What Dun & Bradstreet Just Said About Business In America's Relentlessly Tough Economy

by: Wolf Richter

The winners and losers

There are only a few of them whose names we see regularly in the business and financial media, though there are 182,578 of them in the US, and according to the Middle Market Power Index by Dun & Bradstreet and American Express, they're the most vibrant and fastest growing segment of American business: middle market enterprises.

There has been considerable discussion about the German "Mittelstand," the often closely-held middle market companies, and how the German system supports them and helps them thrive, and how they're the backbone of Germany's vaunted industrial sector that drives its export-dependent economy. But little gets said about middle market companies in the US, and yet they are where the action is.

They're defined as generating between $10 million and $1 billion in revenue. As of Q1, the average middle market firm in the US employed 288 workers and generated $50.8 million in revenues.

Together, they account for only 0.96% of all companies in Dun & Bradstreet's commercial database of over 19 million active US businesses. But they generate $9.3 trillion in revenues in their increasingly global operations, and they employ 27% of all workers in the private sector.

Of the 19 million businesses in the database, 18.9 million, or 99%, are small enterprises with less than $10 million in annual revenues. On average, they have five employees and generate $295,270 in revenues.

And just 3,025, or 0.02% of all active US businesses, are large companies with $1 billion or more in revenues. The average large company employs 18,110 workers and generates $6.8 billion in revenues.

Small businesses have been decimated since 2011. The number of all commercially active companies has dropped by 17%, all of it on the backs of small businesses whose number dropped 18%. It has been tough out there for small businesses. Many of them didn't make it. Others weren't generating enough moolah. So the owners decided it wasn't worth the trouble and shut them down or just stopped doing business and went on to do other things.

But other small companies became successful and grew their revenues past the $10-million mark and thus moved up into the category of middle market firms. And there were a lot of them: Since 2011, the number of middle market firms soared by 87%, even as the number of small companies had plunged 18%!

And some of them were so successful that their revenues exceeded the $1 billion mark. Thus, they moved up into the category of large companies. With this influx, the number of large companies jumped 57% since 2011!

They're playing "a foundational role in the economic vitality of the country," the report explained. In other words, they're a vibrant bunch in a relentlessly tough economy.

They accounted for 52.9% of private sector net job creation since 2011! By comparison, large firms created 35.7% of the net new jobs during that period. And small companies created only 11.4% of the jobs, though they make up 99% of all commercially active companies.

The report summarizes it this way:

Thus, when assessing economic trends over the past five years, middle market firms are performing more strongly - in firm formation, employment, and revenue growth - than firms in any other business size class.

They're particularly strong in the manufacturing sector: 18% of them are manufacturers, as compared to 3% of all companies. Nearly 60% of middle market companies are clustered in these five sectors:

  • 18% in manufacturing (vs. 3% of all firms)
  • 17% in wholesale trade (vs. 4% of all firms)
  • 6% in educational services, such as private schools (vs. 1% of all firms)
  • 12% in retail trade (vs. 11% of all firms)
  • 6% in health services (vs. 6% of all firms)

Most of these companies have been around for a long time. Only 11% of middle market firms have been in business for 10 years or less, compared to 61% of all US firms! Which shows just how hard it is and how long it takes for a small company to make it to the next level.

Of all middle market companies…

  • 11% have been in business for 10 years or less (vs. 61% for all firms)
  • 35% have been in business for 10-29 years (vs. 28% of all firms)
  • 26% have been in business for 30-49 years (vs. 8% of all firms)
  • 28% have been in business for 50+ years (vs. 3% of all firms).

"All told, the mean number of years in business for middle market firms is 40 - more than three times the overall average of 13 years," the report said.

Despite the successes, it's tough out there for the average middle market company. They're besieged from all sides, and growth is a slow, hard slog: In the five-plus years since 2011, the average middle market firm increased the number of its employees by 8.7% and its global revenues by just 6.9%, which is nothing more than the rate of consumer price inflation over the period. And that slow-growth average middle market firm defines the most successful segment of US enterprise! A fitting description of the troubled real economy in the US and globally.

So is the job market for professionals now unraveling? Read… LinkedIn Job Postings Plunge, "by far the Worst Month since January 2009"