What does it take to be one of the fastest growing middle market companies in America? To answer that question, we analyzed five years of data from surveys of middle market companies conducted by the National Center for the Middle Market (NCMM). We now know, empirically, what it takes to outperform the competition.
Based on this research, which covered 20,000 companies in all, we have identified seven key factors that are critical to growth. The companies with year-over-year revenue growth reaching a remarkable 30 percent or more, are masters of virtually every one of them and, in a number of areas, outshine their peers to a significant degree.
Here’s what we learned differentiates the highest performing companies from the rest of the pack.
1. They know how to open new markets. You can’t grow fast if you don’t find new customers. That seems obvious, but growth champions are much more adept at entering new markets than their peers. For example, 65% say they are skilled at entering foreign markets, a claim made by just 40% of slower-growing businesses. While most middle-market companies pay a lot of attention to sales force effectiveness, fast-growers have stronger marketing capabilities, which are essential when you are trying to find leads in new territories.
2. They have a formal growth strategy and execution plan. Top growers are much more likely to have a formalized three- to five-year growth strategy than slower growers. They also act on it. They set annual and multiyear growth targets, communicate those targets to all levels of the business and track their progress. When it comes to strategy, those with the biggest revenue gains are not just better organized; they are better informed. By a substantial margin, fast growers keep up to date with new management ideas and adopt the latest management techniques.
3. They invest and innovate. In addition to expanding their businesses with new markets, fast growing companies also increase demand by developing and introducing new products and services. They are forward thinking—not just dwelling on how to meet current demand but actively investing for the future. Indeed, the best growers have triple-threat capabilities: They open new markets, devise new products, and put together a strategic plan that keeps their activities in sync.
4. They go the extra mile to hire the best people. Top performing companies give themselves very high marks for their ability to recruit and retain employees. They are especially adept at attracting top managerial talent; seven out of 10 fast-growing companies boast of this strength, compared to only half of other less rapidly growing businesses. Recruiting and retaining workers at all levels of the company is particularly important for middle market firms given the stiff competition they face from larger corporations, as well as a tightening labor market that is making employees difficult to come by.
5. They develop their staff. In addition to getting and keeping good people, top-performing companies also create an environment in which those workers can flourish. In the middle market as a whole, training and development is something of a weak spot—but not among rapidly growing businesses. They are miles ahead of their peers in helping their employees advance their careers. Even more important than training is offering employees opportunities to grow through career paths, mentoring, and a culture that encourages and rewards ambition. More than two-thirds of powerhouse businesses believe they’re doing a good job at creating the right environment for employee advancement, while fewer than half of other middle market companies think they do those things well.
6. They are fit and lean. Efficient companies outrun their competitors. To grow rapidly, companies need to identify and capitalize on operating efficiencies, making their chief operating officer almost as important to their success as their chief financial officer. When a company runs lean (but not mean) it generates more cash that it can deploy into building new facilities, developing new products, or hiring more people. More than two-thirds of top growers are experts in maintaining efficient and effective internal controls, compared to less than half of other middle market companies.
7. They manage their money well. Making money is one thing. But companies must be able to manage their capital well in order to achieve sustainable growth. There is a strong connection between financial management and a company’s ability to expand. Fast growers tend to have a strong finance team, led by a CFO who implements solid working capital management practices and can get access to affordable funding when necessary; the fastest growers also report having very strong relationships with their principal banker. These practices enable flexibility that can help the company take advantage of growth opportunities when they arise.
Growth champions bring greater returns on investment, hire more employees, and reward them better. Beyond their own business success, they contribute to the prosperity of their communities. To achieve greater growth, businesses need to focus their attention on the strategies and activities that work best. By offering insights on these key factors of growth, NCMM hopes to assist business leaders in that effort.
You can find more information on these critical growth factors in our "The DNA of Middle Market Growth" report.
Thomas Stewart is the executive director of the National Center for the Middle Market, a research center that is a collaboration between Ohio State University’s Fisher College of Business, SunTrust Banks, Grant Thornton and Cisco Systems.