Mid-market report: Where should I invest my tech dollars?

A post-pandemic rebound is stirring. And whether you’ve already started your rebound or are working toward it, one key lesson from COVID is that you need to invest in technology. Digital transformation. It’s more important than ever.

Now the tricky part. How much should you invest—and what tech should you get?

The speed of your growth depends on how you answer.

Middle-market companies with “a digital vision that is clear, comprehensive, and guides strategic decisions grow 75% faster on average than less digitally sophisticated peers.”¹

However, only 46% of midmarket organizations have a digital transformation roadmap, according to the Harvard Business Review.²

As you think about developing or revisiting your plan, what should be top of mind for you?

Getting it just right

When it comes to deciding which technologies to invest in, perhaps you’re like many growing businesses who describe the exercise as, “Operation Goldilocks.” Why?

Mid-market companies (100-499 employees) are typically big enough to need many robust technologies, but small enough that they need to be extremely strategic in how they invest. In other words, they’ve got to get it just right.

And that sentiment has only intensified in the past few years.

The first year of the pandemic (4Q 2020) saw more than half (55%) of mid-market businesses report flat or declining revenue. Average growth dipped into the negative territory: -3.7%.¹ The good news is that 2021 saw a strong upward trend. In 4Q 2021, the number of midmarket businesses reporting flat or declining revenue was down from 55% to 22%.² That’s moving in the right direction, however nearly 1 in 4 midmarket businesses are still in survival mode and feeling more rigid budget constraints.³

Even the growth leaders here, however, must still be disciplined and thoughtful with their tech investment dollars. Most midmarket businesses (85% according to Forbes) are privately held. Few have access to capital from public markets.⁴ Further, they tend to have a harder time attracting outside investment.

Where are others investing?

Overall, mid-market decision makers are now allocating more of their total budget to tech investments, as shown in the final six months of 2021.

June 2021:  Percent of total budget spending

• 25% Plant/equipment
• 18% Training and development
• 18% More personnel
• 18% Information technology investments

December 2021: Percent of total budget spending

• 25% Information technology investments
• 22% More personnel
• 18% Plant/equipment
• 17% Training and development⁵

What type of tech investments are being made? This survey reveals the following broad priority trends among the varying strata of mid-market companies.

• 46% Digitizing operations (e.g., cloud migration, virtualization, connectivity enhancements)
• 41% Centralizing management of and consolidating solutions (e.g., enterprise resource planning, customer relationship management, accounting, finance)
• 34% Intelligence tools (e.g., analytics gathering and assessment; artificial intelligence, IoT)
• 30% Integrating disconnected systems and data (e.g., cybersecurity)

This survey also reveals, not surprisingly, that cybersecurity is a major concern in every tech investment made. For example, mid-market spending on cybersecurity solutions and services increased during the pandemic as businesses adjusted to remote work and a larger threat surfaced of more endpoints and less IT control over assets.

Nearly half of midmarket decision makers indicated that they had already permanently increased or would increase their spending on cybersecurity (33% already increased; 10% have yet to increase spending but plan to).

I have money to spend, but am waiting to spend it

While some hold off on important technology investments because of slow growth and limited capital, there are others who have the budget and are ready to spend—but are not spending.

A recent survey of middle market decision makers showed that confidence in the direction of the economy sits at an all-time high (global economy 81%; national 89%; local 90%). Despite the overall bullish view of the economy, many middle market companies remain bearish when it comes to spending versus saving. In 2Q 2021 so far, 41% of mid-market decision makers are planning on saving instead of investing in the business this year. That number is creeping up from where it was in 2Q 2020, when nearly half (48%) planned on freezing their spending in favor of saving. Nonetheless, it’s still down from an all-time high of 71% who planned to spend (2Q 2018).¹

There seem to be two factors at play here. One is the impulse to play it safe. To be ready for the next rainy day.

The other factor is lack of expertise among decision makers and in-house teams. They don’t know where to invest to make the best impact. This problem can cause even more frustration when solution providers offer overly technical information that’s too in-the-weeds and confusing. Or when a provider’s sellers and account reps lack the expected technical expertise and big-picture thinking.

The danger of investment paralysis is missing the momentum accompanying the projected growth in coming quarters.

Investing your tech dollars: an action plan

Wherever you sit on the tech investment spectrum, you can make progress toward your goals by following these 3 steps.

• Find an advisor you trust – Your tech needs are unique to you. Create a checklist of attributes you want in a provider who can advise and guide you. They should take the time to listen, understand your current unique needs, and offer solutions to meet those needs within the context of the whole. Ideally, their expertise should be able help you at all stages of your journey—from decision-making to design to delivery.
• Start with a vision – If you’re one of the 54% of midmarket organizations that does not yet have a holistic roadmap for digital transformation, the time is now to create it. Remember, if you have “a digital vision that is clear, comprehensive, and guides strategic decisions,” you are anticipated to grow 75% faster on average than “less digitally sophisticated peers.”²
• Build with the right infrastructure – Once you have a provider you trust, a clear vision of where you want to be, and a map of the steps to get there, begin pulling the levers to make it happen. And don’t forget that building a tech structure is like building any structure. You need a strong foundation. Foundational technologies you should strongly consider, if you haven’t invested in them already, are 5G and fiber. Why? These types of advanced, enterprise-grade connectivity lay the groundwork upon which you can build other rapidly evolving solutions: cloud, edge, IoT, mobility, voice and collaboration, and cybersecurity.

As you work to get your tech investments just right, remember that NOT investing in your tech evolution may drag your growth momentum. But when you do get it right, it can propel your business faster than you thought possible.

^{¹ Farren, Doug. “2021 Year-End MMI (Middle Market Indicator) Webinar.” National Center for the Middle Market: 9 FEB 2022. Accessed 23 MAR 2022.}

^{² Ibid}

^{³ Ibid}

^{⁴ Sundaram, Vijay. “Four Areas Of Focus In The Realignment Of The Mid-Market And Technology Vendors.” Forbes, 27 AUG 2021. Accessed 23 MAR 2022.}

^{⁵ Farren, Doug. “2021 Year-End MMI (Middle Market Indicator) Webinar.” National Center for the Middle Market: 9 FEB 2022. Accessed 23 MAR 2022.}

^{⁶ Farren, Doug. “2021 Year-End MMI (Middle Market Indicator) Webinar.” National Center for the Middle Market: 9 FEB 2022. Accessed 23 MAR 2022.}

^{⁷ Farren, Doug and Anil K. Makhija. “The 5 Fronts of Digital Transformation in the Middle Market.” Harvard Business Review: 19 OCT 2021. Accessed 23 MAR 2022.}