The Future of Midsize Companies

Have you ever heard of middle-child syndrome? It’s the idea that kids who are neither the first-born nor the baby of the family can feel overlooked or caught in the middle. Midsize companies could be viewed as the middle child in the business world—too large to be seen as a local mom-and-pop store but too small to be part of the “too big to fail” category.

Often glossed over in mainstream media reports, these businesses‘ success (or failure) impacts the economy, supply chains, and unemployment rates, just like other-sized businesses. Thus, it’s essential to take a look at how they are faring.

What Are Midsize Companies?

Midsize companies fit the Goldilocks folktale answer of both “not too big” and “not too small.” Realistically, the definition of midsize changes based on who’s using the term.

Gartner defines midsize as an organization that either:

• has an annual revenue of “more than $50 million, but less than $1 billion,” or
• employs “100 to 999 employees.”

The SBA defines business size based on widely varying North American Industry Classification System (NAICS)-specific criteria. For example, the SBA’s definition of “small” for a window treatment store (NAICS=442291) means annual receipts under $8 million, while “small” for a family clothing store (NAICS=448140) includes annual receipts up to $41.4 million. Big difference, isn’t it?

The CARES Act’s definition of midsize included the criteria of “between 500 and 10,000 employees.”

Inconsistent definitions can be challenging since being defined as “midsize” can influence everything from a business’s ability to bid on government contracts to the type of lending available.

The Challenges of Midsize Companies

The Harvard Business Review (HBR) examined midsize companies’ performance from 2000 to 2019 and found that many experienced a loss of profits, sales, and asset growth for the past 50 years. They also showed that as of November 2020, 43 midsize companies (e.g., JCP and Hertz) had filed for bankruptcy.

The authors of HBR’s analysis defined midsize as “…those in the middle 40% of all companies listed on the US stock exchanges by market value, and [we] identified them on an annual basis based on their market value at the end of previous fiscal year.”

Source: “The US Economy Is Leaving Midsize Companies Behind,” HBR.

HBR hypothesizes that midsize companies haven’t done well even during the economic boom phase because “midsize companies, particularly those like hotel chains and retail stores that operate with physical assets and infrastructure, lacked not only the dynamism of small companies but also the R&D investment and scaling capabilities of large companies.”

In layman’s terms, midsize companies aren’t as nimble with change as small businesses are. Nor do they achieve big enterprises’ massive economies of scale when implementing new processes.

Salesforce’s “Small & Medium Business Trends” report, which defined medium business as having between 21 and 200 employees, offers additional insight into midsized companies’ concerns. Respondents indicated that their 4 top operational constraints include money, customer expectations, hiring, and technology.

Source: “Small & Medium Business Trends,” Salesforce.

Steps to Help Midsize Businesses Succeed

All hope isn’t lost. While it can be challenging to be the middle child, midsize companies can take steps to pave their pathway to success.

Plan and Reboot

First, turn off your auto-pilot and take a look at what your customers really want.

Ron Carucci, cofounder and managing partner at Navalent, told HBR that midsize businesses should re-evaluate their business strategy post-pandemic and ensure that their work efforts support it. He suggests categorizing work into 3 types:

• Competitive: anything that makes a customer buy from you rather than from a competitor
• Enabling: tasks that support your competitive work
• Necessary: work that “keeps the lights on” 

By focusing on competitive and enabling work and reducing costs for necessary work, midsize companies can better utilize their limited resources.

Rethink Supply Chains and Collaboration

Second, midsize companies need to rethink their supply chains and other collaborations.

The idea that “no man is an island” became evident during recent supply chain disruptions (e.g., pandemic-related shutdowns and the Suez Canal blockage). Using redundant or local suppliers can improve a midsize company’s resiliency.

Collaborative partnerships could reduce the cost of “doing it all.” Paul Durkin, managing director of digital and e-fulfilment at Wincanton, told RetailWeek that collaborations could include “…shared access to space, technology and essential logistics services—such as automated picking, returns, and carrier management.”

In other words, a business doesn’t have to handle everything by itself. If a supplier can dropship products to your customers, use their expertise rather than replicating the process in-house. Similarly, partnering with other businesses could increase revenue for everyone involved. For example, doesn’t it make sense that a customer renting a car might also benefit from lodging recommendations? 

Utilize Technology

Third, technology still reigns. Over half of Salesforce survey respondents indicated that technology “drives their customer interactions (55%) or the growth of their customer base (51%).”

The challenge is finding the right technologies. Software designed for big businesses can be overkill, but overlooking cutting-edge technology like AI can put midsize companies at a disadvantage.

If you own a midsize business, be proactive to ensure that you don’t fall into the “middle” trap. Remember, Lendio is here to help fuel even your midsize American business dreams.