The global credit crunch in the last two years has hit companies in all sectors of the economy. However there is one sector where the impact has been unusually significant and that is with mid-market companies. These companies provide a significant number of jobs in the economy. However these companies tend to make changes more slowly that their competitors who are larger public companies and the smaller, often mom and pop type businesses. In the US and Canada these mid-market companies have also struggled to keep or secure additional financing to cope with the credit crunch.
“Mid-market leaders must cover a much wider front and cope with much greater uncertainty” according to a white paper on Mid-size Organizations produced by IBM in February 2009. This white paper went on to state that ‘mid-market companies must ‘master complexity’… for everything is important and change can come from anywhere.”
A study of private companies by Deloitte Consulting in 2006 found that most leaders in Canada thought the top three strategies that would increase the value of their companies were: (1) focus on revenue growth by increasing the volume of business; (2) upgrading their management team; and (3) product and service innovation. However we find that in the tough times it is often very difficult for mid market organizations to make progress in these three areas. Rather mid-market companies can be more effective if they focus on: (1) rationalizing their product and service offerings and pricing; (2) improving asset utilization including selling surplus assets and non strategic business units; and (3) restructuring overhead costs to stabilize and then rebuild the business. However this alternative approach requires more planning and detailed costing information than is readily available in many mid-market organizations. We find that unless companies can bring together the key people to share the key information and agree on the most important issues to focus on during tough times – the company quickly becomes dysfunctional both internally and in the market place.
During the periods we would call “business as usual”, the leadership of a mid-market business can often benefit from doing more of the same or delaying a decision, especially a controversial decision. Sometimes the problem solves itself. Sometimes an employee takes the initiative and solves the problem. We are not referring to those times. However when a company faces times that are “not business as usual,” the discussion focuses on not if things will change, but when and by how much will they change. To make matters worse, when things change it seems everything goes wrong at the same time. And if that is not enough, things never go wrong the way you expect they would go wrong!
Should the leader of a mid-market organization refuse to make a decision and risk the survival of the business or make a decision knowing it is really just a leap of faith? Mid-market organizations seldom have the information, management depth or expertise to be able to know if the key strategic decisions they are faced with will work. Tough times usually signal that it is the time for the leader to take cover until the storm passes. However the successful businesses in the tough times are the ones that try to dance in the rain rather than run for shelter.
Why are CEOs of mid-market companies so surprised when they lose key customers? One explanation is the temptation to spend more time focusing on the state of the general economy or industry trends rather than getting to know their key customer’s business better than the customer even knows their own business so they can see the challenges coming long before the customer even realizes the issues. Or the other issue is the CEO sees the changes coming but is reluctant to act until the customer acts and by that time the mid-market company is left scrambling to recover before it is too late.
What happens when the CEO becomes so focused on short term issues and misses the need for a change in direction or does not know which way to turn? As the key role of the CEO is the keeper of the vision and direction for a mid-market business, the lack of vision or short term focus can seriously impact the business. When this happens the CEO needs to get assistance to reset the direction or step aside to let a new CEO take over. However the ego and other issues in replacing the CEO are significant in mid-market organizations as they often have a thin management team and a weak governance system to make sure a CEO is supported or replaced.
Reducing the failure rate for mid-market companies is all about getting the CEO focused. If the CEO is focused on the short term and misses the overall changing market place or the CEO is fresh out of ideas on where to take the company, that is a very tough situation to deal with and not dealing with it is often the final blow for the company. When this situation arises the CEO needs to get help, usually from the outside as management teams are lean or the CEO needs to step aside but most boards of directors of mid-market companies are unwilling to replace the CEO.
Stuart Morley MBA is a world renown expert to mid-market companies during their turnaround phase. Find more information on his website turnaround Middle Market Companies which includes video clips, articles and order his recently co-authored book.