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A Reliable Predictor of Growth? Your Entrepreneurial Spirit.

The degree to which your company values — and rewards — its employees' innovative contributions really matters. Here's why.
COLLABORATORS Deloitte
Deloitte study on entrepreneurial midmarket firms

IN COLLABORATION WITH DELOITTE

No matter what size your company may be, it’s imperative that senior executives maintain a culture of entrepreneurship. In fact, companies that regard themselves as entrepreneurial outperform their peers across a range of critical measures, including revenues, profitability, and hiring.

It is important to note that in a recent survey of more than 650 executives at midsized companies, nearly six in ten said they believe the U.S. is the most accommodating nation in the world for entrepreneurs. And while a higher number of respondents believe the U.S. was more accommodating in the past, twice as many executives surveyed (35 percent) believe their companies have become more entrepreneurial since they joined, versus less (16 percent).

This bodes well for the U.S. economy because while midmarket companies may lack the flash of a start-up or the broad name recognition of a global enterprise, collectively such companies (defined as those that generate between $50 million and $1 billion in annual revenue) are an impressive economic force. As a group, the midmarket segment employs more people than the entire S&P 500 and has total revenues equal to 40 percent of U.S. GDP.

A continuing commitment to entrepreneurship will serve midmarket companies well going forward, according to the survey. When asked about their strategic priorities for the next 25 months, survey respondents cited growing organically in existing markets, introducing new products and services, and expanding into new markets as three of the top five (see chart). Entrepreneurship is critical to those undertakings. It can play a role in more prosaic strategies as well, such as reducing costs, improving margins, and increasing cash flow.

“Entrepreneurship at its core is about all the things a business does every day,” says Tom McGee, national managing partner at Deloitte Growth Enterprise Services. “It’s about being open to innovation in everything you do, from core operational issues to your relationships with employees, customers, and suppliers.”

While the survey of midmarket executives revealed what McGee terms “a level of apprehension” regarding current economic conditions (see chart), he notes that “two major sources of uncertainty, the ‘fiscal cliff’ and the deficit challenge, are now on the table and being actively discussed. The entrepreneurial spirit is still alive, so if those issues can be addressed effectively, we expect to see a reduction in the number of executives who regard uncertainty as a major obstacle to growth.”

Companies that display a commitment to entrepreneurial thinking share certain characteristics apart from superior corporate performance. Most notably, they “demonstrate a real commitment to employees,” McGee says. “They recognize and reward them, not just in terms of compensation but in a broader sense: they celebrate them.”

As McGee notes, 20 of the 50 most recent companies added to the S&P 500 were founded in 1990 or later. To progress from start-up to the ranks of the S&P 500 in just three decades — and often less — strongly suggests that when companies embed a commitment to entrepreneurship in their organizational DNA, they not only improve their ability to innovate but become adaptive and nimble in ways that allow them to seize opportunity at every turn.

THE PLUS

Tom McGee, national managing partner at Deloitte Growth Enterprise Services, on why the entrepreneur spirit matters.

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A Reliable Predictor of Growth? Your Entrepreneurial Spirit.

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