Maintaining Momentum: Boost Your Business Growth & Success
How mature middle-market companies can restart the growth engine.
Companies of all sizes and stages of growth must navigate today’s fast-moving business environment. But the circumstances are particularly difficult for mature middle-market companies that have left behind the hyper-growth of their early years. These companies must protect their core as they look for new avenues of business growth and success.
Established middle-market businesses that are growth oriented must protect their core business as they look for new avenues of growth.
Mature mid-market “growth champions” succeeded by strengthening relationships with their customers, investing in innovation and new products, expanding geographically and having the right long-term financing strategy.
A survey of 2,028 C-suite executives found that some mature middle-market companies are actually “growth champions.” Completed by the National Center for the Middle Market (NCMM), a partnership of The Ohio State University Fisher College of Business and GE Capital, the survey included 1,447 middle-market companies (those with $10 million to $1 billion in revenue). The survey identified an elite group that achieved double-digit growth over several years. About 20% of these faster-growing companies described themselves as being beyond the start-up and growth stages.
There appear to be four major hallmarks of success:
• Focus on customer solutions;
• Invest in innovation and new product development;
• Seek new growth nationally or even internationally; and
• Have the right financing in place.
It’s no surprise that the growth champions in the survey invest heavily in their customers: 72% see themselves as successful in strengthening customer relationships.
George Day, a marketing professor at Wharton, says that customer centricity is critical for growth. “A solution is much more than bundling products and services,” Day says. “It’s about asking what elements of an integrated solution do customers need to be more successful and more profitable.” To pull this off, leaders must encourage collaboration by breaking down organizational silos and putting the right incentives in place to coordinate.
John R. Percival, an adjunct professor of finance at Wharton, says that some mature middle-market companies try too hard to recapture the hyper-growth of old. “They risk starting to do stupid things to reach for growth in sales. They overpay for acquisitions, they get into businesses they don’t know anything about, they sacrifice margins.”
More than half of growth champions invest in innovation and new product development compared with only a quarter of the rest of the segment. Further, growth champions typically invest almost 2.5 times more in research and development per sales dollar.
“They need to think in terms of the company’s ability to sustain itself over the long term,” says Oscar Villalonga, a senior managing director in GE Capital’s corporate finance group. “Are they innovative enough to stay ahead of the curve?”
Leaders of mature companies need to bring discipline to the innovation process. One way to do that is with the innovation tournaments described in a book by Christian Terwiesch and Karl Ulrich, both Wharton professors of operations and information management. Titled Innovation Tournaments: Creating and Selecting Exceptional Opportunities, the book explains how such tournaments can serve as a critical proving ground to sift through many potential opportunities and steer the company’s resources.
Many mature companies seeking new growth look to expand nationally or overseas. The NCMM survey found that globalization was a common trait of the faster-growing companies: 44% of growth champions operate globally, compared with 18% for the rest of the middle market. In the U.S., 65% of the faster-growing companies are expanding from a local/regional focus to the national market, while only 39% of other middle-market firms are doing so.
Business leaders need a long-term financial strategy that’s flexible enough to adapt to market changes. “The speed of change in terms of products and services means that mature companies need to work hard to stay ahead of the curve, and that includes having the right financing in place — as their business needs change,” says Charles Pignatelli, a managing director in GE Capital’s corporate finance group.
Lenders unfamiliar with an industry are likely to have more rigid underwriting standards. But those more familiar with a company and industry may be willing to give borrowers more freedom to operate.
Of course, flexibility requires trust. The company must articulate a growth strategy to the lender and instill confidence that the management team can carry out the strategy.