Braun Jones
Did you know that most jobs in this country are created by small- and mid-size businesses, not large businesses? In fact, as a group, most of the time large businesses reduce the overall size of the employment base, not add to it.
Depending on the source, the U.S. middle-market can be defined differently. For our purposes, one commonly accepted definition, in terms of total revenue, is that businesses are lower middle-market with less than $100 million, core middle-market with between $100 and $500 million, and upper middle-market with between $500 million and $1 billion in total revenues.
From 2005 to 2013, ADP payroll data estimates that the U.S. economy generated a net of 2.6 million private sector jobs. During that period, roughly 2.3 million were created by small businesses (1-49 employees), 1.3 million by medium businesses (50-500 employees), and large businesses (500 or more employees) actually lost one million jobs. If one were to assume an average of about $100,000 to $200,000 in revenue per employee, a 500 person company would generate between $50 and $100 million in revenues. This clearly illustrates that most job growth in the U.S. takes place in the lower middle-market (i.e., businesses with less than $100 million in revenues).
Another interesting source of data is provided by the website GrowthEconomy.org, a site funded by the Edward Lowe Foundation in partnership with IEGC and ACG. GrowthEconomy.org (GE) combines data from multiple independent databases to measure the performance of private capital-backed companies relative to other U.S. businesses. The website enables users to slice the data a number of ways including by national, state and metropolitan statistical area (MSA), or even by congressional district. In addition, GE can sort its results by industry sector or company size. When one looks at the jobs data by company size, the ADP findings above — that lower middle-market companies are the primary source of job growth in the U.S. — are easily supported.
A review of the GE site yields some very interesting statistics. If one considers the broadest possible sampling GE offers, the years from 1995-2009, some highlights from the data reveal that:
- Private capital-backed companies grew jobs by 81.5%, while all other companies in the U.S. economy grew jobs by 11.7%
- Private capital-backed companies grew sales by 132.8%, while all other companies in the U.S. economy grew sales by 28.0%
- Middle-market private capital-backed companies created more than twice the amount of new jobs (339,909) than any other employment stage.
- Private capital-backed companies had more annual relative growth every year except one when compared to the general U.S. economy
Given the above data, one may ask the question that if middle-market companies are so critical to job growth and the vitality of the overall U.S. economy, should we not support public policy that promotes the growth of middle-market companies? In addition, given that middle-market businesses backed by private capital investment firms so dramatically outperform other similar size companies, should we not support public policy that encourages these investors to provide this critical source of growth capital?
ACG, or “The Association for Corporate Growth,” mentioned above, is a non-profit membership organization that is very interested in supporting public policies that promote middle-market growth, as well as the capital markets and service advisors that support it. ACG was founded in 1954, is headquartered in Chicago, IL and has about 15,000 members. ACG’s members include professionals from the “corporate growth community” – c-suite executives, private capital investors, lenders, and advisors to thousands of middle-market companies. ACG’s members are focused on building and growing value in companies, but because their work primarily involves private companies and private investments, the positive impact this community provides is not well understood by those outside of the field.
Several years ago, ACG established its “Middle-Market Voice Committee” to research these critical issues and discuss with policymakers the importance of the middle-market as a contributor to the overall success of the U.S. economy. ACG has developed a Public Policy Agenda that outlines all of the relevant policies, laws, and regulations, either already in place or being considered, and states its position on each. I encourage you all to review this document and after doing so, please reach out to your elected representatives and let them know your position. If we work together, we can all help keep the middle-market roaring.