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This is Capitalism: Up Close, Inspired, Explained

Apr 20, 2020

As this is being recorded, on the 11th of April, 2020, what good news we see and hear is almost entirely in the context of people making extraordinarily good things happen in the face of what, for most Americans living today, is the worst crisis we’ve ever faced. So, especially now, it’s good to be reminded of how, at its core, the U.S. economy, in its essential design around the free and voluntary exchange of goods and services — including research, technology, and good ideas — is the perfect and proper vehicle for leading us out of this. And so, it’s extremely valuable to have new research to not only show how the coronavirus is affecting business but also to show how business people already are looking toward the day when this is all behind us.

The National Center for the Middle Market at Ohio State University conducts a quarterly survey to establish a benchmark. It’s worth taking a look back at the surveys it conducted in the summer and fall of 2019.

Listen to Ray Hoffman’s conversation with Tom Stewart, Executive Director of the National Center for the Middle Market.

Key Takeaways:

[1:39] Ray Hoffman asks Tom Stewart about business optimism in late 2019. Every quarter, the National Center for the Middle Market surveys 1,000 companies with revenues between $10 million and $1 billion. In the third quarter, they saw a sudden drop in confidence and projected sales after a long expansion.

[2:18] In the fourth quarter, those numbers came back up but the trendline showed slowing rates of growth. Projected rates of growth were dropping from a pretty high level.

[3:00] Tom contrasts the projected confidence number of 90% in the first quarter of 2017 and 83% in the fourth quarter of 2019. The projected confidence plunged to 60% in the first quarter of 2020 with the pandemic. Growth rates drifted down from before the pandemic and within the pandemic. More companies reduced their workforce.

[4:20] Tom shares his experience as the pandemic started showing up. He saw that planes went from full to empty in March. The National Center for the Middle Market commissioned a “pulse” survey of 260 mid-sized companies from March 23 to 25.

[5:43] These were private companies, not directly impacted by the stock market. That group of companies had said in December that they expected to grow at 5.8% in the coming 12 months. On March 23, 78% of them said growth will decline in the coming 12 months and 64% said employment will shrink, instead of growing.

[6:36] Twenty-five percent of the 260 companies surveyed said they believe the impact of the virus will be catastrophic for their business. Eighty-one percent said there would be an impact on payroll. Eighty-four percent expected an impact on revenue and operations.

[7:02] Ray comments that the S&P 400 Mid-cap Index fell 40% from February 19 to March 23, and the S&P 500 Large-cap Index was down 34% in the same period. Tom discusses the risks to private companies and public companies. How much access to capital they have, in the short run, plays a role.

[8:15] Tom mentions survival rates from the 2007–2009 financial crisis. Small business takes the biggest hit. The survival rate for middle-market companies is comparable to that of large companies. They have pretty strong resilience. In the crisis, surviving private middle-market companies added jobs, looking forward.

[9:35] One of the questions on this pulse-check survey was “How quickly do you think you’ll be able to get back to business at full capacity?” Thirteen percent said, immediately. Twenty-six percent said, within a month. Eighty percent said they would be up and running at full capacity within six months. The measure of full capacity varies.

[10:40] The National Center for the Middle market will ask these same questions in June. Tom will see whether more companies express confidence in their resilience, or whether more people say it will take a little longer than expected. Companies were asked in March how big the impact will be. Some companies said it would be positive!

[11:07] Zoom’s stock has zoomed in the first quarter of this year.

[11:57] The companies’ biggest negative impacts were on operations, revenue, payroll, employment, supply chain, and working capital, in that order. The companies’ biggest struggles were supply chain, cash and working capital, customer experience, and operations, in that order. The supply chain is out of the companies’ direct control.

[13:44] Only 9% reported any new problems with information technology. The great technology available allows us to look optimistically at this entire situation. Before the internet, our ability to communicate was so much less than it is today. The IT industry is taking the strain of capacity pretty well in this pandemic crisis.

[14:42] Of the 260 companies surveyed, their sales expectations collapsed 46% between December and March; demand for their goods and services went down 25%. The owners’ perception of the business climate went down 9%. Companies can’t sell, but demand is still there. When business comes back, there will be residual demand.

[16:23] Some of these data are available on their website at The following observations on business transformations are not: Significantly fewer companies are considering making a transformative acquisition, bringing in a major investor, merging with another company, or selling the business.

[17:21] About 35% say they are more likely to have a senior leadership transition, which is a higher percentage than normal. Twenty percent said they were less likely to restructure. Forty-four percent said they were more likely to restructure, with remote work, fewer employees, fewer lines of business, more digitalization, or a new start.

[18:45] Tom has heard since the survey that many organizations are planning new ways to navigate financially, from SBA loans to subsidies and how to work with the CARES Act. Companies are starting to get some advice on how to move on.

[20:30] Sixty percent of the companies surveyed expressed any level of confidence for their future. It’s a relatively low number, but Tom had feared it would be worse. Confidence numbers were like that in 2013. Sixty-nine percent of the middle-market had some level of confidence in their local economy.

[21:06] There is an underlying belief that the U.S. economy is flexible and that investment and performance go to places where there is an opportunity for return. Secondly, built into the rich and diverse U.S. economy are a lot of intermediaries and advisors.

[21:38] A study at Harvard Business School looked at obstacles to growth in emerging markets. They found that your ability to get access to intermediaries and business services, such as third-party logistics (3PL), determines your rate of growth. The absence of intermediaries slows down growth.

[22:56] You can take it from Tom Stewart: When at last we’re ready, there will be reason for optimism and plenty of it. This is capitalism.


Mentioned in This Episode:

Thomas A. Stewart on LinkedIn

Fisher College of Business at Ohio State University

SBA Loans


Harvard Business School