Rare SME Research: How to Get the Most Value

Posted on May 29, 2018

In order for midsized companies to get the most value from research, they should review what segment was researched before making conclusions.

Leaders of midsized businesses (defined by the National Center for the Middle Market as businesses with revenues between $10M and $1B USD) have always been starved for size-appropriate business management guidance.  While excellent new research has been recently released, leaders of midsized firms must carefully review the size of the company that was studied to ensure relevance.  Governments and enterprise-sized companies have popularized the term SME (small and medium-sized enterprise), but it is used loosely, and has very different meanings in various sized economies.  Not all “SME” research is applicable to all SMEs.

Several recent SAP-sponsored research reports by Oxford Economics (just released May 9, 2018) focus on small and medium-sized enterprises. An overview piece titled The Transformation Imperative for Small and Midsized Companies covers all industries, and there are another six which are industry specific.  These all focus on companies between $100M and $1B, the more mature end of the midsized scale.

Another Oxford Economics report, SME Strategies for Success, focuses on companies whose revenue is between $3M and $30M annually, much smaller.  Businesses studied are balanced across Europe, the Americas and Asia-Pacific regions.

Quantitative studies often must resort to sorting companies based on revenues or headcount since the data is unambiguous.  Yet we find that businesses make decisions based on their vision for their future, their circumstances and their stage of development as an organization.  What follows is our framework for categorizing companies that helps us connect the right research to midsized companies and advise them properly.

The revenue categories referenced below are not exact—they are used very broadly as the relationship between company maturity and revenues vary widely.

Small (under $10M in revenues)

Startups:  This category is attempting to find a sustainable business model.  They are typically small, but not always.  Rightly, they are market-focused rather than operations-focused.  They usually are spending more than they are earning, and if they fail to meet investors’ (often venture capitalists) expectations, they are closed or sold off. They tend to focus on “What should we deliver?” rather than “How should we run our business?”

Small Businesses:  These businesses are not built for big growth, but are run for the benefit of their owners, typically private.  They can range in revenues from nearly zero up to $10M in annual revenues.  Those that last more than the average of five years have found a niche and are able to earn a living from it.  They must focus on operational efficiency since every dollar wasted hurts the survivability of the business.  But they must also pay attention to their customers, keeping up with their needs and demands.

Due to the incredible number of startups and small businesses, much has been written and research about these two categories of small businesses.  Far less is available about midsized businesses, of which there are over 200,000 in the US alone.

Midsized: ($10M to $1B revenues)

Lower-midsized: Firms with revenues from $10M to $75M are tackling the professionalization of management for the first time.  The first true c-suite is being developed. Team leadership and disciplined planning and budgeting is starting.  The complexity of the business is soaring, and the leaders are learning to manage that complexity with systems as well as middle management – another new element at this stage.  Their focus is on scaling the business effectively, especially if their growth is rapid.

Mid-midsized: As companies grow past $75M up to about $300M, they have accomplished much toward setting up systems and processes and establishing levels of management.  The c-suite finds itself needing to change again, with much more time invested looking long term at the marketplace, looking at how the business will need to transform to stay competitive as well as growing beyond $300M in revenues.  They also will learn to appreciate change management, as they must lead hundreds/thousands of employees through periods of significant change.

Upper-midsized: Still without the resources and scale of mega-firms, companies with revenues between $300M and $1B seem substantial to smaller firms and start resembling multi-national companies. They look big based on their sales force capabilities, easier access to capital, global footprint and customer focus.  They are still more nimble than many companies they compete with (who are much bigger), but they know that won’t last.  Leadership must take the long view to anticipate market shifts and out-innovate their competition to maintain defensible competitor differentiation.  They must see the need to transform early and start on it quickly, so they emerge as an industry leader, gaining entrance into the $1B+ category as a big company.

Research on midsized companies is rare and should always be of interest to those who lead and serve this important sector.  To get the most value, review what segment was researched (size and/or industry) before making conclusions.