The Leading Indicator That Few Talk About
(This post originally appeared on Inc.)
Yesterday The Hartford’s 2014 Midsize Business Monitor was released. And it’s important.
Midsize? What’s that, you ask. These are not small businesses, like mine. These are not Fortune 500 companies. These are companies with revenues that range between $10 million and $1 billion per year. In other words, these are the companies that, in my opinion, are the true drivers of the American economy. Why?
My business, which sells sales and marketing technologies and services, has about 600 active clients (including the Hartford, who has not compensated me to write this article). Many of those are small companies–service firms, job shops, retail stores. And they are valuable to me, of course. These companies help to pay my bills and cover my overhead. But about 20% of my business comes from larger companies. Not the giants of the world. But companies that fall into the midsize category. And these are the companies that generate my profits. My midsize clients engage me for larger projects. They allow me to charge higher fees because we’re providing a more complicated and involved level of service. I am able to dedicate more of my people to those jobs without having to be wary of every hour spent. Because of their size, these clients assign work to internal project managers who help me ensure that my projects succeed, and succeed profitably. Thank God for my midsize clients.
And I’m not alone. Sure, small businesses represent 50% of the jobs in this country and generate 75% of the new jobs created. But if you ask most small business owners where their profits come from you’ll ge a similar reaction. They’ll point to a larger customer or two. A midsize customer. And for the same reasons as me. Companies that fall into the midsize category are generally not at risk of failing anytime soon (like a startup). They are cash generating, self-sustaining organisms with infrastructure, people, customers, products and a history. These are the companies that buy materials, outsource work, and engage services from small businesses. These are the companies that rely on small businesses for construction, maintenance, trash removal, temporary people, tax preparation, benefits consulting, technology help and countless other products and services to keep them running. Without their small business suppliers, the midsize company couldn’t survive. And without those midsize customers, many small businesses wouldn’t be around either.
So what did the Hartford survey find? Good news.
A majority of the owners and c-suite executives at midsize companies are optimistic about the economy and plan to invest in key areas that will drive growth including operations, technology, new products and services, adding staff, and expanding into new markets. 66 percent of those surveyed are optimistic that the national economy will strengthen in the next six months. 88% plan to invest in technology in 2015, 87% plan to invest in operations and, most importantly, 74% plan to hire additional staff (and 85% reported that they added more people just in 2014 too).
“Midsize businesses are vital to the U.S. economy, fueling growth as both customers of and suppliers to smaller and larger businesses,” said David Carter, senior vice president of Middle Market insurance at The Hartford. “The investment and expansion plans of businesses in this sector create a ripple effect of opportunity for companies of all sizes that provide the products and services they will need.”
Is it all good news? Of course not. Midsize businesses have their own issues–finding good, skilled help among the biggest. “Our midsize clients will be challenged to attract good people to their companies in 2015,” said Carter. He believes that there’s more demand than supply for human capital and that companies who will succeed in getting good people will be the ones that demonstrate that they are the best places to work through a combination of culture and benefits. But, compared to just a few years ago, this is a good problem to have.
Current small business optimism, as I summarized in a previous blog, is certainly a good indicator for the economy. But the optimism of midsize comapnies could be considered even more important. As this segment of our economy grows, invests and hires this activity trickles down to the small contractors, service and other firms who are supporting them. As midsize companies succeed, small businesses succeed. This does not work in reverse. So a positive outlook from this group means good things in 2015. For my business. And for yours.
“Midsize companies are a leading indicator for small businesses and for the economy,” said Carter. “Their growth will fuel more demand.”