Headlines vs. Reality: Many Lower Mid-Market US Businesses Doing Great!
I have spent most of the past 3 months on the road visiting with lower middle market ($25 million to $500 million in revenues) company owners and private equity investors. Despite the headlines we read every day warning of the impending financial disaster I have been very impressed with the 2011 results and 2012 forecasts of most companies. My firm, CHILDS Advisory Partners, a high growth services business itself is having a record year. More interestingly, the average annual revenue growth from 2010-2011 of our sell-side clients has been over 30%!
Why are we seeing such good business results while the world feels more uncertain than ever? A few possible reasons for this:
1. We are a relatively small firm that focuses exclusively on advising growth companies. Given this we are anecdotal at best and our focus will ensure that we meet with the “best of the best”. Thus, it is possible that my rosy view is due to the fact that people who I meet with are doing really well but the 99% of others I am not meeting with aren’t doing so well.
2. The law of “Small Numbers”. Perhaps it is easier for successful lower mid-market firms to grow on a percentage basis because they are small and can take share even in uneven markets.
3. Our sectors of focus (primarily pure services and tech-enabled services firms) are perhaps performing better than others? Maybe corporate buyers of services are outsourcing more and thus our sector is benefiting from this trend even while the economy overall is growing so slowly.
4. The unemployment rate of 9% is a gross simplification and generates a lot of news. When you peel back the onion of this statistic, you find that the unemployment rate of college-educated professional/knowledge workers is actually 4% or less! Therefore, our clients in professional services and staffing are seeing excellent demand for their services because corporate America can’t find the knowledge workers it needs to push ahead mission-critical IT initiatives.
The bottom line is that I think we’re seeing great results partially due to the factors above as well as several others I have not mentioned.
What does this conclusion mean to company owners as they plan for 2012 and beyond?
First, don’t overreact to macroeconomic news! For businesses under $500 million, the relevant metric is spend on your services/products by your customer base. Even if the spend is projected to be flat, it is very possible to gain market share with superior service. Therefore, I would encourage you to stretch your organization to achieve aggressive goals next year despite the bad news we read each day.
Second, not all segments are created equally. While it is important to “stick to your knitting,” it may be that the particular segment you are in is not growing while other adjacent segments are growing very quickly. For example, traditional media advertising is declining while on-line spend is increasing. For media firms, this means that a digital offering is important. This evaluation of your business is a crucial aspect of strategic planning. I recommend you periodically take a step back from the business and evaluate the next 2-5 years.
Third, to drive growth in uncertain times, I recommend disconnecting budgeting and compensation systems. If your senior management compensation plans are tied to exceeding budget, it is highly likely managers will forecast conservatively. In turn, creating an environment where lower growth is acceptable. I believe challenging managers to establish more aggressive budgets fosters a results-driven culture whereby individuals are more motivated to succeed, regardless of the outcome.
In conclusion, there are LOTS of businesses doing very very well. I hope yours is one of them!
This entry was posted on Friday, December 9th, 2011 at 5:13 pm and is filed under High Growth Business & Technology Services, Human Capital Management, IT/Professional Services, Misc. . You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
