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Episode Summary
You read the headlines about the Fed, the S&P, the layoffs at the FAANGs, and none of it tells you anything useful about the company sitting in front of you. Your suppliers are quoting 20-30% increases. Your customers are renegotiating. Your best operator just got a counter-offer you can’t match. And the data you actually need (how the middle third of the US economy is performing, hiring, investing, and exiting) basically doesn’t exist in one place. That’s the gap Doug Farren has been filling for over a decade. Doug is the Managing Director of the National Center for the Middle Market at Ohio State’s Fisher College of Business, and he’s been surveying a thousand owner-operators every six months since 2011. We got into the summer 2022 Middle Market Indicator (12.2% top-line growth, the highest on record), where confidence is cracking, the three headwinds owners actually rank as their biggest threats, and a brand new study with Fifth Third on what owners say after they sell. The number that stopped me: most exited owners are not buying yachts. They’re reinvesting the proceeds into new businesses. And the three things they wish they’d done better all show up years before the close.
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## Top 10 Takeaways- The middle market is a third of US GDP, and almost no one is collecting data on it. Including, probably, you on yourself.
- Revenue is the only top-line number that can’t be adjusted, owner-perked, or self-reported. Build your scorecard around things that can’t be massaged.
- Top-line growth hit 12.2% in mid-2022. Projections always run conservative, and actuals almost always beat them.
- Confidence in the global economy is dropping faster than confidence in your local economy, because local is where your customers, suppliers, and employees actually live.
- Inflation is being passed through by owners who have the information to price fast. The ones eating it are the ones flying blind.
- Rising rates don’t just cost more. They quietly delay every capital decision (ERP, facility, tech stack) you were planning to make.
- Carrying six months of safety stock instead of three is the easy lever. It works until the working capital hit shows up on your balance sheet.
- Most owners spend one to two years preparing the business for sale, then six to twelve months closing. Start the clock earlier than you think.
- The three things owners struggle with at exit: emotional readiness, valuing the business accurately, and communicating with employees and family.
- Most sellers reinvest the proceeds into another business. The exit isn’t the finish line. It’s a capital allocation decision.
Sound Bites
“100% of the companies on the planet that I’ve ever met, the middle market is everywhere. Mostly focused in the 10 million to 50 million, about 80% of the total middle market resides in that lower end. They are literally in every city, town, industry.” (@TBD) — Doug Farren
“Revenue is revenue. Top-line is top-line. It can’t be adjusted. It can’t be messed with in terms of the owner wants to put the yacht on the business.” (@TBD) — Doug Farren
“I would argue that the only people that are biting the bullet are the people that didn’t have the information to pass it on as fast as they wanted to.” (@TBD) — Ryan Tansom
“Being intentional about something is saying, you know what, this is what’s feasible. Let’s think big, but then let’s back that up with feasibility and then march forward.” (@TBD) — Doug Farren
“We thought it was baby boomers or people who just want to get the big check, go buy the yacht and sail off into the sunset. But actually we found a majority of the proceeds from the sale, people are reinvesting it. They’re entering new businesses.” (@TBD) — Doug Farren
About This Episode
Doug Farren is the Managing Director of the National Center for the Middle Market at Ohio State University’s Fisher College of Business, where he has led research, outreach, and education since the center launched with GE Capital in October 2011. Before joining the center, Doug spent his career in operations and supply chain, including roles as a Six Sigma Black Belt consultant and senior leadership positions at Limited Brands (Victoria’s Secret, Bath and Body Works) running distribution, planning, and international expansion. The National Center for the Middle Market is the longest continuously running source of middle-market performance data in the country, defining the middle market as companies between $10M and $1B in revenue. Doug joins Ryan to walk through the summer 2022 Middle Market Indicator and a new exit-focused study done with Fifth Third Private Bank.
Resources Mentioned
- National Center for the Middle Market — Doug’s organization, home of the Middle Market Indicator and the full research library. — middlemarketcenter.org
- Middle Market Indicator (MMI) — Semi-annual survey of 1,000 middle-market companies, now in its 38th wave.
- Fifth Third Private Bank Owner Transition Study — Joint research with the NCMM on ultra-high-net-worth owner exit experiences (75 owners surveyed, spring 2022).
- Google Cloud Middle Market Study — Forthcoming Q1 2023 research on cloud adoption across the middle market.
- Fisher College of Business, Ohio State University — Where the center is based.
- ADP — Source the NCMM uses to benchmark middle-market employment growth against small and large business.
- Bo Burlingham / Small Giants — Mentioned by Ryan as a community studying owner outcomes.
Connections
Phase + Module:
- Module 1 — Ownership Goals — Where your exit timeline, cash flow targets, and post-sale plans get defined years before the close
- Module 5 — Predictable Revenue — How you forecast top-line in a macro environment you don’t control
Milestones:
- Milestone 1 — Time & Role Goals — The personal preparation owners told Doug they wish they’d started earlier
- Milestone 13 — Strategic Plan — The annual decision-making framework for inflation, supply chain, and talent calls
- Milestone 15 — Revenue Systems & Forecasting — Forecasting discipline so your projections don’t lag your actuals
Concepts referenced:
- Normalized EBITDA — Why owner perks and adjustments make EBITDA a worse benchmark than top-line
- Value Gap — The space between what owners think the business is worth and what the market will pay
- Capital Allocator — The seat sellers step into when they reinvest proceeds instead of retiring
- Three-Statement Model — How rate hikes ripple through your cap-ex, working capital, and cash position