Advantages and disadvantages of middle-market firms

Firms, industry and lifecycle variations notwithstanding, middle-market firms, as a group, have both potential advantages and disadvantages. Understanding those, and how to develop/leverage or mitigate them, respectively, is essential to the performance and success of middle-market firms in today’s competitive economy.

By definition, the advantages and disadvantages of MM firms are assessed against two benchmarks or reference groups: large, typically multinational firms of $1 billion-plus in revenue (often much more), and small, micro firms, whose revenue falls below the $10 million threshold.

Disadvantages

Compared to their larger brethren, MM firms are relatively resource poor. From capital and brand recognition to a proprietary distribution network and a dedicated supply chain, the MM firm may fall short.

For example, consider attracting and developing talent — an issue that’s the No. 1 challenge for MM firms in this time of full employment. While 49 percent of middle-market executives say they don’t have enough people to fill key leadership positions, Google receives about 2 million resumes a year, according to Inc. magazine. Fewer than 25 percent of MM firms report having an employer brand that is satisfactory and works for them. Middle-market companies also lack the resources to fund robust talent-development programs.

The middle-market company is also typically behind large firms in what may be the most important asset of all: knowledge. By knowledge, I don’t mean understanding your business, product and technology. Many MM firms excel at that — top managers may have better product and operational knowledge than their counterparts at large companies. Rather, MM firms typically have limited knowledge of global markets and lack an established system for identifying and influencing key stakeholders such as different levels of government.

Compared to their smaller counterparts, especially startups, MM firms may be viewed as slower to react, somewhat cumbersome in their decision-making and actions, and are perhaps less hungry for new opportunities. Indeed, the relative stability of MM firms can be viewed as a double-edged sword.

Advantages

On the flip side, MM firms tend to be more dynamic and less bureaucratic than larger competitors, more focused (a function, among other things, of being less diversified), and with more managerial continuity. Therefore, it’s easier for clients and other stakeholders to interact with firms and obtain a rapid response.

Also, middle-market employees and managers are broadly educated about the business, have more direct access to top leadership and get greater responsibility earlier in their careers.

MM firms are often more eager to adapt and customize than large firms, where scale economies may rule, while having the resources and technological know-how to make such adaptations possible.

So, are MM firms in a sweet spot, bettering both the large and small players? Not necessarily, and not unless you make it happen. Leveraging advantages and mitigating disadvantages takes conscious, systematic and deliberate action.

Competitor analysis, a staple in large firms, is continually required, as are continuous market and technology updates. And because a MM firm is less likely to have dedicated staff for, say, knowledge management, this becomes the role of all staff, with senior managers, owners and founders leading the way.

 

Oded Shenkar is the academic director of National Center for the Middle Market, the leading source for knowledge, leadership and research on midsize companies, based at the Fisher College of Business, in collaboration with The Ohio State University. Oded is the Ford Motor Co. chair in Global Business Management and a professor of management and human resources at the Fisher College of Business.