The Middle Market is the great unheralded driver of the U.S. economy. These businesses, with anywhere from $10 million to $1 billion in revenue, employ 34% of the U.S. private sector and in 2010 contributed $3.8 trillion to the nation's Gross Domestic Product. The U.S. Middle Market would be, by itself, the fourth largest economy in the world, just behind Japan.

Financing the Middle Market
As impressive as these numbers are, the Middle Market is too often ignored and overshadowed. On the top end, huge multinationals leverage their size and global name recognition to influence policy makers. On the lower end of the spectrum, small businesses have established themselves as the embodiment of intrepid, American entrepreneurialism.

But the Middle Market's disadvantage goes beyond a lack of attention. Access to capital has also been a problem since the financial crisis and many Middle Market lenders either exited the business or dissolved. Today, global banks fight to serve the big multinationals, while the Small Business Administration helps promote and develop small businesses. But there is a financing gap for the Middle Market. A recent survey by GE Capital and The Ohio State University's Fisher College of Business found that 55% of Middle Market businesses do not have sufficient access to capital.

Addressing this financing void can have a direct impact on the country's economic growth and job creation. Consider that during the downturn Middle Market companies still managed to add two million jobs while large companies shed four million jobs. Jeffrey Immelt, CEO of GE, put it this way during his keynote address at the 2011 National Middle Market Summit: "Job creation by and large has come from growth companies going through the $10 million barrier up to $1 billion and beyond."

Optimism and Opportunities
To better understand the Middle Market, GE Capital and The Ohio State University recently surveyed more than 2,000 Chief Executive Officers and Chief Financial Officers in private and public businesses. The results were eye opening. There are 194,000 Middle Market businesses in the U.S., and it's a diverse group in both geography and industry. The Midwest is home to the greatest number of Middle Market companies, 20.9%, while the West, 18.6%, and the Southeast, 16.4%, also have a large share. As for industries, services account for most Middle Market companies, 31.3% of the total, followed by manufacturing, 17.3%, wholesale, 13.8%, and retail, 12.4%.

As a group these executives are optimistic about their own growth prospects—80% expect to grow in 2012. But expectations are tempered by low confidence in their local economy and the broader U.S economy. There are concerns about inflation (37% are unable to pass along rising commodity prices to customers), a frustration with insufficient access to the capital markets (as noted, 55% said this was a problem), threats from global competition (45% cited this issue), and regulatory compliance (75% said the cost of compliance is burdensome).

Growth Champions
Even in the face of past and present challenges, however, the survey uncovered a group of Middle Market companies that have done exceptionally well. These “growth champions” of the Middle Market—the top nine percent—are growing at a rate of 10% or greater per year. There are commonalities among these companies that are instructive. Leaders share five key strategic priorities:

1. Focus on innovation: The strongest common theme is innovation. Continuous innovation is seen as their most important asset in competing with larger businesses. According to the survey, 54% of growth champions invest in innovation and new product development compared with 29% of the rest of the Middle Market. They also typically invest almost 2.5 times more in Research & Development per sales dollars than do lower growth Middle Market firms.

2. Strong management culture: A key focus for small companies transitioning to the Middle Market is developing management capabilities. This includes articulating a corporate vision, developing aligned business strategies and managing performance. Growth Champions say (at twice the rate of other firms) that they have a diversified funding strategy in place, and 71% also believe they have a high-performing management team.

3. Sharp customer focus: Growth Champions invest heavily in customer relationships to attract new customers and enter new markets. In fact, 62% consider themselves adept at attracting new customers compared to only 40% of other companies in the segment.

4. Exceptional talent management: Innovative career development and attractive compensation structures are hallmarks of successful Middle Market companies. About half of Growth Champions reported that they have access to a skilled workforce and the recruiting power to attract that talent; that compares to just 36% of the rest of the segment.

5. Broad geographic vision: Successful organizations clearly articulate the advantages of a broad geographic vision. In the U.S., 65% of Growth Champions are expanding from a local/regional focus to the larger national market while only 39% of other Middle Market firms are doing so.

Access to Capital and Expertise
Maintaining this level of commitment to growth requires continuous access to capital throughout the business cycle. But capital alone is not enough for success. Strategic insight is necessary and Middle Market companies should be seeking these insights at every turn along with access to capital. One potential source of such expertise is a company's lender. When choosing a lender the interest rate obviously matters, but it's also important a lender understands the industry and can be a long-term partner to help build the business. Lenders with genuine experts in the field can quickly understand the collateral clients use to secure loans—which can lead to greater liquidity and flexibility. Certain lenders can also draw on their wealth of experience to help companies craft and execute strategies. For example, GE Capital recently worked with a commercial truck dealership to apply GE's Lean process and practices for eliminating waste. As a result, repair times dropped by more than 60 percent, thus helping the dealership more efficiently utilize its assets, maximize profits and raise customer loyalty.

As the survey makes abundantly clear, the health of the Middle Market is vital to overall U.S. prosperity. For this segment to remain dynamic and growing it needs access to capital and access to expertise.

By Tom Quindlen, President and CEO, GE Capital, Corporate Finance.

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