The first post in a series based on the National Center for the Middle Market's in-depth research report The DNA of Middle Market Growth: The Three Types of Growth Champions and the Factors that Drive Their Success, this article introduces the three types of growers that help fuel the middle market’s impressive results.

Since its inception, the Center has been tracking and measuring the strong growth experienced by middle market companies. While these organizations—with annual revenues between $10 million and $1 billion—represent just 3% of all U.S. companies, they generate a third of U.S. private-sector GDP and jobs.

As the fastest growth sector of the economy, the middle market is where companies scale up, adding bone and muscle and consistently exceeding the year-over-year annual growth rates of both smaller and larger organizations. Indeed, between 2012 and 2016, middle market companies grew at a rate of 6.5% annually, compared to 3.6% for the S&P 500.

To understand what, exactly, drives the middle market’s success, the Center and its partners completed a full Bayesian network analysis of data collected from 20,000 middle market companies over the five-year period. In addition to identifying a series of leadership and managerial practices that companies must master in order to grow, the research revealed three distinct growth typologies among the fastest-growing middle market businesses. The typologies differ in the emphasis they place on the various drivers of growth and the key ways in which they derive their revenues.

Middle Market Growth Typology 1: Innovators

Innovators emphasize being first to market with exciting new offerings, and they use these innovations to expand their market share, driving increased sales to both new and existing customers. They receive more than 20% of their revenue from their newly introduced or improved products or services. As a result, they experience year-over-year revenue growth of 9.4% compared to 6.5% for less innovative organizations. While innovators are younger and smaller on average than their peers (a third have a workforces of less than 100 people) they choose their teams wisely. They invest heavily in human capital and technology—the sources of innovation—and they pursue mostly organic growth using retained earnings as much as possible.

Middle Market Growth Typology 2: Investors

Investors report the strongest year-over-year revenue growth of all the typologies: 11.5% compared to 5.6% for companies that invest only nominally. They dedicate their efforts to building the capacity to scale, putting capital to work across the entire spectrum of growth-producing activities. Investors aggressively pursue new domestic and foreign markets, and they are most likely to make an acquisition. More than four out of 10 (42%) of these businesses have some private equity ownership. And they are, not surprisingly, the most willing to invest an extra dollar as opposed to save it. They invest primarily in capital expenditures, such as plants and equipment

Middle Market Growth Typology 3: Efficiency Experts

Efficiency Experts differ from the other two groups in that their primary pathway to growth is a formal growth strategy, which is strongly correlated to cost efficiencies. Market expansion matters less in these business’ growth models. Instead, they achieve a year-over-year revenue growth rate of 7.4% by outperforming others on the blocking and tackling of business. Their managers are top notch, their workforces are highly productive, and they invest in developing the people they have and producing the most output from each individual. Efficiency Experts are somewhat older than the other two types of growers, and only a quarter have been in business for less than 20 years.

Explore your growth DNA in our full report.

Recognizing your growth typology can help your executive team make decisions that are in line with your strategic goals. To learn more about the three types of Growth Champions and the behaviors that are critical to their success, download our latest research report, The DNA of Middle Market Growth: The Three Types of Growth Champions and the Factors that Drive Their Success

Next in this series
Post 2: Investor Growth Champions: How to Achieve Rapid Growth By Being First to Market
Post 3: A Model for Middle Market Growth: 7 Managerial Factors that Drive Performance