Mid-Sized — Not Small — Business Drives Economy
NEAL CONAN, HOST:
This is TALK OF THE NATION. I'm Neal Conan, in Washington. Small businesses are the politicians' darling. Lawmakers proclaim that small-scale entrepreneurs will be the engine of economic recovery. Others argue that it's big businesses that really drive the economy, behemoths that employ thousands of people all across the country or the globe.
Yet, a recent study concludes that they're both wrong, it's the middle market that's doing the hiring. As small businesses treaded water and big employers shed millions of job, mid-sized companies added some two million workers in the last couple of years. And they do all that without the help of the Small Business Administration or the Chamber of Commerce.
We're talking about businesses with sales between $10 million and a billion dollars annually: factories, construction companies, professional services. If you own or work for a business in the middle market, call us and tell us how it's going, 800-989-8255. Email us, email@example.com. You can also join the conversation on our website. That's at npr.org. Click on TALK OF THE NATION.
Later in the program, Occupy Wall Street on the Opinion Page this week: What would define success? You can send us an email now, firstname.lastname@example.org. But first we begin with one of those middle-market business owners. Bruce Lackey is president and CEO of Happy Chicken Farms and joins us from his office in Urban Crest, Ohio. Nice to have you with us today.
BRUCE LACKEY: Thanks for the invitation, glad to be here.
CONAN: How's business?
LACKEY: Business for us is mixed. Sales are up, but margins are flat, at best.
CONAN: Margins are flat. So your volume is up, but you're making less and less per - what is it you distribute, eggs?
LACKEY: Eggs and dairy products, yes.
CONAN: And we hear, all around, about the spike in fuel prices. That's been going up and down. But I assume that's a big part of your costs, as well.
LACKEY: Payroll costs are up. Equipment replacement costs are up. Certainly fuel costs are also up, but other costs associated with current and new regulatory laws are also increasing. But yes, generally, we're working harder for about the same amount earning. But we're blessed, so...
CONAN: OK, what happens when you see new regulations?
LACKEY: Most of the time you look at them, you analyze them and try to see how they're going to affect your business. And if you're a good manager, you figure out ways to actually incorporate them into your business and make it an advantage over your competition.
CONAN: But I'm not hearing that you're placing call to your lobbyists on K Street to see if you can get those changed.
LACKEY: Middle market, I don't think, can really move that needle as much as the billion-dollar-plus companies can, nor maybe the small businesses, you mentioned earlier, the darlings of the media.
CONAN: Yeah, and so what would - we mentioned there is an SBA for small businesses and the Chamber of Commerce, and big businesses, of course, can do a lot to take care of themselves. What about you guys in the middle? What would help?
LACKEY: Well, we had a conference here in Columbus, Ohio, just a week and a half ago, sponsored by GE Capital, that did just this. We think that various industry groups could perhaps, using someone like a GE, could put together an advocate for middle-market companies and perhaps bring our ideas and, not necessarily our plights, but our ideas how to make some regulatory laws a little more meaningful to our industry.
CONAN: A little more meaningful, you mean a little less onerous?
LACKEY: Onerous, yes, something that we can actually look at and say this over here does work. Maybe these two or three things off to the side don't really particularly help our industry, nor the consumer.
And I - we're going to be talking more about that meeting in just a big. But were you surprised to find yourself in such company?
Yeah, it was great to see the attendees there and get to talk with them and see how much we really did have in common.
CONAN: And for example what did you have in common, hiring for one?
LACKEY: Hiring was certainly one of the topics, finding good talent. There's certainly unemployment out there, but finding the right talent is always an issue, but more so, the last couple of years. It was interesting to get everybody's notes how their businesses performed 2008, '09 and '10. And that did make us say boy, we are blessed because we didn't have to have any layoffs or pay cuts or any other type of drastic changes to maintain our business, economic activity here.
CONAN: And what do the next six months to a year look like as they project ahead?
LACKEY: Certainly there's a lot of uncertainty, and that was one of the big themes that came out of the meeting: economic uncertainty and regulatory uncertainty and political uncertainty. But as I stated, as long as there's owners out there, regardless of regulations, we're going to figure out a way to hopefully beat our competition and get the orders and continue to stay in business and advance.
CONAN: Bruce Lackey, good luck to you, thanks very much for the call.
LACKEY: Thank you very much. I appreciate it.
CONAN: Bruce Lackey, president and CEO of Happy Chicken Farms in Urban Crest, Ohio, a second-generation business owner and plans to pass the business down to his children.
Here with us in Studio 3A is NPR senior business editor, Marilyn Geewax, and nice to have you with us again.
MARILYN GEEWAX, BYLINE: Hi, Neal.
CONAN: And you were at that national middle-market summit at the Ohio State University. How much of the U.S. economy are we talking about here?
GEEWAX: Well, it was kind of surprising to me. You know, I've studied business for years, and I didn't know that much about the middle market. That's really the purpose of that summit was to call attention to it. And what I found out was the slice of business they're talking about are companies that make - have annual sales of like $10 million up to about a billion.
So they're not small businesses, but they're not giant international, multinational kinds of corporations. And this slice of America, there are only about 200,000 businesses that fit that description. That's only three percent of all companies. And yet this little sliver ends up contributing about 34 percent to all private employment.
So we're talking about 41 million jobs that come from just these 200,000 companies.
CONAN: Why are these companies thriving when, as we're seeing, small business, if they want to expand, they're having a hard time getting loans, and big businesses, as we know, are letting people go.
GEEWAX: Well, I talked to some experts about this middle market, and the thing that comes through is that they tend to be businesses that are very particular: The find a market, they know what it is, they learn to understand their customers, and it's very face-to-face. It's not the kind of thing that's a mass-produced product.
If you're a company like Apple, of course you're enormously successful, but most of your workers are actually in China just, you know, sort of almost human robots just cranking out these products for you. But with these middle-market businesses, they tend to be very much the pillars of their community.
They're manufacturers who are, you know, the guys who support the Little League team, and they go to the Rotary meetings, and they're very much a part of American life, and they tend not to lay off their workers very quickly because they need that talent, they need the people who know their business and their little niche.
And they have these very face-to-face relationships with their customers. So when hard times hit, they don't panic so much, and they don't grow so quickly, but they're just steady. They're growing. Every day, they come in, and they do the best they can, and they just advance the ball a little bit. But that's really where the job growth has been.
CONAN: We're talking with Marilyn Geewax, NPR senior business editor. If you own or work for a middle-sized American company, call and tell us about your business and what's been changing as we've all gone through the difficult times these past several years. 800-989-8255. Email us, email@example.com. Grant's(ph) on the line, Grant calling form Provo, Utah.
GRANT: Hello, I work for a company call Fishbowl. We provide advanced inventory control and manufacturing software for what I call high-end QuickBooks users, which is I guess the standard for accounting in the country. So our client base are companies that manufacture product or, you know, they're wholesalers, distributors. They do between, I don't know, maybe $2 million on the very low end to $150 million on the high end. And business is booming for us.
We're up about 50 percent year over year.
CONAN: Fifty percent year over year?
GRANT: Yes, yes, and the only reason I can account for that, since we've been in business for about 10 years, is I just think the economy, at least with those bigger small companies, that group we're talking about, I think they see the economy growing, or maybe it's already grown to the point where they need a software like ours.
CONAN: And this is an accounting software. So as they expand, they're going to need more services like yours.
GRANT: Well, actually our software's not accounting, it's inventory control and manufacturing software that integrates with QuickBooks. QuickBooks is the de facto standard around the country.
CONAN: You're plumbing my profound ignorance about business.
GRANT: That's okay, that's okay. But there's millions of companies that - you know, smaller businesses that use QuickBooks, and we are the number one add-on software to QuickBooks. So as these companies grow, and they need to track their inventory better or do better at manufacturing, that's where we come in.
GEEWAX: This is exactly the kind of business that I was talking about, where you have a very particular product or service. It's not something like we all know what an iPhone is now, and so you can identify that. This guy has to take a while to explain to us what his business is because it's very particular. And those are the businesses that hang onto their workers. They don't hire quickly, but they don't fire quickly.
And I've heard time and again from all the experts I've checked with that these are the kinds of businesses that really have been growing. And here's to me the best statistic out of all of these things that Ohio State's research turned out was that they looked at that period from 2007 to 2010, and big businesses cut 3.7 million jobs, but the middle market added 2.2 million jobs.
And on average, if you work that out, it's about 20 employees per company. So a guy like this, our caller, is adding employees at a slow pace, but when you put it all together, it's a huge impact.
CONAN: Would that be a fair description of your company, Grant?
GRANT: Yes, it is, although we are hiring fairly fast. We'll probably 100 employees by the end of the year. Two years ago, I think we were at about 60.
CONAN: And you're in one location?
GRANT: We're in Orem, Utah.
CONAN: But you're just in that town, and let me ask: Do you sponsor a Little League team?
GRANT: No, we do other things, you know, sporting competition, like we had a group of our employees in, kind of, a marathon-type thing we did during the summer. You know, we do other things like that. But we do - our software is sold around the country. It's not just here locally. But all of our employees or almost all of our employees are here local
CONAN: Well, Grant, thanks very much, and continued good luck to you.
GRANT: Thank you.
CONAN: We're talking about the mid-sized companies that are one part of the economy that is adding jobs. A new survey shows just how big a role those companies play in the U.S. economy. More about that next. If you own or work for a business in the middle market, call and tell us how your business is going, how it's fared these past few very difficult years. 800-989-8255. Email us, firstname.lastname@example.org. Stay with us. I'm Neal Conan. It's the TALK OF THE NATION from NPR News.
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CONAN: This is TALK OF THE NATION, from NPR News. I'm Neal Conan. The engine of economic growth may not be where we all thought these years. Instead of small businesses, a new study suggests that middle-market companies may be the best bet to create jobs and spark economic growth.
That study was done by the Ohio State University. It shows that despite the failing economy, a vast majority of mid-sized companies expect to grow in the next year and that more than one-third of U.S. workers are employed by these companies. More about that study in just a moment.
If you own or work for a business in the middle market, tell us how it's going, 800-989-8255. Email email@example.com. You can also join the conversation on our website. That's at npr.org. Click on TALK OF THE NATION.
Our guest is NPR senior business editor Marilyn Geewax. She attended the 2011 National Middle Market Summit at the Ohio State University earlier this month. And joining us now from Ohio State is Christine Poon, who is the dean of the Fisher College of Business there, and nice to have you with us today.
CHRISTINE POON: Thank you, Neal.
CONAN: And we just released this study of middle market, and we had this conference a week and a half ago. How come we're waiting until now if this is such an important part of the economy?
POON: That's a good question. You know, this is a really interesting part of the economy. When we began this research project with GE Capital, I'm not sure what we were expecting, but we certainly did not expect to find a set of companies that were contributed so much - so many jobs, were such a big part of the private-sector economy and had some great growth prospects in front of them.
CONAN: And, well, everybody studies Coca-Cola or GM. I guess there's also the great romance of the mom-and-pop business or the guys who start a computer company in their garage. But why does nobody study these mid-sized companies?
POON: The challenge in studying these companies is that these group of companies are really heterogeneous. So they go all the way from family-owned companies to publicly traded companies. And that in itself puts forward a really big challenge to study this market in more traditional ways.
CONAN: So other than size, what distinguishes this group of companies?
GEEWAX: These companies are interesting in that they're actually fairly stable companies. When we looked at the average age of a middle-market company, it was about the same age as the large, multinational businesses. So that was sort of interesting to us. They're more stable than the small businesses, but they are of course much smaller than the large multinationals and so have less ability to shape or have a voice when it has to do with regulations or public policy or legislation.
CONAN: So Marilyn Geewax, that does not suggest that these are mid-sized companies just about - or at least most of them - just about to become very big companies.
POON: It's interesting. We - again some of our research showed that one in four large companies was a middle-market company just five years ago.
CONAN: Ah, that's interesting. Marilyn?
GEEWAX: You think about a company like Google, it had to pass through a middle phase. You know, so you start out with a small business, and you get to that middle level, and maybe you turn into one of those gazelles, one of those really fast-running companies that suddenly ramps up to have tens of thousands of employees.
But while you're in that incubator phase, that middle-market area, you need to, you know, get some help, too, sometimes. And the main thing that I heard at Ohio State was a lot of the people just said, as our earlier guest Bruce said, the middle-sized business owner said, it's the regulatory process that often is daunting to them.
They feel like they need to have a little more help with understanding what is it that they're supposed to do. They don't have time for lobbyists and lawyers. They just want to know what they need to do to turn into a bigger company and to keep growing, and that seemed to be a pretty big concern.
CONAN: Chris Poon, let me ask you, also we hear about big businesses sitting on a lot of cash reserves as they wait to see how the economy is going to move, if it'll improve, and they can invest. What about these mid-sized companies. Are they sitting on big cash reserves?
GEEWAX: You know, it's interesting. We're not able to get an answer to that question. It's actually one of about a thousand really interesting questions we would like to get an answer to. I will say that what was interesting is we looked at a subset, publicly traded middle-market companies. And we found that the top 20 percent of these companies were growing at something of the order of 10 times GDP.
So there are significant number of these companies that are showing extraordinary growth, investing in innovation and really, as Marilyn said, putting jobs into the marketplace.
CONAN: Let's get another caller on the line. Let's go to Todd(ph), Todd with us from Williamsport in Maryland.
TODD: Hello, (unintelligible).
CONAN: Hi, Todd, you're on the air, go ahead, please.
TODD: Yeah, I work for a company called Xerxes Corporation. We build underground fuel storage tanks. I've been here approximately 20 years as of July, and I guess in '91 was my first year, I was laid off twice that year, and we haven't been laid off since. We're working 50-hour weeks, 58-hour weeks, 10-hour days, and we're still hiring, actually.
So, I mean, we're really doing well.
CONAN: And underground fuel construction, that's what you focus on?
TODD: That's the only thing we build: underground fuel storage tanks.
CONAN: And since '91 - there was a recession back then, too - since '91, how much has the company grown?
TODD: Well, we downsized in '91. We went from around eight plants down to five, and we're generally located, you know, one plant on the East Coast, one plant in the Midwest, one plant in Texas, one plant in California. About three years ago, we were purchased by one of our subsidiaries from Canada, and, you know, we just really have been doing very well. I'm just happy as can be.
CONAN: Todd, congratulations, and thanks very much for the call.
TODD: You're welcome.
CONAN: That, Chris Poon, Marilyn Geewax was saying for the most part, like that caller, the Xerxes company, these companies focus on one thing.
POON: That's interesting. They do. One of the things that we found is that many of these companies have deep roots and commitments to their communities. So they source locally. They do business locally, regionally. And because they - because the more successful ones, like our last caller, sounds like they also are very committed to being innovative, to have a very differentiated product in there, and I think that's what leads to the most successful of these middle-market companies.
GEEWAX: And this is also why they tend to have a lot of employees relative to their size because they can't really automate that kind of individualized attention in a really particular product. It's not a mass kind of business. It tends to be - you need a really good machinist who really knows your business. Or you need a really good accountant who actually deeply understands what you're doing. So it's a very labor-intensive segment of the economy.
CONAN: Here's an email we have from Ike(ph): I agree fully. I work for ConnectWise, a software company in Tampa. We're doing pretty good, given the state of the economy, et cetera. We're also extremely fortunate in that we have good management and are expanding. I wish there were more businesses like this one around. I/we are very fortunate.
And this question from Jason(ph) in Rupert, Idaho: I'm wondering if there's any kind of multiplier effect that comes from these small, medium-sized businesses hiring people. Obviously, the more people they hire, the more people have spending money. Is there any kind of data that shows that X number of employees at a medium-sized business create Y number of employees in other businesses in their communities? Chris Poon, do you have any information on that?
POON: You know, another great question. We don't have an exact answer to that, but when we compare, let's say, the typical middle-market business. A middle-market business is operating - only about a third of those companies operate on a global basis, so the bulk of their business, 70 percent of their business, they operate in the local, regional or national level.
And of course from any of these companies then, it's this idea of these community pillars. They're deeply rooted in this nation, in their communities, and of course for those that are successful and growing, they're surrounded by their own supply chain.
And so successful middle-market companies create, I think, strong, successful communities. It's another reason why, from a social standpoint, these middle-market companies are so important to our nation.
CONAN: Let's go next to Rita(ph), Rita calling from Kansas City.
CONAN: Hi, go ahead, please, you're on the air.
RITA: Yes, I work for a middle-sized company that's a retailer, and our problem has not been the number of employment but under-employment. Each employee has had hours cut to the point where they're like five hours a week, 10 hours a week. What's the solution to that?
CONAN: So in other words, they're not letting people go, but they're cutting time back.
RITA: Right, they're adding people still and still cutting our time back. I've been associated with this company for about 11 years now. They're cutting us back so that nobody can make a living.
GEEWAX: Well, this is one of the things that is a strength, in a sense, for the middle-market company owner. Now, maybe it doesn't feel so great if you're one of the workers, but they tend to be non-union, and they tend to have more flexibility. What they want to have is the ability to ramp up if the economy suddenly turns more positive. Then they've got a bunch of workers who are semi-trained and in the wings and ready to come rushing in, and they can ramp up for this holiday season in a retail operation.
But as she said, sometimes that can be pretty painful for the workers because they're - they may have to be - have their hours cut back a bit if the economy isn't doing so well. And some of the people I've talked to said that although it has been a good 12-month period for middle businesses, in the past three, four weeks or so, it's turned down a little bit. The economy is - seems to be weakening for a lot of them, and so there may be a little bit more of that kind of tweaking that she's mentioning - cutting back hours, cutting back pay at some companies.
RITA: Yeah. The problem we have, too, is we have no set schedules. So you can't really go out look for another job. They want to keep you there for your experience and for your talents. But they won't let you, you know, allow you out to get another job so you can actually make a living.
CONAN: Rita, we wish you the best of luck. Thanks very much for the call.
RITA: OK. Thank you.
CONAN: And, Christine Poon, is it fair to say that these are, for the most part, non-union shops?
POON: You know, we didn't ask that question directly, so I can't answer that question for you.
CONAN: Good thing you've got a five-year grant.
POON: I know. Well, we just got it, so we're just beginning.
CONAN: Here's an email we've got from Lynn: I went from sales in big pharma to sales in a mid-sized school picture business, strictly for the job security. Big pharma was purging jobs two years ago. I feel this niche business has more job security because there are fewer employees. I'm the only sales rep in my territory, versus one of 10 sales reps that can be downsized or merged into fewer reps. So far, so good. Sales are steady. I didn't realize that the school picture business was quite that big a business.
But this from Clay: Our company has revenues just over $10 million per year. It's absurd to call us a medium-sized business. Yes, we are growing, but we're a small business without the advantages that medium and large businesses have. The credit for our growth should go to small businesses like ourselves. The U.S. Small Business Administration provides benefits to all companies with fewer than 500 employers - employees, I'm sure he means. To label companies in this range as medium-sized is an inappropriate confabulation that goes against 50 years of small business innovation in this country. And Marilyn, that's where we get down to these definitional issues.
GEEWAX: Well, that's the thing, is that, you know, we're literally talking about millions of small businesses if you count the one-person freelance journalist, the cleaning lady with maybe two employees, somebody who makes T-shirts, you know, that kind of thing. There are some businesses that are extremely small. So what are we talking about when we say small business? Is it just the plumber, or is it a company with, you know, maybe scores of workers? So these definitions are definitely, you know, they can be stretched and looked at whatever you want. But Ohio State has chosen to define it as about 10 million in sales to one billion.
CONAN: And why did you pick that 10 million as the bottom mark, Chris Poon?
POON: Well, you know, we looked at sort of where - Small Business Administration, to find their small business cutoff. And as Marilyn says, it's a combination of numbers of employees. It differs by sector. It's by revenue. In some cases, it's by employees, in other cases. So when we looked at it, we - it felt like somewhere between 10 to 15 million was where you transition from a small business with this kind of support that SBA provided to you to sort of growing into this transition where you began to not have that support network that SBA provided for you.
CONAN: Christine Poon, the dean of the Fisher College of Business at the Ohio State University. Also with us: Marilyn Geewax, NPR senior business editor. You're listening to TALK OF THE NATION, from NPR News. And let's get Brian on the line, calling from Salt Lake.
BRIAN: Hi. How are you guys?
CONAN: Very good, Brian.
BRIAN: You know, we're cresting at $10 million marks. We have about 70 - 60 to 70 employees and do industrial fabrication for the gold mines and the refineries and different niche industries like that. And we're doing really well. The margins are still being created. We kind of feel a lot of the banks, you know, they're still reeling. They don't want to lend money. So we feel fortunate to have those relationships, but we're picking up. We're trying to hire a person a week, which for us is huge. And our, you know, we feel good about the next couple of quarters, anyways.
CONAN: And some of those businesses are - gold mining, for example, that's really booming.
BRIAN: Yeah. They seem to be - they seem to have a gold mine.
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CONAN: I bet that's the first time you've ever told that joke, Brian.
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BRIAN: It is, actually.
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BRIAN: We're doing really well. So...
CONAN: Well, and one person hired per week. Typically, what kind of job is it?
BRIAN: You know what? That's interesting. I was sitting here thinking, I'm just so proud of all of our dollar velocity and our contributions, because right now, we're looking at - you create new bottlenecks as you hire. In the past, we've been hiring welders, mechanics and maintenance guys. And now we're looking - we have to hire some additional draftsmen. You know, we kind of have a ratio we have to follow. And so we're going to be hiring all sorts of different people if we can even maintain part of this growth for the next year or two...
CONAN: Well, Brian, continued good luck to you.
BRIAN: ...all level of skills.
CONAN: It sounds like you've got a gold mine, too.
BRIAN: Not quite.
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BRIAN: We are busy, and things look good.
GEEWAX: You know, Neal, one of the things that I did here at the conference, too, was this concern about the inability to hire people with the right skills, because you can't easily put out an ad for the whole country. You're looking for one person who wants to live in your one town, and sometimes that can really be a challenge for a lot of these middle-sized companies trying to find people with sufficient talents to help them continue to grow, but who want to live maybe in a - not a major market.
CONAN: Here's one final question by email from Karen in Cambridge, Massachusetts: Not only are the midsized companies more likely to grow in staff than large companies, they are also the companies more likely to innovate compared to large corporations that need to meet shareholder demands quarter to quarter. The midsized companies can invest in their focused applications and develop new technologies. It's more likely we will see many of our developments come from these middle-sized companies. Christine Poon, we just have a few seconds left, but would you say that's accurate?
POON: Absolutely. When we look at that group of companies that we're growing exponentially, the number one thing that made them different was their focus on innovation.
CONAN: Focus on innovation. And are they, for the most part, privately-held companies, family-owned companies? Or are they available publically, or who are offered?
POON: You know, when we looked at the middle market, the vast majority of our companies are either family-owned or privately-held. Only about 15 percent of the middle-market companies are publically traded.
CONAN: Chris Poon, we look forward to your findings over the next five years, as this study continues. Appreciate your time today.
POON: Thank you.
CONAN: Chris Poon is dean of the Fisher College of Business at the Ohio State University. We'd also like to thank Marilyn Geewax, who's NPR senior business editor, who joined us here in Studio 3A. Marilyn, as always, thanks very much.
GEEWAX: You're welcome.
CONAN: Coming up: After a month of Occupy Wall Street protests, it's on the Opinion Page. This is NPR News.
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