The National Center for the Middle Market recently released its latest Middle Market Indicator, summing up the performance of midsize companies in 2016.
The MMI has been in existence for five years, collecting a full 20 quarters of data about companies with annual sales between $10 million and $1 billion. Their performance in the fourth quarter of 2016 is among the highest it’s ever been:
- Only 6 times has annualized revenue growth topped this quarter’s 6.9%. The average is 6.5%.
- The increase in employment, 5.4%, is the highest by far. The average is 3.4%.
- The average middle-market company expects its profit margins to increase 3.4% in 2017 — the most in the three years the MMI has tracked that stat.
There are, of course, clouds, but let’s reflect on things the NCMM has observed and learned over the last half decade:
Strongest engine of the American economy
In every quarter except one, middle-market revenue growth has outpaced that of the Standard & Poor’s 500 Index, often by huge margins. Revenue increased nearly twice as fast as the gross domestic product.
Middle-market revenue growth (6.9 percent) outpaced S&P 500 (4.4 percent) in Q4 2016.
As for employment: the NCMM estimates the middle market produces more than three out of five net new private-sector jobs.
The cliché “small business is the driver of job creation in America” ignores the fact that the high failure rates of startups and mom-and-pops destroy many jobs as well.
Five years of MMI data consistently show the middle market hitting job creation numbers one and a half or two times larger than either big or small business.
Revenue growth is mostly organic
Geographic expansion is the largest source of top-line growth in the middle market.
Forty-eight percent of companies said they entered new markets in 2016; 63 percent expect to in 2017.
Of course, midsize companies have more room to grow than gigantic companies, which have few frontiers left, and smaller companies with plenty of running room have fewer resources.
The No. 2 source of growth is innovation. In fact, four out of 10 middle-market companies introduced a new product or service in 2016; executives say that will tick up to 42 percent in 2017.