Companies like Under Armour didn’t start out as multi-billion dollar enterprises. Rather, it and many others like it got their start in a category of 200,000 growing American businesses that comprise what has come to be known as the middle market. With annual revenues between $10 million and $1 billion, some of these mid-sized companies have achieved national household name recognition – Jamba Juice, Ethan Allen, K-Swiss, or Tootsie Roll – while others such as Standard Textile serve as the backbones of local communities.

But standout performance isn’t just limited to the nationally known break-out companies with revenues approaching $1 billion. In fact, the middle market segment as a whole has been growing well with revenue rates that the nation’s economy hasn’t seen since the 1980’s. At five percent in 4Q 2013, revenue growth at mid-sized businesses is twice that of the U.S. economy overall and five times that of the S&P 500. And, with an employment growth projected at 2.2 percent in the year ahead, middle market companies could potentially add 1 million new jobs in 2014. 

It’s a market segment that we have only tracked very recently and yet, one that’s contributed so much robust growth to the U.S. economy – representing 70 percent of new job created in 2013. In it’s three years of research exclusively on this sector the National Center for the Middle Market (NCMM), a partnership of the Ohio State University’s Fisher School of Business and GE Capital, has revealed the substantial contribution this segment provides to our national economic well being, as well as what it takes to grow a business in today’s post-recession economy.

The segment overall has bucked national growth trends. The NCMM has found that businesses within its definition of the middle market have experienced growth differently than businesses of other sizes. According to the NCMM’s latest quarterly Middle Market Indicator (MMI) report, companies on the lower end of the middle market with annual revenues between $10 million - $50 million have experienced a steady decline in revenue performance over the past year, dropping from a high of 6.3 percent growth in 4Q’12 to a low of 4.65 percent in 4Q’13. While emerging large companies in the middle market with annual revenues between $100 million - $1 billion have also experienced a moderation in revenue growth. These rates leveled out at 5.6 percent between the third and fourth quarters of last year. 

When it comes to employment growth, trends have deviated more starkly, with emerging large companies experiencing growth at 3.19 percent in the fourth quarter of 2013, compared to 2.5 percent growth at smaller firms. With less resources to mitigate short-term disturbances, it’s no wonder smaller firms grew their companies less rapidly in a business climate characterized by rocky implementation of new health care laws, tightened credit availability and the prospect of Fed tapering.

Despite their varying growth experiences, however, when asked about the key challenges to future growth, responses from executives at both lower and upper middle market firms were actually quite similar. From the cost of health care to corporate tax policy, both ends of the middle market spectrum agree that uncertainty perpetuated by federal policy is a critical barrier to achieving future growth.

The fact that crises emanating from Washington detract from the overall U.S. business climate is nothing new. The middle market recognizes this uncertainty and according to a group of unanimous middle market executives, it is having direct impacts on the business decisions made at middle market companies. Middle market executives say they are less likely to hire, more likely to cut back on unnecessary business expenses (like travel, bonuses, or incentive pay), and are less likely to make capital investments right now.

Mid-sized firms are also concerned across the board about the ability of their senior leaders to be effective, innovate new products, services or processes, and about how to expand into new domestic markets. 

These challenges have remained top of mind since the National Center for the Middle Market began its MMI research eight quarters ago.  However, without pro-growth solutions, business confidence in the national economy is waning while confidence in both local and global economies is on the increase. We need to foster an environment for economic growth where private investment is paired with the right management tools and strategic planning to ensure our nation’s 200,000 mid-sized businesses maintain stellar growth rates.

The key to harnessing this opportunity, of course, is good data that neither the Small Business Administration (SBA) nor publicly traded firms previously kept or monitored. In the spirit of empowering growth through knowledge, the Small Business Investors Alliance (SBIA) and the NCMM have formed a new partnership to learn more about the challenges and opportunities that management teams of small and mid-sized businesses are facing. 

The middle market has demonstrated its capacity and enthusiasm for growth, which has been tempered for too long by a lack of attention to its most pressing challenges. Through a commitment to better understanding this vital sector of our economy, private capital investors can start to fill the void in public policy when it comes to generating opportunities for middle market companies to soar.

Makhija is academic director of the National Center for the Middle Market. Palmer is president of the Small Business Investors Alliance.