Stuck in the Middle with You
Medium-sized businesses are ‘stuck’ in the middle of the Australian economy.
Trendy start-ups find it easy to attract publicity and investor interest, despite the negligible number of people they employ, while Australia’s innumerable small firms enjoy a range of state and federal concessions to attract the swathes of votes they control. Major corporates and foreign multinationals are showered with generous benefits by regions eager to attract headline catching investment and much needed job opportunities.
Unfortunately, Australia’s hard working mid-sized sector is frozen outside these high priority categories and remain under the radar of the nation’s policy makers and financial decision makers. Medium-sized firms are too well established to attract government largesse, but too small to interest large scale investors or the major banks, who view them as a high-risk, low-profit sector. While many firms are content to stay their current size, those that wish to grow are all too often frustrated in their ambitions, and are in hope for change in the future.
Medium-sized businesses can be found in every sector of the economy and every region of the country. While this diversity is the key to the sector’s importance to the economy, it also hampers attempts to unite them to promote a united message to government. Increasing the total revenue generated by the medium-sized sector to a third of the Australian economy, matching the contribution of the major corporates, would increase their visibility and attractiveness to banks, government and universities alike. This ambitious target could be achieved through either doubling the number of medium-sized businesses, or doubling the growth of the existing lower half of the sector. Both paths would provide quick momentum in revenue and stimulate benefits for upper half of the sector.
Deprived of corporate subsidy and ignored by big banks, mid-sized businesses in regional areas must rely on their own resources to realise their ambitions if they are to double in size. The most important resources in any organisation are the skills and experience of its management and workforce, but hard pressed managers and owners in mid-sized firms often lack the leadership and financial acumen of their corporate peers. These mid-size firms are often run by experts in their product field, their founders and their family, rather than people with the necessary management or financial skills for large business. While they excel at producing their products and meeting their customer’s needs, existing management teams can therefore lack the expertise they need to lead fast growth and realise their full potential.
While most such firms could identify their monthly profit, few would assess their working capital flow cycle, consisting of the available funds once working capital, debt repayments and future growth have been accounted for, nor know how to develop strategies that increase free cashflow. Such mid-size firms would benefit greatly from educating themselves and their managers with relevant leadership and financial expertise in order to double or triple in size. Alternatively, they could consider seeking more experience management, however this comes at a cost they may be reluctant to pay. Highly qualified operational managers and skilled financial controllers demand six figure salaries and do not make an immediate contribution to the bottom line However, their expertise could prove invaluable in safely transitioning to faster and more aggressive growth goals.
Companies wanting to double their growth would be well advised to invest in financial and leadership expertise, alongside modern software and stock techniques to improve efficiency, just as much larger firms do. However, the argument for growth tomorrow is difficult to make when the priority is sustaining today. While the government is perfectly willing to directly or indirectly subsidise purchases of equipment or the construction of new facilities for larger firms, there is little prospect of highly paid leadership and financial staff being subsidised for mid-sized firms out of the public purse. Job creation schemes naturally focus on the unemployed and socially excluded, rather than well-heeled financial professionals.
If the government is serious about encouraging mid-sized firms to expand to create jobs and value in the economy, they must join with the private sector in making the argument for greater investment in business education for existing managers, the hiring of management and financial talent and provide funding to bring in outside consultants to bridge the gap. While start-ups, many of which will never employ more than a handful of people, have access to any number of incubators, advisors and business support, it is Australia’s smaller mid-size firms who could make better use of such support. These companies have already proven their viability in their market and have rich reserves of technical expertise, which better leadership and financial control could unlock with relative ease.
While many calls are made to reduce government legislation or improve the macro-economic environment, academics and policy makers would be rewarded for focusing on offering learning and knowledge sharing through ‘incubators for medium-sized firms’. These incubators would help executives in mid-sized firms gain access to expertise that can help them push through their business management and financial skill glass ceiling. This would result in regional communities enjoying increase benefits, more jobs, more money spent in their area and the attraction of other mid-size businesses. After all these businesses are owned and operated by people who are locals and more than willing to give back.
Andrew Robertson has worked and advised within the accounting industry for twenty five years. He managed an accountancy practice for ten years, moving the practice from a compliance based firm to offering proactive services. He sold the firm in 2006 to pursue his passion of advising businesses on how to improve profitability, strategic direction, internal efficiencies and morale. He now works as a business coach and advisor, specialising in accountancy firms.
Dr. Jana Matthews
October 26, 2017 at 9:56 am
CEOs and executives of mid-sized firms need management and leadership education re how to grow companies. The Australian Centre for Business Growth at the University of South Australia was established in 2014 and has developed one-day Growth Assessment Clinics for CEOs of companies with 5 – 200 employees., followed by three, three day Growth Modules delivered over a nine month period. Over the past two years 350 CEOs have gone through our Clinics and 60 CEOS and their executive teams have gone through the Growth Modules.
Two years after the first 10 companies completed the ANZ Business Growth Program, they achieved 93% growth in revenue, 100% growth in profit and added 146 jobs. ANZ has fully funded 150 of their customer companies to go through the Clinics and 30 companies to go through the Growth Modules. South Australia has funded 240 companies to go through Clinics and provided 2/3 of the funding for 120 companies to go through the modules; Queensland has funded 200 companies to go through the Clinics and also provided 2/3 of the cost for 40 to go through the programs. The Centre just received an international award for the creativity and impact of these Growth Programs. Find out more at http://www.centreforbusinessgrowth.com
Victor Perton
October 13, 2017 at 10:10 am
Andrew has nailed it! There’s lots of demand for affordable leadership development by mid-size firms.