The Other One Percent: Middle Market Firms Fueling the Economy

Zach Brooke
Marketing News
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Key Takeaways

​​​What? A recent edition of the Middle Market Power Index found that middle market firms are responsible for one-quarter of all private sector revenues and employ 25% of all private sector workers.

So what? The economic output of the middle market far outsizes its size relative to overall commercially active organizations. 

Now what? American Express research advisor Julie Weeks says investors and marketers need to, "pay attention to this small-but-mighty sector of the economy."

September 1, 2016

The Middle Market Power Index outlines the outsized economic footprint of middle market firms

Middle market firms may be small in number, but they pack a big wallop when it comes to their economic impact. That’s the takeaway from the June 2016 edition of the Middle Market Power Index, a collaborative report by American Express and B-to-B data and services firm Dun & Bradstreet that details the makeup and output of the sandwiched sector of U.S. companies.

Now in its fifth edition, the most recent report was released in June. It looks at what middle market businesses—those with annual revenues between $10 million and $1 billion—contributed to the U.S. economy as a whole between 2011 and 2016 and how they measured up against larger and smaller rivals.

The report found that middle market firms, despite only accounting for 1% of all commercially active organizations in the country, are responsible for one-quarter of all private sector revenues and employ 25% of all private sector workers.

“The state of the middle market right now is very strong,” says Julie Weeks, research advisor to American Express. “There’s been a near doubling in the number of firms in the middle market—87% growth between 2011 and 2016—and there has been a doubling in their revenue and collective employment.” 

“And,” she says, “they’re growing way faster than anybody else in the economy.”


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According to the index, the number of U.S. middle market firms grew 36% in 15 months, from approximately 136,000 in December 2014 to more than 182,000 as of March 2016. During the same time period, the total number of commercially active firms actually declined by 17%.

“It’s probably been the case that they have outpaced average growth for years and years. It’s a trend that we’re more recently becoming aware of, but I’m not sure it’s new,” Weeks says. “This has been the sweet spot for entrepreneurial dynamism for a long time, and we’re just now realizing that this is a part of the economy that has a name and we’re starting to look at it a little more.”

While the survey does not measure the fluidity of the middle market—how many businesses have revenue changes that bring them in or out of the $1 million to $10 billion range—Weeks believes some of the growth can be attributed to previously small firms achieving middle market status. She points to longitudinal data suggesting it takes new businesses an average of a decade or more to obtain middle market status.

Interestingly, previous versions of the Power Index found that middle market firms were more adversely affected by the recession and subsequent sluggish recovery than their larger and smaller counterparts. That middle market firms are now, as a whole, doing better than other classes suggests that the middle market may be more responsive to fluctuations in the national economy than other companies. 

“I think that’s certainly the case,” Weeks says. “It looked from that first report that they weren’t bouncing back as much in terms of revenue growth, but they were making a more concerted effort to keep jobs.”

On top of evaluating the overall middle market performance, the report also examines the middle market at a more granular level in order to provide a snapshot of its components. It shows, for instance, that middle market firms are disproportionately made up of manufacturing, wholesale trade and educational services industries, compared to the overall economy. They are also concentrated largely in the Great Lakes region with Ohio, Indiana, Michigan, Wisconsin and Illinois all making the top 10 states with the greatest number of middle market firms. Those first three states, plus Texas, also report seeing their total number of middle market businesses double over the length of the survey.


READ MORE ABOUT THE MIDDLE MARKET


The survey found that middle market enterprises are more likely to be minority-owned than the general commercial landscape, but they are less likely to be owed by women. The rate at which middle market businesses are led by women, however, is roughly equivalent to commercial active firms as a whole.

“Part of that might have to do with incentives in state and federal governments with public sector procurement,” Weeks says. “There are programs in the federal government, the 8(a) Program in particular, which helps minority-owned firms open a door to government procurement, which really is a gateway to larger growth. There are more and more women and minorities who have higher levels of education and higher work experience, managerial experience, so they’re starting businesses now, compared to a generation ago.”

Unlike other surveys that report on the middle market, the Middle Market Power Index uses data culled from Dun & Bradstreet’s proprietary database, which Weeks likens to a census of all commercially active firms in the economy. Every business that receives a U.S. government grant or contract work must acquire a data-universal number system (D-U-N-S) ID from Dun & Bradstreet, and the company stores financial data for more than 250 million businesses worldwide. 

This allows the Middle Market Power Index to measure and extrapolate from statistical info reported by companies inside and out of the middle market, instead of soliciting self-reported survey responses from a random group of middle market executives.  


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“There’s a lot of value in asking people questions, which is some of the middle market executive reporting data, but that’s fairly small in number. It’s one or two thousand people [total]. You can monitor changes over time and whether there’s optimism or pessimism, so there’s a value there,” Weeks says. “What we bring to the table is a lot broader and richer. We’re able to look in a broader time scale and can bring more detailed nuances like looking at state-level information and industry-level information, as opposed to talking about the middle market period without that subgroup analysis.”

Weeks says she hopes the Middle Market Power Index catches the eye of investors and policymakers who might otherwise overlook this group of enterprises in favor of chasing after the biggest firms and the largest workforces. She suggests this survey hints at an equal, if not greater, return awaiting canny resource brokers who turn an eye toward middle market organizations. 

“One of the biggest things to take away from this is that this relatively small part of the business population is the source of a lot of what we are taking for granted: job growth and revenue growth,” Weeks says. “The big takeaway is: Pay attention to this small-but-mighty sector of the economy.”

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Author Bio:

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Zach Brooke
Zach Brooke is a staff writer for the American Marketing Association. He can be reached at zbrooke@ama.org
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