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Mid-Market Growth Champions

The U.S. middle market would be, by itself, the fourth-largest economy in the world, just behind Japan.

The middle market is the great unheralded driver of the U.S. economy. These businesses, with anywhere from $10 million to $1 billion in revenue, employ 34 percent of the U.S. private sector and, in 2010, contributed $3.8 trillion to the nation’s gross domestic product. To better understand the middle market, GE Capital and Ohio State University surveyed more than 2,000 chief executive officers and chief financial officers in private and public businesses. 

Key Takeaways
  • When choosing a lender, the interest rate obviously matters, but it’s also important that a lender understands the industry and can be a long-term source of assistance when it comes to building the business.

 The results were eye-opening. Even in the face of past and present challenges, the survey uncovered a group of mid-market companies that have done exceptionally well. These “growth champions” of the middle market — the top 9 percent — are growing at a rate of 10 percent or more per year. There are commonalities among these companies that are instructive. Leaders share five key strategic priorities:

1. Focus on innovation: 

The strongest common theme is innovation. Continuous innovation is seen as their most important asset in competing with larger businesses. According to the survey, 54 percent of growth champions invest in innovation and new product development compared with 29 percent of the rest of the middle market. They also typically invest almost 2.5 times more in research and development per sales dollars than do lower growth middle market firms.

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2. Strong management culture:

A key focus for small companies transitioning to the middle market is developing management capabilities. This includes articulating a corporate vision, developing aligned business strategies and managing performance. Growth champions say—at twice the rate of other firms—that they have a diversified funding strategy in place, and 71 percent also believe they have a high- performing management team.

3. Sharp customer focus:

Growth champions invest heavily in customer relationships to attract new customers and enter new markets. In fact, 62 percent consider themselves adept at attracting new customers compared to only 40 percent of other companies in the segment.

4. Exceptional talent management:

Innovative career development and attractive compensation structures are hallmarks of successful middle market companies. About half of growth champions reported that they have access to a skilled workforce and the recruiting power to attract that talent; that compares to just 36 percent of the rest of the segment.

“Growth champions say — at twice the rate of other firms — that they have a diversified funding strategy in place.”
5. Broad geographic vision:

Successful organizations clearly articulate the advantages of a broad geographic vision. In the U.S., 65 percent of growth champions are expanding from a local/ regional focus to the larger national market while only 39 percent of other middle market firms are doing so.

Access to Capital and Expertise

Maintaining this level of commitment to growth requires continuous access to capital throughout the business cycle. But capital alone is not enough for success. Strategic insight is necessary and middle market companies should be seeking these insights at every turn. One potential source of such expertise is a company’s lender. When choosing a lender, the interest rate obviously matters, but it’s also important that a lender understands the industry and can be a long-term source of assistance when it comes to building the business. Lenders with genuine expertise in the field can quickly understand the collateral that clients use to secure loans — which can lead to greater liquidity and flexibility.

Certain lenders can also draw on their wealth of experience to help companies craft and execute strategies. For example, GE Capital recently worked with a commercial truck dealership to apply GE’s Lean process and practices for eliminating waste. As a result, repair times dropped by more than 60 percent, thus helping the dealership more efficiently utilize its assets, maximize profits and raise customer loyalty.

As the survey makes abundantly clear, the health of the middle market is vital to overall U.S. prosperity. For this segment to remain dynamic and growing, it needs access to capital and access to expertise.

Tom Quindlen is the president and CEO of GE Capital, Corporate Finance. Corporate Finance provides asset-based, cash flow and structured loans and leases to mid-size and large U.S. businesses.