Middle Market Firms: Business Leaders Weigh In on Economic Impact
When it comes to making an impact, middle market companies are the workhorses of the economy. That's the conclusion of the most recent Middle Market Power Index: Economic Might of Middle Market Firms from American Express and Dun & Bradstreet. While middle market companies—defined as businesses generating between $10 million and $1 billion in revenues—make up less than 1 percent of all commercially-active firms, they are responsible for more than half (51.7 percent) of total U.S. job growth since 2011, employing more than one in four U.S. workers and generating more than 25 percent of all U.S. revenue—according to the report. Across the country, middle market firms are outpacing companies small and large when it comes to growth in number of firms, revenue and employment, and they're making strides in women and minority company ownership.
Manufacturing is leading the way.
Middle market firms in manufacturing grew 120 percent in the last six years, according to the Middle Market Power Index. An example of one of these firms is Proterra, which designs and manufactures zero-emission electric buses, and has grown rapidly since it was founded in 2004. Today, its USA-designed-and-built buses are in more than 15 American cities and the company is working on filling orders for more than 40 different fleets in 20 states. According to president and CEO Ryan Popple, the business recently built its second factory (locations are in Greenville, South Carolina and Los Angeles, California) and is sold out in terms of capacity for the next year. “We're trying to triple revenue this year and we'll have to at least double revenue going into 2018 to make sure that the backlog does not grow longer than one year," he says. “Past one year is not really an acceptable wait time."
Popple says the growth is due, in part, to the fact that Proterra creates a new product for which there is an unmet demand. He estimates that there are more than 70,000 municipal buses in the country and nearly 10 percent need to be replaced each year. Proterra's zero-emission bus eliminates the need for fossil fuels and, at the same time, decreases the operating cost. “If you're going to introduce an innovation, the larger the addressable market for that innovation, the more water there is behind the dam when you finally chip through and break a hole in the barrier," he says.
Middle market companies are driving employment.
Since 2011, more than half of the net new jobs in the United States have come from middle market enterprises, and employment in middle market firms (up 103.3 percent) has fueled the economy, growing more rapidly than in small (up 7.4 percent) and large (up 52.3 percent) businesses, according to the report. Marc Schulman, president of Eli's Cheesecake Company, a retail and wholesale dessert bakery in Chicago, Illinois, says hiring has increased about 10 percent this year over last year at the specialty bakery. He says that domestic demand has risen from restaurant chain customers, airlines and supermarkets. In addition, the business has started offering vegan, gluten-free and single serving items, and hired additional bakery associates to help make more than 20,000 cheesecakes and other desserts every day. Schulman says he plans to continue hiring associates in the bakery as well as technical staff in areas such as food safety, quality and sanitation. “We work with educational institutions including Wilbur Wright College and the Chicago High School for Agricultural Sciences to have a pipeline of future talent," he says. He adds that the business also partners with RefugeeOne, a resettlement agency in Illinois, to hire refugees and immigrants, and with Anixter Center, a nonprofit in Chicago, to provide jobs to people with disabilities.
—Beatriz Acevedo, founding partner and president, mitú
Revenue is on the rise.
Middle market firms account for 26.8 percent of all revenue produced by U.S. businesses, according to the Middle Market Power Index, and they're finding innovative ways to increase their numbers even more. At ICRAVE, a design and development firm based in Manhattan that works in physical as well as digital spaces in hotels, nightclubs, hospitals, airports and other areas, founder and CEO Lionel Ohayon is focusing on new ways of growing the business while keeping a relatively small staff. Since 2011, ICRAVE has grown from 24 to 34 employees, and revenue has grown 41 percent. “One of the most significant changes we've made is calibrating how we engage with clients to set the stage for a healthier business for ourselves in the future. We have broken from the traditional mold of engaging in only fee-for-service work with our clients and have started taking significant equity stakes in companies in return for our work," he says.
Women-owned and minority-owned businesses are on the rise in the middle market.
Between 2011 and 2017, women-owned middle market firms increased by 119.6 percent and minority-owned firms rose by 85.8 percent, according to the report. In 2009, Cat Lincoln, Stefania Pomponi and Kristy Sammis co-founded the bootstrapped start-up agency, CLEVER. Today, the influencer marketing agency has been named as one of Inc. 5000's fastest growing private companies for two consecutive years (2016 and 2017), is certified as a Great Place to Work by the organization Great Place to Work®, and has grown to 43 employees. Lincoln, who is CEO, attributes the growth in women-owned businesses, in part, to women supporting other women. “It's not as if women never thought they were capable of succeeding on their own terms, it's just that now, more women are making it happen and supporting other women in their own growth," she says. “We often talk about women building their own table—if there is no room for you at the men's table, build your own table. And that's what we see more women doing now. The more women who do this, the more confidence it instills in all generations, and the more women-owned business will thrive."
According to the Middle Market Power Index, middle market firms are 2.5 times more likely to be minority-owned as compared to all commercially active companies. mitú, a digital media brand aimed at Latino audiences, launched five years ago in Los Angeles with three founders. Today, the company has 135 employees at five offices in the U.S. and abroad. “Our growth is a reflection of our content connecting with young, multicultural audiences in the U.S. that have been underserved for a long time," says Beatriz Acevedo, founding partner and president. “Our country has never been more multicultural. Our growth is fueled by our ability to create culture-first content with a Latino POV that creates a deep connection to our audience. Latinos are [among] the fastest growing demographics in this country and we are not only represented in numbers, but in influence, so we're riding that wave. Hispanic buying power is projected at $1.6 trillion by 2018." Acevedo says that mitú's audience is made up of nearly 100 million people in the U.S. each month. Globally, the company drives more than 600 million content views and more than 100 million video views monthly.
Acevedo adds that more businesses should consider the diversity of their audience. “Diversity is critically important, but not just because it's the right thing to do—it is now a business imperative. It's about cultivating a team that reflects what America looks like in order to accurately reflect and appreciate their wants, needs and pain points," she says. "Businesses that understand the new, diverse America will have huge competitive advantages over those that don't."