The Power of Engaging Midsize Customers for B2B Sales Teams.
Selling to midsize B2B customers poses a significant challenge for numerous large multinational corporations. Despite midsize enterprises forming a vital part of their supplier base, larger companies often struggle to effectively engage with them. However, tapping into the potential of these middle-market customers can present new opportunities for growth, both during and after periods of economic slowdown.
For instance, we encountered a media company that derived around 80% of its revenue and 10% of its profits from the top 1,000 accounts—predominantly fellow multinational giants. Surprisingly, only 20% of revenue and approximately 5% of profits came from 10,000 small-to-midsize customers. Among these, a mere 3,000 midsize clients contributed to a mere 3% of the media company's total sales—significantly lower than anticipated, considering the company's success with other customer segments.
This pattern is prevalent across various industries, as large corporations frequently struggle to effectively connect with and capitalize on middle-market customers. Through our work across sectors such as financial services, industrials, and technology, we have identified two recurring problems that we consider systemic in nature.
The Problems — and Opportunities
The primary challenge lies in the inability of many large companies to effectively penetrate the middle market and generate revenue that aligns with its market potential. For instance, in our engagements with technology companies, we consistently observe that less than 20% of their revenue comes from middle-market businesses, despite these companies representing a significant portion of their target market.
The second systemic issue pertains to the inability to capitalize on middle-market sales and achieve profitable margins. Surprisingly, multinationals often experience lower profit margins when selling to midsize companies compared to sales made to larger enterprises (despite the latter having more bargaining power) or small businesses (despite the additional administrative demands associated with serving them).
Nonetheless, the opportunity presented by the middle market is immense. In the United States alone, middle-market companies contribute to over $6 trillion in annual purchases of goods and services, equivalent to the entire purchasing power of Germany's economy. Moreover, studies conducted by organizations such as Visa, the National Centre for the Middle Market, and Dun & Bradstreet consistently indicate that the middle market not only boasts substantial size but also exhibits faster growth compared to large and small businesses. Companies that establish a robust middle-market customer base can experience synchronized growth alongside their clientele.
The fundamental issue arises from the lack of a comprehensive strategy dedicated to selling to midsize companies, unlike the well-defined approaches for enterprise and small business clients. Consequently, many multinationals attempt to impose either their enterprise or small-business models onto the middle market, resulting in ineffective outcomes. It is not uncommon for companies to deprioritize initiatives aimed at middle-market sales due to their scale and perceived differences compared to enterprise sales.
In the subsequent sections, we will explore viable and profitable strategies for selling to the middle market. However, before delving into those strategies, it is crucial to understand how the problem manifests itself and identify the associated challenges.
Misinterpreting the paths customers take in their journey.
Middle-market companies have distinct buying behaviours compared to large corporations. They typically lack comprehensive procurement functions and employ fewer experienced buyers. For instance, finance departments in midsize companies often lack specialized teams for purchasing tax, treasury, and financial planning products. If your sales and service approach caters to specialists, it may overwhelm or confuse your middle-market customers.
Lack of alignment between the product or service and customer needs.
Products tailored for billion-dollar enterprises often prove unwieldy and costly for companies with $100 million in revenue. Software applications such as enterprise resource planning or customer relationship management systems are often ill-suited, while solutions intended for small businesses, like basic tax software, fall short in meeting their complex needs.
Deprioritized organization.
Large multinationals face organizational challenges that hinder middle-market sales in three key ways. Firstly, their internal sales structure lacks the necessary framework, dedicated teams, and defined roles seen in major accounts. For instance, there is often no designated person responsible for connecting customers requiring support with the appropriate resources. Middle-market sales representatives must handle these account-management tasks themselves, diverting their time and focus away from selling. Additionally, the support functions typically designed for small customers may not adequately meet the more complex needs of the middle market.
Secondly, middle-market sales reps often encounter significant delays when seeking assistance from subject-matter experts within the business units. This can be particularly detrimental when dealing with complex B2B software and services, where access to technical specialists, such as cloud-computing experts, is crucial for closing deals.
Furthermore, weak connections between the sales force and business units can negatively impact both customer acquisition ("hunting") and customer retention and growth ("farming"). This includes efforts related to attracting new customers as well as nurturing existing ones for upselling, cross-selling, and ensuring long-term loyalty.
Lack of talent.
When middle-market sales are treated as an afterthought within the organization, the salespeople themselves can become neglected and disconnected. While those on national-account teams often have clear career paths and development opportunities, those selling to middle-market companies may not. This disparity can lead to a less motivated sales team, resulting in decreased effectiveness.
Furthermore, middle-market sales teams are frequently understaffed and burdened with excessive workloads due to the perception that the segment is not profitable enough. However, this lack of profitability is often a consequence of inadequate attention and support, creating a detrimental cycle. Breaking this cycle requires intervention at the highest levels of the organization and a strategic decision to prioritize and invest in the growth of the middle market.
Mastering the Art of Selling to the Middle Market.
Let's delve into three distinctive strategic approaches that can be implemented.
Unicorn hunter.
In the first strategic approach, the focus is on targeting fast-growing middle-market companies. Sellers recognize the middle market as an opportunity to nurture companies that have the potential to evolve into major accounts. They employ simple segmentation criteria based on revenue and growth to identify high-potential clients. For instance, we worked with a data-security company that faced challenges selling their complex product to the middle market through inside sales channels. Instead, they adopted an approach where their sales and marketing teams identified fast-growing clients likely to purchase multiple products. The success of this approach is measured by the progression of mid-tier customers to the enterprise level.
Segment specialist.
Instead of creating a broad mid-market category, this strategic approach recognizes the diverse nature of middle-market companies and their unique needs. It involves a highly segmented approach, where specific middle-market segments and corresponding products are identified. The goal is to concentrate account managers and sales teams on serving a select number of key customers within areas where the seller's product or service stands out.
Unlike the previous strategy focused on fast-growing customers, this approach prioritizes penetrating focused or niche markets. The primary objective is profitability, not just generating high revenues. This model is particularly effective in mature industries where the sales team can clearly identify target customers and areas for growth. For example, we collaborated with a publisher that had well-defined segmentation criteria for enterprise and middle-market customers. They implemented separate sales strategies for each segment and provided distinct career paths within the sales teams to foster ongoing development and capabilities.
Middle market optimizer.
The third strategy focuses on the entire middle market and emphasizes operational efficiency. It involves establishing a dedicated middle-market sales team comprised of business development and inside sales professionals to effectively target and serve these customers. Central to this approach is standardizing product and service offerings and aligning the sales team's processes with the buyer's journey. Additionally, implementing midmarket-specific success metrics and prioritizing operational readiness to address the unique needs and challenges of middle-market customers ensure sustained momentum. By reducing the cost-to-sell and cost-to-serve, this strategy enables efficient and effective engagement with the middle-market segment.
