How do you Define the Middle Market?
In doing research for Be Your Own Investment Banker I spent time digging into what exactly is the middle market. There is a lot of conflicting and vague definitions. When does the small business market start and stop and lower middle market begin or end? Following find my interpretation of how the middle market is defined, including my segmentation by size of the micro business market, small business, and middle market.
Something else came up during my research. The SBA cites 28 million businesses in the United States and most of these being small businesses. This number is all over the internet and used in articles and blog everywhere. The problem is I can’t find the data to support that number. If you have the data set that supports it please let me know where it is.
What I could find is data from the 2013 US Census that accounts for 7,488,353 Establishments. This to me seems to be a more beliveable number.
First, the US Census is responsible for collecting this data and there are multiple tables and years to evaluate, nowhere does 28.8 million show up.
Next, think about the other piece of data the SBA shows above, 401,000 business closures and 406,000 startups for a net increase of 5,000 new businesses. I have looked at the attrition rate and it is steady. It would take a long time to build up to 28 million companies when you only create 5,000 a year.
So what if the Census numbers are the real numbers how do we figure out the various segments and the numbers of companies that go into each segment?
This to me would be helpful to get a feel for the number of potential companies that are in the different market segments.
I looked at a great survey by the National Small Business associations Economic Report They survey 1047 companies to take their temperature on the Economy and get past performance data to compare against prior projections. Included in the report is demographics on Employment and Revenues.
If you agree with my assumption that I can apply the survey results on a percentage basis against the US Census data you get
Micromarket: $0-1 Million in Sales 4.7 million businesses
Small Business:$1-5 Million in sales 1.6 million businesses
Small to Lower Middle Market Bridge: $5-25 million 599,068 businesses
Lower Middle Market: $25-75 million 74,884 businesses , $75-150 million 37,442 businesses >$150 million 149,767 businesses
Middle Market is defined by Several sources as 10 million to 1 billion in sales,with theLower Middle Market called out from $10 million to $250 million. Given my segments from the survey, I can’t make the cutoff between 5-10 and 11-25 for better clarity on where small business stops and the lower middle market starts.
I would love to hear your opinions on these numbers and if you feel they are reasonable projections of the composition of the US business market or if you refute these numbers let me know where you are getting your data so we can compare notes.
Joe Solari is the Author of “Should I Incorporate” and provides a training course on how to sell your small business without using a Broker or Investment Banker.