In the vast landscape of business, there’s a category often overlooked and underserved: big small businesses. It’s what we refer to as the Micro Middle Market (MMM), or businesses doing $2M to $25M a year in sales. Despite its significance to our economy, this segment remains inadequately defined and financially underserved; lumped together with businesses much smaller and larger. In this post, we advocate for a new category in classifying SMEs, called the “Micro Middle Market”, and discuss why it defies the conventional label of “small business”. A slightly nuanced label is crucial for policy implications.
Defining the Micro Middle Market
The Micro Middle Market is made up of well-established businesses with $2 million to $25 million in annual sales, which operate and view themselves more like an institution than a small business. While seemingly straightforward, this segment gets lost amidst confusing definitions.
The MMM can be defined by some as a small business, having below $40mm in sales. But is a business doing $25mm a year in sales small? What about $5mm? To the owners, probably not.
Also, a definition of SMEs, meaning less than 250 employes, would also encompass the MMM. But this would put a business with $2mm in sales in the same category as one with $75mm in sales.
Depending on who you ask, a business with $2mm-$25mm in sales is a small business. We believe this label is in error, and that they are a small institution. And they view themselves as such.
The Problem with Existing Labels on the Micro Middle Market
Traditional categorizations fail to capture the essence of these businesses in the MMM. We also believe many businesses within this range do not identify as small. They operate with boards, have investors, and boast sophisticated management structures. As mentioned (and worth saying again), these are not merely small businesses; they are small institutions. Consequently, labeling them as such undermines their complexity and significance, especially within the economic landscape as a huge employer.
Why “Micro Middle Market”?
The term “Micro Middle Market” offers a more fitting descriptor for these businesses. Unlike small businesses, which may lack institutional characteristics, companies in the MMM exhibit traits akin to larger institutions. They have governance structures, strategic planning processes, and often engage in complex financing transactions and acquisitions. The term Micro Middle Market, we believe, encompasses this complexity.
Size Does Matter: Impact and Influence
Despite their size relative to corporate giants, businesses in the MMM wield considerable influence. They are major contributors to employment, innovation, and economic growth. In fact, estimates suggest that the MMM comprises approximately 15-18% of all businesses, making it the second-largest category after businesses with revenues of $1 million and under.
Revenue Is Not Enough
Revenue alone cannot capture the diversity and complexity within the Micro Middle Market. These businesses span various industries, from manufacturing and technology to healthcare and finance. Moreover, they exhibit diverse ownership structures, with some being family-owned enterprises while others are backed by private equity or venture capital. Regardless, they do not view themselves as small.
Navigating Challenges: Growth and Expansion
Despite their significance, businesses in the MMM face unique challenges. Access to capital, talent acquisition, and market competition are perennial concerns. It remains a very underserved market, financially (many banks won’t fund them) and legally (many clients cannot afford counsel). Moreover, navigating growth and expansion requires strategic planning and operational agility. While larger institutions may have dedicated resources, Micro Middle Market businesses must often wear multiple hats to succeed. The upside is, they can be more nimble and quicker to decide.
Recognizing the MMM: Policy Implications
Acknowledging the distinctiveness of the Micro Middle Market has far-reaching policy implications. Tailored initiatives focusing on access to capital, regulatory reform, and workforce development can support the growth and resilience of these businesses as a true segment in our economy. Moreover, fostering a supportive ecosystem that recognizes their contributions is essential for sustained economic prosperity.
Conclusion: Embracing Nuance
In conclusion, the MMM defies simplistic categorizations based on random revenue ranges. It represents a diverse array of businesses that transcend the traditional notion of small, yet are neglected because they’re not at least “lower middle market”.
By embracing nuance and recognizing their institutional characteristics, we can better support the growth and vitality of these vital economic engines. Let’s acknowledge the Micro Middle Market for what it truly is: a cornerstone of innovation, entrepreneurship, and economic dynamism.