Tuesday, April 9, 2013

Small Businesses Are No Longer the Super Heroes of the US Economy

From Presidents of the US to guru consultants, we hear the chants. It has been repeated ad nauseam that small businesses are the most important enterprises for the US economy. However, when you look at research from the National Centre for the Middle Market at Ohio State University, you see a very different picture of reality.

Ohio State University did an analysis of mid sized companies in the US. They measured them by gross annual revenue between $10 million-$1 billion. They estimate there are 197,000 enterprises that meet this criterion. You may say so what.

Of those 197,000 businesses, they make up
$9 trillion in revenue of the $14 trillion that is generated by US enterprises. They comprise 31% of GDP and employ 40 million people – US payroll is approximately 100 million.

While that is impressive, the staying power of these mid tier companies is amazing. From the following statistics, they earn super hero status. From 2007-2010, 43% of small businesses disappeared. Of the large corporations, 97% survived while 82% of mid sized organizations survived. During the same time period, large enterprises laid off 3.3 million people. Middle market companies created 2.2 million jobs. This is staggering.

When you look closer at the mid cap companies, you find that of the 40 million they employ nearly 50% work for companies with revenues between $100 million-$1 billion in revenues. These companies have very savvy leadership, engage in global commerce, have systems and processes that look similar to large corporations and encounter many of the same challenges faced by Fortune 500s, except they are mostly privately held.  Therefore, they do not have the pressure of quarterly earnings. They can execute long-term strategies and not be deterred by Wall Street analyst. In fact, as they hired more employees, they continued to invest in R&D, even though we were in a recession. 

While I have nothing pejorative to say about small businesses, there is an important message in these statistics. It is analogous to what happens in companies. Too often, management becomes preoccupied with under performing employees. Managers want to turnaround apathetic staff and make them stars. They spend so much time with these under performers that they neglect the stars. The attitude of management is the superstars don’t need attention. They are independent and perform well. At the same time, it is easy to lose the momentum created by stars when you neglect them. 

With so many small business failing and large corporations struggling to achieve great quarterly profits by laying off people, mid tiers are working harder than everyone else. They are getting things done. If you stop and think, it becomes apparent that the US economy would have never survived the recent financial crisis without the mid caps. They absorbed millions of jobs and continue to drive new innovative products and services. Yet, the news continues to pontificate about the importance of allocating more and more resources to small and large companies.

The superstars of the US economy are medium sized companies. It is time they are recognized for a job well done in the face of extremely difficult conditions. Now that times are getting better I can only imagine how society will benefit from them.

If you work for or run a mid sized organization, I would love to hear a story of triumph from you.

What do you think? I’m open to ideas. Or if you want to write me about a specific topic, let me know.

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