Middle market companies often experience growth at a faster rate than larger or smaller sized businesses. Some of that growth can be attributed to macro factors that affect all companies, regardless of their size, such as overall economic conditions or the health of a specific industry. But in large part, middle market CEOs and CFOs wield the power to successfully build their companies through the decisions they make and the strategies they implement, in areas including finance, operations and recruiting.
Based off of a full network analysis of company performance data collected from 20,000 different businesses over a five-year period, the National Center for Middle Market identified seven specific actions that drive business growth. By understanding these factors and how they come together in a model for middle market growth, companies can increase their available resources to pursue and reach their individual growth objectives.
Factor 1: Market Expansion
In a number of ways, market expansion leads to growth for middle market businesses. For the majority of growing companies, market expansion through the pursuit of new customers, new geographies, or both, is the only direct connection to revenue growth. Market expansion, which requires an effective strategy, sales force, as well as sound marketing and communications activities, accounts for nearly a quarter of the overall growth for many businesses.
Factor 2: Formal Growth Strategy
Setting formal annual growth targets for each fiscal year and putting strategic processes in place to communicate those targets enterprise-wide and track progress is critical to positive business growth. For a subset of companies that grow primarily through maximizing operational efficiency, a formal growth strategy is the leading factor in the growth equation. For many businesses, the formal growth strategy drives expansionary activity, which ultimately results in revenue growth.
Factor 3: Investing and Innovating
Investment and innovation in areas including new products and services, business processes, and facilities and equipment, drives market expansion, which in turn, drives growth. The decisions CEOs and CFOs make about where to invest and how to innovate influence virtually every other aspect of the business. Consciously balancing long-term investing needs versus short-term profit margin goals is a challenge for every company, but is crucial in fueling growth over time.
Factor 4: Attracting and Retaining Talent
Employee talent plays a critical role in the success of middle market businesses. The ability to effectively recruit and keep high quality people, especially top-notch managers and executives, is crucial to growth. Skilled CFOs are able to direct the market expansion activities that pave the way to company growth.
Factor 5: Financial Management
Generating revenue is extremely important, but companies must also be able to effectively manage cash flow in order to achieve sustainable growth. There is a direct connection between strong financial management and a company’s ability to scale in a profitable way. A talented CFO who implements solid working capital management practices and can access affordable funding when necessary, can help their company take advantage of strategic opportunities to reach new customers and move into new territories.
Factor 6: Cost Efficiencies
Cost efficiencies are almost equally as important as financial management, making an expert CFO critical to growth. Cost efficiencies are primarily driven by operating efficiencies, however, internal policies and procedures and the ability to maintain profit margins also weigh into this growth driver.
Factor 7: Staff Development
In order for companies to grow, it’s not enough to find and keep good people; companies need to develop their talent as well. While investing in training and development is important, the most critical action companies can take to maximize the value of their employee capital is to provide clear career paths for people.
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