Midsize and Mighty
Mike Mazzeo discusses how middle-market companies can chart a successful path to growth
Many small and middle-market companies strive to identify avenues for growth, but the best path is often far from clear.
The right strategy, according to Mike Mazzeo, associate professor of management and strategy, enables companies to retain the unique attributes — such as proprietary knowledge, proven processes or the flexibility to respond to changing markets — that constitute their competitive advantage.
This insight was developed during Mazzeo’s “Roadside MBA” research project. Along with colleagues Scott Schaefer from the University of Utah and Paul Oyer from Stanford, Mazzeo visited 24 states to study more than 120 small and midsize businesses. The team’s in-depth interviews with executives across a range of industries revealed both best practices and common mistakes.
“We talked with executives with business models that were not particularly scalable about how their desire was to franchise this business,” Mazzeo said. “On the other hand, we saw companies that were expanding internationally and trying to learn more about how to sell their products overseas.”
Mazzeo shared four guidelines that middle-market executives should consider when seeking to grow:
- Increase quantity without incurring additional fixed costs. The best starting point for growth is to identify areas of the business where a product can be designed or produced just once to serve an expanding customer base — essentially achieving economies of scale with limited additional investment.
- Verify that sufficient demand exists before investing the fixed costs. By conducting rigorous analysis of information on specific markets, companies can have greater confidence that demand exists to support large-scale investments in production or new product development. “The use of market research and analysis is an indicator of a company’s maturity,” Mazzeo said.
- Ensure that growth is built on superior resources and capabilities. Executives should look beyond their original industries and geographies by thinking creatively about the applications of their expertise. “I think it’s helpful for middle-market companies to think about nontraditional ways of getting their ideas, products and services out there without building an international sales force,” Mazzeo said.
- Recognize the areas of the business that are not scalable. Business leaders must resist the temptation to grow at any cost because doing so may cause the company to lose the distinctive characteristics — such as unified vision or flexible infrastructure — that made it successful in the first place.