While middle market companies overall have been enjoying a period of sustained growth, there are some businesses that really stand out. What does it take to consistently outperform the competition? A new report, The DNA of Middle Market Growth released by the National Center for the Middle Market (NCMM), provides answers to that question by examining the factors that drive impressive company performance and growth.
The report reveals that there are seven key factors that, when done well, result in stellar growth: opening new markets, investing and innovating, developing a formal growth strategy, attracting and retaining talent, developing talent, managing capital and obtaining cost efficiencies. Among these growth drivers, expanding into new markets, including foreign ones, is by far the most important attribute of growth champions, accounting for more than a quarter (28 percent) of overall growth.
The research, based on an extensive analysis of five years of NCMM’s Middle Market Indicator survey data reflecting the performance of 20,000 middle market companies from 2012 through 2016, sheds light on the primary characteristics of companies that are champions at growing their business. These growth leaders drive a disproportionate share of the middle market’s performance, a sector that is the major growth engine of the U.S. economy – responsible for one-third of private sector GDP and employment, while representing only 3 percent of U.S. businesses.
“We conducted this research to understand the anatomy of top-performing companies and what differentiates them from the rest so that all businesses can benefit from these insights and more effectively channel and focus their resources and decision making,” said NCMM Executive Director Thomas A. Stewart. “By understanding the key growth factors, leaders can make smarter choices and invest their resources where it really counts. Bottomline, growth champions bring greater returns to their investors, hire more employees and reward them better, and contribute to the prosperity of their communities."
In addition to identifying the underlying growth factors, the research found that rapidly growing companies tend to fall into one of three clusters: innovators, investors and efficiency experts. Additionally, these growth champions drive an unequal share of the middle markets performance. Over the past five years, the top fifth of middle market business grew revenue an average of 24.5 percent annually, compared to 9.7 percent for the second fifth and 6.5 percent for the total middle market.
- Innovators continuously bring new or improved services and products to market and produce more than 20 percent of their revenue from these new offerings. Their collective annual revenue growth rate is 9.4 percent as compared to a 6.5 percent growth rate for middle market companies overall.
- Investors are defined by the high proportion of revenue they invest in research and development (R&D) and building scale; they have the highest year-over-year revenue growth at 11.5 percent, compared to 5.6 percent for companies who have not increased their R&D investment.
- Efficiency Experts drive efficiency from the top down through highly skilled leadership. They experience a year-over-year growth rate of 7.4 percent, the lowest among the three categories and only slightly higher than the 7.1 percent growth rate of non-top performing managed companies.
“These three pathways describe the growth style of the leading middle market companies in America. It’s important to realize that the boundaries are not always rigid and that companies often exhibit some features of each typology,” said NCMM Managing Director Doug Farren. “That said, this framework can help companies better understand the type of grower they are and utilize those strengths to achieve greater business success.”
About the National Center for the Middle Market (NCMM)
The National Center for the Middle Market is a collaboration between The Ohio State University's Fisher College of Business, SunTrust Banks, Cisco Systems, Inc., and Grant Thornton LLP. It exists for a single purpose: to ensure that the vitality and robustness of Middle Market companies are fully realized as fundamental to our nation's economic outlook and prosperity. The Center is the leading source of knowledge, leadership, and innovative research on the middle market economy, providing critical data analysis, insights, and perspectives for companies, policymakers, and other key stakeholders, to help accelerate growth, increase competitiveness and create jobs in this sector.
Housed at The Ohio State University's Fisher College of Business, the National Center for the Middle Market is the first center of its kind in the nation. The Center enthusiastically serves middle market firms, students, academic researchers, policy makers, the media and other key stakeholders with interests in the health and well-being of the middle market. The Center is fully committed to funding and distributing the most credible open-sourced research, dynamically creating new knowledge, providing programs that drive value for middle market companies, and offering a well-informed outlook on the health and future of the middle market via the Middle Market Indicator.
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