Middle Market Opportunity - with Thomas Stewart - National Center for the Middle Market

**Ray Wright** (0:00)
Hello, I'm Ray Wright, founder and CEO of RevOp Squared, and host of the Metrics that Measure Up podcast. We talked to a wide variety of B2B SaaS industry thought leaders, executives, and people just like you to discuss what metrics, KPIs, and benchmarks they use to enable better data-driven metrics-informed decisions that accelerate revenue performance and increase enterprise value. Now, on to today's show. Welcome to today's episode of the Metrics It Measure Up podcast. Today, we are joined by Tom Stewart, Executive Director of the National Center for the Middle Market. Thomas is also the former Editor and Managing Director of the Harvard Business Review, and was on the editorial board of Fortune Magazine for 14 years. We feel privileged to have Thomas as our guest today, and to gain his unique insights into this segment of corporate America, the middle market, and one that almost every SaaS company I work with is interested in better understanding and how to penetrate and serve this critical marketplace. Today, we will be covering three main areas. How do we define the middle market and why is it important? Is digital transformation or even automation a top priority for the middle market? In what other process areas is the middle market prioritizing to increase efficiency and has COVID-19 impacted the priorities? Thomas, welcome to today's podcast, and please take a minute to introduce yourself to our listeners.

**Thomas Stewart** (1:38)
Well, Ray, thank you so much. It's a privilege for me to be on your podcast as well and to have this chance to talk to you and to the folks you work with. As you said, I'm the Executive Director of the National Center for the Middle Market. We're a research group at the Fisher College of Business at The Ohio State University, a place you know and love as much as I do. The NCMM has been around for just about 10 years, and we focus on studying mid-sized companies. We can talk a little bit about what they are and their impact in a minute. I've been at the Center for about six years. As you said before that, I was at Boozen Company before that, Harvard Business Review and Fortune. I've been hanging around business for a whole long period of time, but this is the first time I've really had this opportunity to focus on what we call the market that moves America, the extraordinary mid-sized segment of companies.

**Ray Wright** (2:26)
Well, you just made a comment, the market that moves America, and I know every software as a service and cloud company I work with, they talk about the SMB, the small and medium-sized business, and either they will focus there or they want to go all the way to the high-end, the enterprise market. But then they realize there's this middle market that could be a huge target addressable market, but they really don't understand that well. Tom, how do you define the middle market, and why is it so important?

**Thomas Stewart** (2:55)
Well, the two questions are sort of related, and they are the $64,000 question. There are a lot of companies with different definitions of the middle market. Government tends to define companies in terms of payroll, aka voters. Banks and others, companies tend to sort of say that the middle market is sort of defined by what's their economics of serving small companies, mid-sized companies, and big companies, whether it's a platform officer and a bank or commercial officer, or somebody with a senior vice president in front of his name. When we started out to figure this out 10 years ago, we went to census data and said, let's find the middle third of the private sector. Let's cut the Gordian knot and say, what's the middle third of the private sector? Where do you set those sliders? That gives you a census of about 200,000 companies with revenues, annual revenues between 10 million and a billion dollars a year. Now, that's a big spread. It's two orders of magnitude, but it's the middle third. They're bigger than small, they're smaller than big. They're usually not startups. The median age of these companies is 31 Obviously, there are a lot of young companies rapidly growing through the middle market. But there they are, and they are the forgotten middle child of American business. The small business, the entrepreneur, the guy in the garage gets a ton of attention. Big business gets covered with Wall Street Journal stories and stock market stories, and they got lobbyists on K Street to make sure their interests are well represented or represented well or not, depending on the point of view, in policymaker areas. But in the middle, you get this group of companies, mostly private, 85 percent of them are private, about a third, a little less than a third of family owned, another bunch have private equity investment. But they're quiet and in the middle. Because they're not public, there's no stock market stories, because they don't have lobbies or a small business administration, they are underrepresented at the table where policy is made. And yet, if you look at their performance, and we've been looking at it, as I said, for a decade, these guys account for about 60 percent of all net job growth, the third of the economy. Generally, their top line growth is two or three percentage points higher than that of the S&P 500 So if you get S&P 500 revenue growth of four percent in the middle market, you'll get six, six and a half percent on an annualized basis. This is where the dynamism is. It's an extraordinary group of sort of unknown companies, and it's exactly why your SaaS companies and others say, oh, wait a minute, these guys, there's a lot of them. You know, there are only 500 customers in the Fortune 500, but there are a couple of hundred thousand of them. They're growing fast, they're hard to reach, and there's an extraordinary opportunity in figuring out how to serve them.