarters of mid-market executives say their companies are posed for continued revenue growth, and this growth is mostly coming from active efforts on their part: launching new products or services, putting more effort into sales and marketing and diving deeper into technology to help their business.
Organic growth also plays a large role, but most mid-size companies are not sitting back on their haunches, just letting their businesses grow the way weeds creep across a lawn. Not that I’m comparing mid-size companies to weeds, but you get the idea. You want growth to come through consciously planning and planting to healthy effect - not from simply forgetting to mow, like that guy in your neighborhood with the waist-high tick-fest in the front yard. Yes, it’s important to step back from time to time and let the plants do what comes naturally, but growth that comes solely from stepping back and ceding control eventually becomes something wildly out of your control. And just think about what that does to property values.
So where is this growth coming from, and why are mid-size companies so much more optimistic about their own growth – and reporting so much more success – than they expect others to be?
The study isolated three key areas where middle market companies do things particularly well, and the lessons others can glean.
1. Re-invent themselves
Look, we’ve all seen an action-adventure film or twelve in our lives. We all know you have to stay agile to survive. It’s the same thing for companies, though they are slightly less likely to have to duck to avoid getting hit by a flaming truck.
Executives at middle market companies realize this; two thirds said that to grow and thrive in today’s economy, companies have to change strategic course. Meanwhile, one-third believed that in order to grow, companies will need to completely change their business model. And smaller companies recognized this need will only grow more vital in the future – 44% say that streamlining and updating their business model will be extremely important five years from now, while 42% say the same about developing new business models. This is on par with the 50% who rate launching extension products and services over the next five years as extremely important, and the 48% who say the same about launching entirely new products or services.
Yeah, yeah, I know: this isn’t news. Every company knows they need to change to grow. Everyone pays lip service to this. But not everyone is actually doing it. However, in the middle market, a healthy chunk of companies are putting this into action – 35% said they were focusing their resources on changing or evolving their business model; 35% also said they were focusing on developing entirely new products and services.
Smaller companies are perhaps best equipped to change course when necessary. Think about how much longer it takes to power on the giant printer/copier at your office than to flip the switch on your inkjet at home. How many times have you been the first person in the office to print a document in the morning, and found yourself standing in front of the printer for what feels like 45 minutes while it whirred and beeped and flashed “recalibrating” and “warming up”? During all this time, your tiny little printer at home could have been merrily chirping away 15 times over. Fewer people and fewer assets mean less baggage to consider when switching directions – fewer approvals, fewer layers of bureaucracy, fewer redundancies.
Not only that, but fewer layers can also save that most crucial asset: time. Sometimes it’s simply best to go to market with what you have and refine as you go, rather than workshopping and focus grouping and refining a million ways till Sunday – all before launching the product. The real world may be the best focus group, and the best way to see how a product fares in the face of actual challenges, demands and needs.
Likewise, there’s more to reinvention than just conceiving of and rolling out a new product or service, though heaven knows that’s hard enough. More and more, organizations are finding that in order to stay relevant and continue to grow, they need to change their strategy – or even their entire business model. Things just change too quickly to risk being left behind.
2. Give the Customer the Right Experience – Rather Than the Gloss of One
There’s a big difference between telling a customer they’re getting a great value and that they’re important to your company, and actually demonstrating it. Anyone can put together a sleek advertising campaign or a series of Flash videos extolling the virtues of How Much the Customer Matters, but that only goes so far. At a certain point, there has to be actual action. It’s the substance – the quality of the service, the quality of the product, etc. – that ultimately makes the customer experience a good one and builds trust and loyalty.
Sixty percent of executives at mid-size companies see improving the customer experience as the most important priority, one that’s not changing anytime soon. It’s still expected to top the list five years from now, at 57%.
Executives at smaller companies seem to be more keenly aware of the importance of focusing on customers; 43% are focusing their resources on customer service. They’re often separated from this lifeblood by fewer layers. This provides an added bonus to customers because they are directly in contact with people who can actually get things done for them and have a direct stake in the outcome of the relationship. But it also enables those who at a larger company would be completely removed from the customer experience to better understand how their products and services affect clients.
At the same time, executives at mid-size companies depend on customers far more than do the larger corporate monoliths, which may have huge reserves of cash to fall back on when times get tough or retooling becomes necessary. Not only that, but they often have fewer customers in their roster, providing them with a better opportunity to get to know each client on a deeper level – but making them more vulnerable if a customer chooses to leave.
One might even say mid-market executives are customer obsessed: half said the most critical factor contributing to success was their focus on the customer experience. And when it came to the biggest external factors that could impact their corporate health, three of the top four factors they listed were customer related: pricing pressures, decreased spending and falling demand. Only one other – regulatory issues – cracked the top four. Customer service also remains the top area on which companies are focusing their resources.
3. Focus on the Right People, Not Their Expertise
Middle market executives recognize that even the best-laid strategic plans can fall short without the right people in the right roles. As a company grows, it runs the risk of losing its entrepreneurial character. This is a huge risk, as the workplace environment is a big draw for current and prospective employees. Losing that spirit can deaden innovation, and thus make a company less able to evolve and remain agile.
Retaining a qualified workforce was rated as an extremely important initiative by 46% of executives; it jumps to 54% by 2017. And executives noted that the top six key risks to their growth plans all relate to their workforce. They’re recognizing the acute need to develop a more effective process for recruiting, developing and retaining essential skills. “Develop” being an important point: some executives in the study held the view that it wasn’t about finding the right expertise, but finding the right people and personalities that would contribute toward success.
“You can teach certain job skills,” said Herington in the report. “But you can’t train someone to have passion and be energetic.”
And it’s not just a question of keeping people - it’s making sure the ones who stay are the right ones, and then ensuring their skills and responsibilities stay fresh. Smaller companies are often missing all the layers of bureaucracy that can smother enthusiasm and the feeling that contributions are recognized and make an impact.
By their own admission, middle market companies are doing relatively well today. But it’s how they anticipate future needs – assessing the landscape and moving quickly, training and developing employees, maintaining their entrepreneurial culture and avoiding bureaucracy, ensuring their relationship with customers remains focused and individualized -- that will determine the future. Continued success depends on how clearly they identify challenges ahead, and how well they prioritize their responses. And we call can take a lesson from that.
