In a mixed and uncertain business environment, some companies are more aggressively seeking new pathways to growth.
These days, when it comes to growing your company, it can be both the best of times and the worst of times. A treasurer at a manufacturing company sums up the dilemma many mid-sized businesses are facing, when he says that his firm's biggest challenge now is that "[We have] more opportunities than we have capital."
The good news-they have the opportunities. The bad news-they may not have the capital.
This is one of the takeaways from a survey sponsored by the commercial financing firm CIT and conducted by CFO Research. We asked finance and other senior executives from mid-sized companies (between $25 million and $1 billion in revenues) about their companies' growth plans and the biggest challenges they were facing.
For many companies, finding the right path to growth-or rather, to profitable growth-is itself the challenge. About three-quarters of executives in the survey (77%) agreed that their companies needed to invest more for growth- but almost as many (69%) said they also needed to cut costs to improve profitability.
In fact, 45% of the survey respondents said they were only planning on "moderate" growth, and another 36% believed their companies would be even more conservative (30%), or even would shrink (6%).
These somewhat modest ambitions are reflected in the growth paths finance executives said that they expect their companies to pursue. When asked to pick their top strategies for growth, executives were primarily looking to gain share in their existing businesses (selected by 57% of the survey respondents). Considerably fewer respondents expected to rely on higher-risk strategies, such as developing new products or services (40%), moving into new or adjacent markets (26%), or expanding internationally (16%).
A subset of respondents, however, showed greater ambition. Nearly one in five (19%) characterized their companies' growth plans as "aggressive."
And in many cases, being able to put together a diversified plan to bankroll their ambitions can be what separates the go-getters from the laggards. As the CFO of a company in the wholesale/retail industry noted, "We need to obtain more financing and invest in PP&E [property, plant and equipment] and increase staffing to meet growing demand"-in other words, finding ways to put your money where your ambitions lie.
Middle market companies account for one-third of private sector GDP and employ 25% of the total labor force.
While less visible than both small and large caps and vastly undersupported, middle-market companies are a significant driver of the U.S. economy.
But what makes a company "middle market"? That depends on who you ask. Some define middle market by the number of employees or locations, others by revenue.
While there is no universally accepted definition, it is clear that these are organizations that are larger than Main Street, Mom-and-Pop shops, but smaller than your global multi-national corporations. They typically generate revenues between $5 million and $1 billion dollars annually, with 100 to 2,000 employees. If this describes your business, then you are a middle market company.
Whatever the delineation, it is clear that this broad definitional spectrum has contributed to an identity crisis of sorts for this large economic segment.
A recent study conducted by Harris Poll on behalf of CIT revealed that small business executives are highly likely to self-identify as a "small business," driven, in their own words, by the number of employees and/or how the business is owned.
However, middle market executives don't always see themselves as part of the middle market. In fact, respondents were virtually split, with 43% of middle market businesses identifying as middle market and 41% identifying as large businesses. The remaining 16% consider themselves small businesses.
However you choose to define it, the middle market's impact on economic and employment prospects cannot be discounted. This segment is an interesting class that will continue to play a pivotal role in the American economy's rapidly changing landscape.