The Illusion of Services Growth in the Midmarket | Sherpas in Blue Shirts

Posted On December 15, 2014

As the services industry struggles more and more with growth, providers naturally think: “We’ve saturated the large clients, so let’s go to the midmarket clients. After all, there are so many more midmarket companies than large ones. So if we can sell to midmarket companies, happy days are here again. We can reignite our growth curve and continue to grow at the pace we want to return to.” Unfortunately this violates the Dillinger principle.

When John Dillinger — an infamous gangster and bank robber during America’s Great Depression — was asked why he robbed banks, he replied, “That’s where the money is.” By analogy, that is why the services industry rarely are able to take services designed for large enterprises and build successful growth strategies in midsize companies — they don’t have the money.

As any number of providers have found out, it costs a similar amount to sell to midsized companies as large ones; however, the resulting contracts are much smaller. Furthermore, the provider has very little ability to scale that relationship to a large footprint as it could do with large companies.

My observation is that the providers that attempt to shift from large enterprises to the midmarket in an attempt to reignite growth almost always fail to achieve their goals. It’s complicated, expensive and time-consuming to sign up midsize clients. And there is lower profitability because the cost of the sale and the cost of client interaction overwhelm the potential profit.

Unfortunately, the idea of heading into the midmarket and finding a big services market is consistently disappointing.

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