A strong middle market presence keeps cities agile and nimble. Likewise, cities with affordability and top talent play fine hosts for midsize firms
Yankees and cowboys may have more in common than they think. Some of the top locations in the U.S. for middle market companies include New York City and Texas metro areas.
A report from American Express and Dun & Bradstreet explored the reciprocal relationship between middle market companies and the metropolitan areas in which they operate. Metro areas provide the infrastructure and talent that attract companies, along with the perceived culture and quality of life that attract employees. Middle market firms provide foundations for metro area economies.
The report found New York City has the most middle market firms of any metro area in the U.S. Dallas and Houston rank as two of the top five U.S. cities for the highest number of middle market firms, total number of middle market employees and total revenue generated by middle market companies. San Antonio and Dallas rank Nos. 1 and 2 for economic clout, determined by the growth rate from 2009 to 2017, which is measured in terms of the number of firms, employment and revenues in the middle market. Plus, Houston, Dallas and New York City have the highest concentration of startup companies scaling to become middle market companies. Some of the other high-ranking metro areas, as determined by five categories—middle market dominance, economic clout, employment vitality and number of minority- and women-owned businesses—include Baltimore, Detroit and Denver.
Startups that grow to be middle market firms in less than 10 years are particularly vital for dynamic regional economies, the report found. New York City, Dallas and Houston top the list of cities with the highest density of young middle market firms (less than 10 years old). Dallas and Houston have the lowest density of legacy companies (30 years or older). On the other end of the spectrum, Chicago has the highest density of legacy middle market companies.
From the January 2018 Middle Market Power Index
“Because of the jobs that startups create and the innovations they bring to market, startups that become middle market firms in less than 10 years play a vital role in the dynamism of a local economy,” the report states.
Middle market companies employ more than one in four U.S. workers. Hosting these companies can be a boon for metro areas, especially cities aiming for economic rebirth.
“Middle market firms are substantial enough—averaging 293 employees and generating $51.6 million in revenues annually—to have the human and capital resources needed to withstand adversity as well as take advantage of opportunities,” says Geri Stengel, research adviser to American Express. “These firms are also agile and nimble, growing more than small and large companies between 2011 and 2017.”
The report suggests a strong middle market presence has helped recovery efforts in some metro areas, such as Houston after the 2017 hurricane season or Baltimore and Detroit after economic hardship.
Ed Davis, group director of international client services at B-to-B marketing communications agency Fifth Ring, says Houston’s resilience in the face of major industry changes in the city is a testament to the strong middle market presence there. For example, changes to NASA’s space shuttle program around 2011 left some engineers jobless.
“Interestingly, there were plenty of them that weren’t out of jobs for long because the oil and gas community said, ‘Come help us solve significant challenges on earth,’” Davis says. “[Houston] has an ability to adapt really quickly.”
Davis says Houston and its middle market companies have become proactive against challenges before they present themselves. For example, focusing solely on the oil and gas industry could be detrimental, leaving the city vulnerable to disaster or economic troughs, so emphasis has been placed on attracting firms from a variety of industries, such as health care and technology.
While it’s not a surprise that New York has a strong middle market presence, smaller metro areas have a very important characteristic not typically shared by their larger counterparts: affordability. The cost of living in some of the top-ranked cities for middle market strength is lower than the national average, as determined by PayScale. For example, the cost of living in Detroit is 3% lower than the national average, Orlando is 5% lower, St. Louis costs 6% less than the average and San Antonio costs 14% less.
The data suggest that middle market companies hold a powerful place in their region’s economy. Their strength helps to keep local economies flexible in times of industry upheaval and speed the process of recovery.
Sarah Steimer is a writer, editor, podcast producer, and yoga teacher living in Chicago. She has written for Marketing News, Chicago magazine, Culture magazine, the Pittsburgh Post- Gazette, and other outlets.