Understanding the Intricacies of Middle Market Businesses with Doug Farren | Ep 43

Harness the untapped potential of middle market companies with insights from Doug Farren!

This episode uncovers the labyrinth of the middle market, defined by annual revenues of $10 million to $1 billion, and its three unique segments. Unearth how these companies, spread across every US city and industry, function in a VUCA (Volatile, Uncertain, Complex, Ambiguous) environment, and their agile response to the pandemic.

Engage in a riveting discussion on the distinct challenges and opportunities middle market companies confront. Discover how their size permits direct team member interaction, paving the way for a unique experience in comparison to larger corporations. Yet, they face hurdles in attracting and retaining talent due to an unclear employee value proposition. Learn about the transformative power of peer learning and team exercises to overcome the 'growth wall'.

Let's navigate the realm of technology and leadership within the middle market. Doug emphasizes the indispensable role of trusted advisors for these firms during crucial decision-making processes such as M&A transactions. Unwrap how technology is reshaping job roles, replacing low-skilled positions while opening doors for advanced, digitally proficient roles. We also candidly discuss how the National Center for the Middle Market and local chambers of commerce can bolster support for these businesses. Lastly, we delve into the significance of empowering employees and the burgeoning impact of distributed leadership in these companies.

Tune in to hear Doug's insights and take your understanding of the middle market to another level!

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Transcript

Mark McGrath: 0:58

So, Doug, when we're talking about the middle market, we're talking about 200,000 plus or minus businesses in the United States. Paint that picture. What is exactly the middle market?

Doug Farren: 1:09

So it's a great question and it's one that causes a lot of confusion, because a lot of organizations whether they be financial services institutions or government organizations or economic development groups kind of everyone has their own definition of what that means. But when our center launched in 2011, we tried to take a practical look and say what is the middle third of the US economy? In other words, tell us the parameters that create one third of private sector GEP and one third of private sector employment, and so that landed us on a definition that we still use today, which is annual revenue of $10 million to $1 billion. It's a huge range. We understand that, but in a lot of our research, we're able to cut that into different segments. So, for instance, because again, people will reach out to us and say, how can you compare a $30 million company with an $800 million company Well, you can't. They're completely different.

Doug Farren: 2:16

But when we sub-segment, we can look at what we call the lower middle market. So these are the $10 million to $50 million companies. They tend to be more family-run businesses. They kind of operate like small businesses as you start to grow into the middle segment, which we call core middle market. These are $50 million to $100 million businesses. They start to have characteristics like multi-location. They probably have a fully developed C-suite leadership team. For instance, they may have an outside board of advisors. That's another common thing we see as companies hit that $50 million threshold.

Doug Farren: 2:58

And then the last group is the upper middle market $100 million and above, and these are businesses that truly start to resemble enterprises. They're more likely to be publicly traded, although 90% of the middle market is actually privately held, which is what has made it so difficult to find information and data and any type of insights and thought leadership, and it's actually why the National Center for the Middle Market was founded. So, yeah, that's kind of a picture of what the middle market looks like. I'll just add as well they're in literally every city. They're across every industry. There's one of the hypothesis we wanted to test was like Silicon Valley are these companies congregated in certain parts of the country or in certain industries? And, as it turns out, they're pretty much all over the place.

Mark McGrath: 3:47

They're everywhere.

Doug Farren: 3:48

Yeah, everywhere.

Mark McGrath: 3:49

Yeah, so nobody's living in an area in the United States anyway, where there's no middle market companies. They're there. No they're everywhere. Okay, and that's about a third of all private sector jobs we would find in the middle market.

Mark McGrath: 4:04

Correct, correct, yep, and then we slice out of our GDP, it would be about a third of our GDP, correct? And then 3% of all US companies. So I mean we're calling anything a company that has, like an LLC or anything, a sole proprietor and everything all the way up to like Walmart and everything in between, correct? Yep, that's right. Yep, got it Now. You and I have talked about these things a lot over the many years we've known each other, and middle market companies are primed for what we talk about with UDA and understanding. How do they shape observations, how do they make better decisions? How do they have agility and resiliency in light of an ever changing VUCA marketplace? You and I have talked a lot about volatility, uncertainty, complexity, ambiguity. Sure, I would imagine in that space that third, that middle market VUCA. They're certainly not strangers to that.

Doug Farren: 5:00

No, no. So let me go a little bit further into the demographics and kind of what we've learned over the years. So again, 90% privately held. They do that for a reason right. So these companies tend to take longer term views of not only challenges but opportunities. They're not looking to satisfy a quarterly earnings report or impact a stock price by making short term decisions. They're making decisions for the long run. I think the pandemic was a great example of that.

Doug Farren: 5:35

We didn't see many of these businesses close, go out of business. That didn't panic. They were making longer term decisions out of that. They've also been in business on average about 39 years. So if you think about that, they have seen various economic cycles. They have seen lots of challenges, whether it be global competition, things that are happening domestically, things that are happening from a government, regulations and policy standpoint. These companies have been through quite a bit of different challenges. So they have experience. And then we like to say that, because of their lean nature in terms of how they run, they often are tackling big company challenges with small company resources. They kind of are at the intersection of resilience and runway, and by that I mean they've got enough resource where they can actually do things and make impacts, but they're also quick to make decisions and reorient when a lot of this chaos and uncertainty tends to pop up.

Doug Farren: 6:40

We're right now in the process of wrapping up our semi-annual survey called the middle market indicator, and one of the things we're seeing out there there's a lot of uncertainty. You've got inflation that now is starting to maybe come down a little bit. You've got everyone that keeps talking about is there a recession? Are we in one? Is one coming? How long? You've got geopolitical issues going on all over the world. You've got talent challenges confronting these companies. Bottom line. They just kind of keep doing business Like they deal with it and move on, because most of these companies have the unique ability to follow the OODA process. They basically see what's going on in their industry or their environment, they make decisions and then they act. They don't wait. They don't need approval Again, they're not going to. They're shareholders. They're not looking for outside influences to make decisions for them. They just act when needed, and I think that's what makes this segment really interesting.

Mark McGrath: 7:42

So, in a sense, they're obviously trying to continue to improve and build. What do you see from a? You're a former collegiate athlete. What do you see from a team standpoint, from a mission standpoint? When you look at many middle market companies, what are some of the characteristics that you're observing that make the good ones really stand out and as examples for others to emulate? What do you see?

Doug Farren: 8:06

Yeah, I think you know it's kind of easy to talk about culture, but it really is a real thing in the middle market. I've been teaching a class here at Fisher College of Business for our undergraduates and I have the ability and have had the opportunity to take a lot of our students on site visits. We go and visit, you know, local companies here around central Ohio. We do projects with a lot of middle market businesses, not only in Ohio but around the country, and part of the reason we do that is we want to expose these young, you know, students that are going to be entering the workforce. We want them to see what it's like to actually be around and be inside working in a middle market company. To your point about teams, I think because they are run typically in a very lean fashion. Everyone knows each other right, so it doesn't matter if I'm an intern or a new hire, like my ability to maybe sit and work with the senior leadership team, maybe the founder or CEO he or she may have. You know, direct interaction with every single person in that company is a experience that I know I didn't have when I worked at a Fortune 500 company. I was in a cube and I felt like more like a number right.

Doug Farren: 9:25

I think these businesses do a really, really good job of getting everybody on board with kind of their mission, what they're there to do.

Doug Farren: 9:34

A lot of them are kind of world-class in what they do.

Doug Farren: 9:37

They have a very unique niche, you know, in terms of the product or service that they produce, and the employee teams typically buy into that. It's part of the reason why they stick around. Now, on the flip side, we do see that they oftentimes have challenges attracting people and then ultimately retaining people, because where they have weaknesses are on defining exactly what their employee value propositions are, like having a talk track, so to speak, where they can go out and tell people like, hey, this is what we're all about Middle market companies. Inherently, I think they feel that, but they can't really verbalize it, so that makes recruiting difficult. And then, from a retention standpoint, we see that a lot of them struggle with kind of like the blocking and tackling of what I would call basic human resource processes, like having a succession plan, like identifying your high performers and making sure that they're getting unique development opportunities. So it's just like any team. I mean, you wanna identify who your star talent is, and make sure that that talent is continuing to be engaged and developed. That's where we see some challenges.

Mark McGrath: 10:50

So it sounds like there's a lot of opportunity for learning in order to adapt, yeah, which is what we do and we work with. We have clients in that space as well. I find that the ones that are doing well are the ones that want to learn more, and they're the ones that have a strong appetite for learning in order to adapt even better and to build a culture of continuous improvement. Yeah, Directly at providing value for the customer.

Doug Farren: 11:21

Yeah, I can give you an example. We used to run executive education when GE Capital was our partner. In the early days of the center, we brought in like waves of their customers. Typically 10 or 12 of their clients at a time would come to Ohio State. They would bring the whole leadership team, so it's the CEO and his or her three or four top people and they would spend four days here just really stepping away from the tactical running and the day to day and spending more time stepping back and thinking strategically about things that their company is struggling with.

Doug Farren: 12:02

And to your point, the feedback that we heard was this is the best use of time that we could have ever, even though we, like we're kicking and screaming to give up the four days. At the end of it, what we found was that by stepping out of the day to day fires, we actually gave ourselves a chance to learn, not about textbook things or classroom things, but we learned from each other about what's going on in the business. We learned from our peers who were in the class with us a lot of networking, a lot of discussion about common problem solving. But I couldn't agree more that the companies that do the best are the ones that are always out there challenging themselves to try to learn, whether it be from peers from educational institutions. They soak in knowledge and kind of thought leadership material as much as they can, because they're just looking for an edge to get better.

Mark McGrath: 12:58

So I love it when we work with a company and we just see the lightning bolt hit them and they go. Oh, we should be learning. We should be taking a step back and making time to learn and learn with each other To your point. There's so many things that in team exercises and team learning and even learning effective things like value mapping we use wardly mapping, even effective red teaming, just being a healthy devil's advocate to attack the plan and learn how to become more cohesive by not attacking the person. Isn't it amazing? It's always the top companies that are doing that, that are looking to build that edge, I mean from an opportunity standpoint.

Mark McGrath: 13:44

I would think that there are a lot of companies out there that find themselves in some kind of a stuck state and they just really need to take that step. They really need to take that step to do the extra work, to do the extra sort of. Stop talking about where you wanna go. Let's take a breather and let's figure out exactly where we're at now, right, in order to get where we want to go.

Doug Farren: 14:07

Yeah, I think you're hitting it right on the head is that they oftentimes reach a stalling point. We've talked to some other researchers at other universities who have done this kind of work on a qualitative basis. They haven't necessarily gone out and collected a bunch of data, but we talked to some researchers I believe they were from Michigan State University who were interviewing a lot of basically middle market owners and they were asking them about where did you stall? They were calling it the growth wall because basically every company could, oh, we're growing, growing, growing, and then they would hit this wall. It was essentially when they reached the end of the capabilities of that founder or that leadership team and they didn't necessarily have the knowledge or the I wouldn't say the capability, but they didn't know the tools to basically do that type of planning to get to the next level.

Doug Farren: 15:05

That's where we see a lot of times we work with companies on doing research projects and whatnot. They're the advisors, they're the trusted advisors that have to work with these leadership teams to say we'll show you how it's done. We've done this a hundred times. You may be only doing this once or twice. A great example is when a company goes through an M&A transaction. Mm-hmm, they're selling a home. How many times do you do that in your life? Maybe two or three times, if you're lucky. They don't have the knowledge or the experience having gone through that process. That's why they need trusted advisors. It doesn't really matter what it is Putting in a technology platform, going through a transaction doing something but doing your HR talent planning, All those things.

Doug Farren: 15:50

There are tools and they don't have to be super formal too. I think that's where it scares away a lot of people. I don't have the time to do big process maps and all that. Okay, then just start somewhere. Start with a basic approach, Think of a plan and then be willing to adapt that plan as you encounter challenges and uncertainties along the way.

Mark McGrath: 16:13

We all say we followed John Boyd. People ideas things in that order always. Anytime that order is violated, you're going to have problems at some point, you're going to have a rough time. Because it's people that make a company, it's people that operate a company. It's people that buy whatever a company is offering. It's people that align with a company to work with them in any capacity, whether they're customers, whether they're partners. Sure, it seemed to me that in those types of environments, especially when there are so many that are privately held and, as you say, teams that obviously you would hope anyway, there's a pretty big emphasis on people versus, or do you find more companies seeking technological or capital solutions versus human-centric solutions? Yeah, that's our business. Our business is to help people with the human-centric side we can fit into any technology. But do you see more people just seeking technology for technology's sake or money for money's sake, or are they actually trying to address things with the people that they have and that they?

Doug Farren: 17:19

work with. Well, we're seeing some interesting things. We started looking at digital transformation in the middle market around 2019. About four years ago, we noticed that there was an uptick in companies that were seeking out some of the, I would say, the headline technology platforms CRM systems, erp systems. I think now the last six months all I keep hearing about if I'm out on the road or at a conference or at an event everybody wants to talk about generative AI. That's the biggest thing out there now. I think there are a couple of different ways to look at that. On one hand, certainly there are ways as companies struggle with finding people that have the right skills and are a good fit for their company. There's a talent issue out there. There's a war for talent out there Using technology to maybe replace some of the functions that are easily repeatable, and we see that all the time.

Doug Farren: 18:26

On the flip side, we're also seeing as companies implement some of these technologies. They actually need more people. We did a study on advanced manufacturing a couple of years ago. Our assumption was that manufacturers who use a lot of robotics and AI and things in their factories have less people. It was actually the opposite. Those companies were hiring more people. They were just different types of jobs, instead of a bunch of blue collar people out there putting nuts and bolts and things. The machines are doing that, but now they're hiring engineers who have to run and maintain and monitor all the equipment. I think what technology is doing is it's certainly replacing some of the maybe lower skilled or easily repeatable jobs, but it's also creating opportunities for maybe higher skilled, digitally savvy jobs that are just going to change the nature of the workforce. The new market is being forced to respond to that aspect of technology.

Mark McGrath: 19:49

Yeah, you see, a lot of technology for technology's sake. Then you also have, as you've alluded to, the fear that technology is going to replace us all. I always like to think that people aren't going to be replaced by technology. People are going to be replaced by people who understand how to work with technology more effectively than they do.

Doug Farren: 20:10

Yeah, I think it's absolutely right. We're seeing a lot of the big vendors are now taking a look at their platforms and saying, wow, these aren't appropriate for mid-sized companies.

Doug Farren: 20:26

I'm going to pick on SAP here for a second, but it's like in my prior life. I was at a retailer here in Columbus that implemented SAP. It was hundreds of millions of dollars and it took multiple years. It was very, very painful. A middle market company just isn't going to be able to do that.

Doug Farren: 20:46

So I think we're seeing more and more providers start to say you know what? I need to scale this down. Maybe we don't need all the bells and whistles. We need to start with something pretty basic that these companies can implement easily, and then they can support internally and we'll help them along the way. But then, as they get better, we can start bolting on new things to it, which I think is smart. It makes a lot of sense.

Doug Farren: 21:11

I mean another one of our partners, google Cloud. We did some work with them to look at cloud technology and it's like OK, how much of the middle market is using the cloud? Well, most of them are in some way shape or form, but that could mean anything from email to really basic stuff, and what we found in our research is that the fastest growing middle market companies are more integrated across more areas of their business in the cloud Finance, hr, operations. More of it was being used in that way because they were able to figure out the privacy, security, all those aspects that may be of concern. But yeah, yeah, it's really interesting stuff. I think there's a lot of exciting opportunity out there, but I think there's also a lot of things where companies need to take a step back and say I need to understand what I'm getting myself involved in here.

Doug Farren: 22:07

Because, you can also open yourself up to some risks when it comes to security, for example.

Mark McGrath: 22:13

Yeah, we see. You see a lot of companies. They take on things, initiatives, technology, whatever, because everybody else, they're conforming to a standard that they perceive is real. We like to say that when we work with companies, we're trying to help them on the vital few. The vital few human-centric ideas around complexity thinking, distributed leadership and effective, high-performing teams versus the trivial many which everybody's doing.

Mark McGrath: 22:42

It doesn't differentiate, it doesn't really make any difference to the customer, it doesn't make any difference to the stakeholders or to the people that are there on the team. In that value is subjective, it's not bringing any value, it's not creating value. Do you see a lot of that, the copycatting or is there opportunity for people to start focusing on those types of things to improve the you used the word quality earlier Improve the quality of their leadership skills, their leadership, the leadership even has a quality right, because leadership oftentimes is just like oh, they're in charge. No, leadership is a quality that we all inherently have that could be developed and nurtured. Do you see the best companies focusing on those few things or do you see a lot of others just going? Well, everybody else is doing this, so I shouldn't we?

Doug Farren: 23:34

Yeah, yeah, I mean that's a challenge for the middle market in particular, because a lot of times they don't know where to go to look to get it's like peer benchmarking right. I want to know what my closest peers are doing, but I can't find that A lot of times what they rely on actually is if I'm a manufacturer or I'm a healthcare company or I'm a retailer, I'm going to look to my industry organization probably first, and probably my suite of advisors, banker, lawyer, account, as crazy as it sounds. A lot of times they're going to those folks and saying, hey, what are your other clients doing when it comes to technology? They're getting tips from that group who's giving them information, because they don't have a direct source to go to. We work with a lot of chambers of commerce around the United States. The light bulb's starting to come on, I'd say there are a few cities that have really latched onto this idea of hey, we need to support our local middle market because they are such a big source of jobs and economic contribution.

Doug Farren: 24:44

For the most part, middle market companies don't have any reason to join their local chamber because 95% or so of the programming that a lot of chambers offer are for small business. They need it. That makes total sense. Those businesses need that help. Then, on the other end, if you are in a city that has Fortune 500 or large public companies, they're probably supporting those chambers out of a civic sense of duty, which is also very noble and the right thing to do. But they don't necessarily need a chamber. It's like I'm huge, I've got all the resources I need, I've got everything I need. The middle market gets caught in there. Because then they're like well, why would I join a place that doesn't have programming that fits me or they don't necessarily understand me. What we've been seeing over the last five or six years, as chambers reach out to us, they're like hey, can you help us identify the middle market in our city? We don't know them. We just don't know who they are. We don't have many members. Like I said, there are some exceptions to that. We've seen some cities that have really been active in building up their middle market.

Doug Farren: 25:55

But yeah, back to your question. We hope that a place like the NCMM is a resource where companies can go and look up what other companies are doing. I mean that's why we publish A lot of our reports are publicly available. We put as much data out there as possible, because we're not going to solve challenges necessarily. We're not designed for that.

Doug Farren: 26:21

My vision is that businesses that consume our material will say, hey, this raises some good questions. I just read this report that came out of Fisher College of Business. It says that the best middle market companies in the world do X, y and Z. Like I said, we don't offer up solutions because every company is different and everybody has their own way of approaching things, but hopefully they would read these white papers that we put out and this data that we publish and they would say, all right, let's talk about that. That is a team. What are we doing? Right, yeah, now I've got some academically based, non-biased data that's telling me that the best, the fastest growing or the best performing mid-sized companies in maybe certain industries, what are they doing? And then, what are we doing? So those are the questions that we hope to raise, to really challenge these leadership teams to say, yeah, are we thinking about this the wrong way? Is there another way that we should be approaching these opportunities and ultimately helping making them better?

Mark McGrath: 27:25

So you're alluding to something that in the aspect of teaming science, where there's a psychologically safe company where anybody can bring up ideas and ideas can be discussed and we talk about these things to the idea and to the relative importance to the business not against people we can bring constructive feedback. What do you see when you look out in middle market companies? What do you see from that cultural aspect? Do you see a lot of internal learning capabilities? Do you see a lot of efforts in that respect that are going to create more self-awareness in the company, to improve their situational awareness in their market space? Are you observing things like that?

Doug Farren: 28:12

So just so I understand. So are you asking if they are trying to drive a lot of that internal self-awareness?

Mark McGrath: 28:23

Yeah. So we challenge all assumptions. We're helping people challenge all assumptions. Like John Hoy told us, if we don't challenge assumptions today and continuously, whatever works will soon become obsolete and whatever we don't challenge will become. Today's doctorate will be tomorrow's dogma, and then it's inflexible and it never changes. And then we're just vulnerable, we're just going to degrade because our orientation is never going to be able to realign to the market. As VUCA unfolds, as complexity unfolds, we're going to be stuck with linear solutions because we didn't challenge that. So do you see things in an organization in the middle market where companies are actually doing that and creating environments where there are healthy challenging of assumptions, where people could say hey, I read a white paper at the National Center for the Middle Market. I think we should consider that. But I don't get persecuted for bringing that in. I don't get whacked over the head because I don't outrank somebody or that kind of a thing.

Doug Farren: 29:22

Yeah, we were talking about this at the very beginning of our conversation. I think the cultural dimensions of most middle market companies. Now again, they're bound to be exceptions, but I think in general, the de-layering of that type of bureaucracy is very, very common. It's almost a necessity when you've got maybe three or four senior leaders and then everybody else is empowered to run the rest of the organization. You actually have to have that in order to be successfully functioning. I'll share an example.

Doug Farren: 29:58

This goes back to the start of the pandemic. It's for a local restaurant business here called Cameron Mitchell's. I'm sure people if they haven't been to one of the restaurants, they've got seven or eight different restaurant brands across the country, maybe 50 or 60 different locations, very high-end restaurants. Everything got shut down in the spring of 2020. Basically, this restaurant organization went from an upper middle market revenue company over 300 million a year in revenue went to zero literally overnight. Another their issue was that they were never designed to be a carry out or, like it's high-end dining. It's part of the reason of going to these restaurants is for the experience of the dining this team for going about six weeks with zero revenue. Basically, the team came to the table and said we have to change immediately. This wasn't necessarily something that came from the top. I think it was a team approach. They said we have to rethink this and we have to do it very quickly or we're going to be out of business.

Doug Farren: 31:20

Before they laid off a single employee, they were paying their staff, their wait staff, their cook staff. Everyone maintained their jobs. They were able to quickly pivot and develop carry out functionality, online payment, like everything that's associated. Now that all seems pretty straightforward, because I think everybody does that. For them, that was a radical change and it happened within a matter of eight weeks. They were open to it. They were open to it because that one was done almost out of necessity. But that just proves that when you're backs against the wall and you have to do these things, everybody was all in. They made it happen very quickly and they launched carry out. They were able to not only survive, but now they're back to a growth organization where they're opening new locations. They're opening new restaurant concepts.

Doug Farren: 32:18

This company they just figured it out. That's what I would compare and contrast to. A big organization maybe like, well, we got to think about it and we got to go through RFP. What vendor are we going to use?

Mark McGrath: 32:30

What did so, and so do yes.

Doug Farren: 32:33

Let's do our research. Let's do benchmarking. Let's hire consultants.

Mark McGrath: 32:37

Let's get a survey.

Doug Farren: 32:40

This was a fairly large middle market company who just said all that's out the window. Here's what we're going to do. We're going to make a decision and we're going to launch. They did it and they were successful.

Mark McGrath: 32:51

We should talk more about that because that is a tremendous example of how disruption is met with design. In orientation in UDA it shifts through drift like the passing of time, like our late 40s selves see the world different than our early 20 cells just by aging and passing of time. Then the other two ways, both again with D. There's disruption, like you described. They wake up one day and they're zero revenue. And then there's design. They meet it with design so that the way that company was set up to function as a team, to function as an organism that delivers a phenomenal experience. I know them very well in that we both live here in Columbus, but they're also in Florida and other places they're able to meet that with design rapidly. That did not have a playbook, did not have a precedent, so to speak, where everything was just shut down like that. By having those things like facing complexity and pushing decisions and working together, they're able to reorient and adapt really quick.

Mark McGrath: 33:53

It's not surprised you and I have been going to those restaurants as long as we've lived in this area. Every time I've been there it's a phenomenal experience. I've never not had a feedback card that I've sent into that company. I've never not gotten a reply, positive or negative. If I had a negative experience, I send in. I have a positive experience 100% of the time. I've gotten a feedback from them when you tell me that it's no shock because they do deliver an experience that seems to their medium is yeah, it's restaurant, but they're onto something bigger. They have a much bigger thing that I think they're oriented on.

Doug Farren: 34:32

None of that happens without an ingrained culture where it's like this is just how we do things. We're going to respond to every customer. It's important to them.

Mark McGrath: 34:43

You would know better than I but my observation of the years of interacting with them. I would imagine that they have a phenomenal training program, that they do a lot of different procedural things as teams and as locations so that when things happen they're able to pivot and adapt really quickly.

Mark McGrath: 35:03

It also seems to me too, and maybe this would be a question about. One of the things that we talk about is distributed leadership. It also seems to me at that example that there's a lot of decisions that are pushed down to the lowest level so that the person immediately dealing with the customer can handle it, rather than have to ask a manager, who has to ask a branch manager or a regional manager and all the way back that they can pivot really fast under the regular operations. Do you see a lot of that?

Doug Farren: 35:30

It's funny because I just had this experience. Last night I was at one of their restaurants and it wasn't our server, but one of the staff came by and just said, oh, we were finishing up our salads or bread or whatever Mistakenly took my salad. I wasn't done. He's like, oh, I'm going to take this. Everything was taken away, including all my silverware.

Doug Farren: 35:54

The server came out and I was like, oh, can I get a new set of silverware, because it was taken with my salad. She's like, oh, my gosh, Come back, new set of silverware. And then, as I left, gave me a full salad to go. I said this is for the mistake that we made. And she did it. She didn't get it, she just did it. I was like, wow, I didn't even make an issue of it. My family was embarrassed because they were like hey, why did you make such a big deal? I said I didn't make a big deal, I just said I needed new silverware. She went above and beyond by bringing me a full salad to take home with me. So that's just yeah to your point. That's a fully empowered employee. She made that decision and make it operate faster.

Doug Farren: 36:36

Very, yes, exactly, yeah, exactly. And I left going. That made such a huge impression on me because so many of my restaurant experiences in the last couple of years have been poor, right, and now I'm like, oh my gosh, this place is amazing, yeah, and now you're telling the world on no way out.

Mark McGrath: 36:52

So that one decision, that one decision that was pushed down and that person was able to take care of you then and there. Now the world knows about it. And that's how companies. That's great, that's how it happens, yeah.

Doug Farren: 37:04

And that's part of what we call the. So we say employee value proposition was something I talked about, like why you want to work at a middle market company Employer brand. It's like that's what we call what people say about the company, right?

Doug Farren: 37:18

If you're talking to your neighbor hey, what's it like to work at Cameron Mitchell? What's it like to work at Fisher College of Business? What you tell the community about your business? Yeah, and that's an area of opportunity as well. I mean, middle market companies can do a lot better job kind of communicating that and espousing that and getting people to talk about that, Because so many of these companies are. I shared an example of a more well-known one, because it's a consumer restaurant brand. But there are so many of these businesses that are B2B that most consumers you and I would never even know who they are.

Mark McGrath: 37:55

How pervasive in the middle market is that where a culture would push decisions down to the lowest level to take care of the customer or the partner right away, without delay? I mean, do you see decision rights or do you see distributed leadership as something that there's opportunity for companies to learn, or is that common? I think ultimately it centers around trust, and the trust that you build with the team and the trust that you build inside of a culture. When you say Cameron Mitchell, that's another thing. That's obvious. As someone that goes there myself, it seems that they do trust and empower their people to do exactly that. I mean, how much learning is left on that?

Doug Farren: 38:34

Yeah, I think there's a ton to look at there. I mean I couldn't speak effectively on how much we see that because we haven't really looked closely at that issue, but my presumption is that there's a lot of opportunity for businesses to learn about the power of that capability, about really not only just walking the talk when you say, oh yeah, we fully empower our employees. But what does that really mean? What does that really mean to do that and define that for your team and make it. Because, again, it's one thing when you're serving a customer, like the example I just shared. It's another thing when you're in a factory floor and there's nobody looking. Right, you see a problem, do you fix it immediately? Do you have the ability to do that? Do you know how much leeway you have when you know something's wrong to just fix it on the spot? I mean, that's something that we haven't looked a ton at, but I'm sure there's a lot of opportunity around that for these businesses.

Mark McGrath: 39:35

Let's continue that conversation at some point, because there's a lot of things we could discuss. The big industries with middle market are going to be consumer services, construction insurance healthcare hospital systems.

Doug Farren: 39:50

Yeah, the four biggest, as we look at them in terms of the number of companies, would be business services. That's a broad definition. Think about a lot of law firms are actually middle market because those are regional in nature. You've got firms that serve, like, maybe, several states or an area of the country, young firms, places like that. Manufacturing is another large segment in the middle market. You've got 14% or so of mid-sized companies following the manufacturing sector. Then retail is the number three. Retail would include restaurants, e-commerce, places like that. Those are generally the top three. Then, beyond that, you've got construction, healthcare, financial services. We all attract technology companies.

Mark McGrath: 40:48

In about 90 private, 10 public percentage-wise.

Doug Farren: 40:52

Yeah, okay, thanks for taking your time.

Mark McGrath: 40:57

What do you think the current landscape looks like over the next couple of years for middle market companies and what are the opportunities for them to adapt as we drive on?

Doug Farren: 41:07

Yeah, I mean I mentioned our mid-year study. We've got an ongoing study called the middle market indicator. We survey a thousand financial decision makers in the middle market every six months. Our mid-year 2023 reports getting ready to come out and give a sneak preview of that. I mean what we're seeing is overall very strong top-line performance, very strong hiring, very strong confidence in the economy. Also, the positive thing we're seeing there's an uptick in capital investment planning for these firms.

Doug Farren: 41:44

So it's been lagging for the last couple of years as a result of the pandemic and some other stuff, but we're starting to see that open up a bit. About 60% of these companies have introduced their new product or service in the last 12 months. So that is a signal of expansionary activity. About another 40% have entered a new domestic market in the last 12 months. So yeah, I mean what we see is kind of continued strong performance. There are some headwinds out there, obviously. I mean it's becoming much more pricey to borrow money, so that may constrain a little bit of the expansion.

Doug Farren: 42:23

We think about physical assets like plant equipment, facilities, things of that nature. It and technology seems to be a big target again. Like we talked about earlier, a lot of these companies are thinking about whether it's following the crowd or thinking about something that's a right fit for them. That seems to be a big target. So we're going to be monitoring a few things. I mean one is the continued use of technology.

Doug Farren: 42:57

We're going to be monitoring kind of skills development and workforce. We've got a partnership that's developing with the Ohio Chamber to build some training. So it's not going to look exactly like that GE experience that I described. It's going to be actually more of a mix of some online and some in-person. So we hope to roll that out, hopefully early next year, where we're going to bring in again middle market leaders across the state of Ohio and then the goal would be to eventually roll that out across the country, giving them new skill sets and views and the things. So if I look back at the last 11 years, I mean I think the middle market is a rock solid part of the economy and they continue to do well in the face of a lot of adversity and they've got a lot of characteristics that position them well for continued growth. So everything from our end looks extremely positive.

Mark McGrath: 43:53

That's good. Lots of applications for the theory of John Boyd Boyd, for business, for sure. Where could people, where would you direct people to go and learn more? And we'll close with that before we go over to the extended version that we'll put up on YouTube In the closing moments of the podcast. Where would you send folks to go check out more about the middle market and learn more about these things?

Doug Farren: 44:21

Yeah, so our website is middlemarketcenterorg. It's a tremendous resource for all things about the middle market. We have a large content library, so about 65 research studies over the 11 years we've been in existence. I mentioned data, so there's areas that you can go in there and look at benchmarking data my industry by size. We've got video content on there. We've got a knowledge center that has lots of different things for people to kind of poke around and consume and that's where we also put out a lot of you know, all of our latest information. So I would advise that as a starting point. Okay, lots of things to look at there and you know, certainly follow along. And, yeah, that's where I would go.

Mark McGrath: 45:13

So if you're at a company, one of 200,000 United States, which has an annual revenue of 10 million to a billion that's who we're speaking to right, correct Go on middlemarketcenterorg and learn more Cool, hey, doug. We'll close out the podcast and we'll head over to the extended version over on YouTube, but thanks for coming on no Way Out and thanks for sharing the story of the middle market and some of the success stories that hopefully others will take an interest and learn from.

Doug Farren: 45:42

Yeah, sounds great. Glad to be here.