How Mighty Is Your Midsized Company?

Smaller firms often run too lean too long

Published: Wednesday, October 29, 2014 - 13:12

Of the more than 10,000 business books that are published each year, few, if any, focus their attention on the all-but-forgotten midsized company. Armfuls of books on startups and Fortune-level organizational practices won’t help a business moving into young adulthood.

“There are almost 200,000 companies today with revenues between $10 million and $1 billion—midsized, as defined by Ohio State University’s Fisher College of Business—and they account for about a third of U.S. GDP and a third of all U.S. jobs,” writes Robert Sher, author of the terrific new book, Mighty Midsized Companies: How Leaders Overcome 7 Silent Growth Killers (Bibliomotion, 2014).

This was news to me. Since I’ve never read a book exclusively focused on this market segment, and because every small business hoping to become a large company someday must first travel through the midsized stage, I wanted to learn more about the inherent perils of that journey, so I talked to Sher.

Matthew E. May: Why don’t more business authors and scholars cover midsized companies?

Robert Sher: Because it’s hard and much less glamorous than [covering] startups or big firms. Most midsized firms are privately held, so doing quantitative research on them is difficult: The data are private, and when they are disclosed, they are usually unaudited. Doing research on public firms is easy in comparison. Small firms—those under $10 million in revenue—are everywhere, and while they, too, are private, they tend to be more open and easier to find in any geographical location. The audience for small companies/startups and big business studies is much larger, and authors and scholars like the broad interest they get.

May: You write that “the real backbone of the American economy is the midsized business,” yet as I read many of the case studies in your book, I couldn’t help but think we may have a “bad back.” Care to comment?

Sher: We do have a bad back, with an outsized level of pain. But [for] those of us with bad backs—me included—the right knowledge combined with the right approach can manage and minimize that pain, if not eliminate it entirely.

May: Research on time management systems—such as planners, calendars, etc.—puts the net impact at zero. So if time management tools and techniques don’t work, how do you defeat your first business killer, which is “letting time slip away?”

Sher: My concern is corporate time management, which goes far beyond your old Franklin Planner. High-performing organizations treat time as something special, and they build discipline around how people meet and accomplish work. They prioritize, since one of the causes of time slippage is trying to tackle far more projects than the company has the time or money to execute well. They create clear expectations, using written business cases. They time-box every project so everyone knows when it’s due. And they have clear, intermediate deadlines to allow for course correction early and often.

May: Isn’t your second growth killer—“strategy tinkering at the top”—really just code for bad or lazy strategic thinking? There’s nothing wrong with successful tinkering, is there?

Sher: Bad or lazy strategic thinking, which relies too heavily on luck, is exactly what I mean when I say “strategy tinkering.” For a midsized business to grow, it needs a steady stream of ideas that are evaluated, de-risked, then executed. Having a steady stream [of ideas] means there will be many that fail. Having the discipline to have the failures happen early and at low cost is crucial to maintaining a positive overall batting average.

May: Why do midsized companies—more so than small or large businesses—tend to be more reckless in their attempts to grow?

Sher: Because they’re still acting like small businesses, where a new campaign that delivers $100,000 in additional sales can move the needle without risking too much. Yet at $300 million in revenues, for example, a midsized business must find an opportunity that can deliver $30 million in new revenues just to grow by 10 percent. These opportunities are much more rare, require a much bigger investment to launch, and carry much more risk.

Midsized businesses often lack three critical skills that can remove the risk: the ability to assess their own execution capability, [the ability] to assess the marketplace’s true reaction to the new product or service, and the forecasting acumen required to see future cash flows.

May: You argue that fumbled strategic acquisitions are more prevalent among midsized companies. Why is that, and what’s the best piece of advice you can offer regarding acquisitions?

Sher: The acquisition experience in midsized firms tends to be low, the size of the companies they buy tend to be larger relative to the size of the acquirer, and the management team has less bandwidth to assess and integrate the company.

My advice is to walk away from all deals unless the acquisition truly drives a core strategy for the business, your confidence in being able to integrate the firm with success is high, and you have people already on your team with real acquisition experience.

May: What makes an operational meltdown in a midsized company so unique?

Sher: For those founders who’ve recently grown their business from small scale, they’re [often] surprised at how hard it is and how long it takes to recover, if they ever do. Rather than “changing the wheels on the car while it’s moving,” it’s more like “changing the wings on the plane while it’s flying”—it will feel like fixing broken systems takes months and fleets of people. Small firms often run too lean too long, putting all their investment into selling more. When they finally get what they want, they shift their resources too late.

May: How does an executive team deal with a dysfunctional CEO, other than to simply tolerate him or her?

Sher: Quitting is one sure way they can leave the problem behind! A dysfunctional CEO is a real problem. CEO dysfunction takes many forms and has many levels of severity, so there’s no single fix. Yet if teams can build trust in the relationship with the CEO, sometimes the CEO will accept help.

Other CEOs are eager to grow and change, and if they’re learning and improving, it may well be worth it to wait around. And some dysfunctions are easier to tolerate than others—sometimes it’s about fit. But a chronic situation in which the CEO keeps shooting himself, his team, and his company in the foot is a bad situation. Move on to work for a CEO who deserves you and needs you.

May: What’s the one thing you want someone reading Mighty Midsized Companies to take away from the book?

Sher: Midsized companies need leadership infrastructure to be built. Small companies don’t need it, and big companies built it years ago. Leadership infrastructure is the leadership processes, leadership team, and leadership systems that allow leadership to comfortably ensure the growth and sustainability of the midsized firm. Building leadership infrastructure doesn’t happen naturally; it must be created and expanded as the firm grows. It is a key responsibility of leadership.

First published Oct. 17, 2014, on the Edit Innovation blog.

About The Author

Matthew E. May

Matthew E. May counsels executives and teams through custom designed facilitation, coaching, and training using four basic ingredients: strategy, ideation, experimentation, and lean. He’s been counseling for 30 years, a third of it as a full-time advisor to Toyota. He is the author of four books, the latest The Laws of Subtraction (McGraw-Hill, 2013), and is working on his fifth book. His work has been appeared in The New York Times, The Wall Street Journal, Harvard Business Review, and many other publications. May holds an MBA from The Wharton School and a bachelor’s degree from Johns Hopkins University.