CEO Stories: How Attitudes about COVID-19 Are Changing in the Middle Market

Thomas A. Stewart
Executive Director, National Center for the Middle Market

Tom Stewart, Executive Director of the National Center for the Middle Market, gives insight around the Center’s second COVID-related survey of 260 companies.

Leaders shared their thoughts on such issues as how the pandemic is affecting their businesses day-to-day, its long-term implications for their businesses, and how well-positioned they are to be resilient. Stewart also spoke about changes in attitudes from the first survey, in March, to the second, in June.

In March, 25 percent of companies believed the impact of COVID could be “catastrophic” in the next three months. In June, that number had dropped just about in half. Sentiment about uncertainty changed much less. In the first survey, three-quarters of respondents said the single biggest issue for them was uncertainty. In June, two-thirds of respondents still labeled it their top concern. And by June, their No. 2 and No. 3 concerns were employees and customers.

More than half of respondents in the June survey said that they had gotten some kind of financial help; the No. 1 source was the Small Business Administration’s Paycheck Protection Program. As most middle market companies are not public, they don’t have access to the capital markets. Other sources of money were drawing on an existing bank line of credit, getting a new bank loan, getting private equity investment, or getting an SBA loan, with most businesses getting money from more than one source.

Deal making got put on hold, but more companies are thinking they will make significant changes in the next 12 months. Possibilities include restructuring, a change in leadership, or both. With private equity sitting on more than a trillion dollars, deal making isn’t likely to stay stagnant long term.

This Is Capitalism: Patricia O’Connell with Tom Stewart, NCMM

POC: I’m Patricia O’Connell here with CEO Stories for This Is Capitalism. We highlight the people, organizations, and projects that embody the best of free enterprise, entrepreneurship, and economic progress.

Today I’m talking to Tom Stewart, who wears many hats, the most important of which, at least for right now, is as the Executive Director of the National Center for the Middle Market. Now Tom, I should, of course, first disclose that you and I know each other from having worked on a book together, which is one of the other hats that you wear. But in terms of the National Center for the Middle Market, first tell us what the center does.
TS: First of all, Patricia, thank you so much for having me on This Is Capitalism. I’m delighted to talk to you with whatever hat or head I happen to have on at the moment and delighted to talk to your audience about this.

The National Center for the Middle Market is a research group at the Fisher College of Business at the Ohio State University and we are the nation’s only academic research center focused on mid-sized companies. We define the middle market as companies with annual revenue between $10 million and a billion dollars a year, which is a big spread but that’s actually where you’d set the sliders to look for the middle third of U.S. GDP. It’s a couple hundred thousand companies, bigger than small, smaller than big, and as we have documented over the years, actually the most dynamic part of the U.S. economy.

POC: When you say dynamic, what do you mean exactly?
TS: Dynamic in the sense of growth. Over the years we produce a Middle Market Indicator, which is a survey of 1,000 middle market companies. We ask them about their performance, we ask them about their revenue, their employment, their investment behavior, deals that they have made, so on and so forth. And we also ask them about their prospects, what they are planning, what they see in growth, and issues of economic confidence and so on.

And two facts that stand out: No. 1, the back of the envelope calculation is that middle market companies, though they are a third of the private sector, produce 60 percent on a net basis of all new jobs. So they produce jobs at twice the rate that you would expect and much faster than small business or large business. Partly, in the case of small business, because the middle market is more resilient. Small businesses create a lot of jobs but then they kill a lot of jobs too because they are not as long-lived.

POC: That is really an astonishing number to realize that it’s responsible for that much job growth. One of the things we want to talk about today is I know you have conducted some research at the center since the beginning of the pandemic about attitudes that business owners have about growth, about their prospects. And this I believe is the second round of research that you have done. So what I’d love you to do is first talk about the big headlines related to the research.
TS: These are data that we collected the first two weeks in June but it took a little while to be analyzed and digested and looked at.

POC: And also I’m curious if you can tell us about the differences between what you saw in June vs. what you saw in March.
TS: Yes, let me tell you that story because it’s a fascinating story. In March, two weeks after the World Health Organization said this is a pandemic, we went out and we got responses from 260 companies. And these were companies we had talked to in December too, the very same companies. So we had a “what did the world look like at the end of 2019” and “what did it look like at the end of March?”

And if you flash back to the end of March, that is when the lockdowns were coming. New York was shut down. Basically everything was shutting down, retail was shutting down. And the way I envision it is that it was like we had had a terrible automobile accident or we had fallen off a cliff and we were in the middle of tremendous uncertainty and we didn’t quite know what was going on. So that was the end of March.

We came back, we did a full Middle Market Indicator with lots of questions but we also re-asked all of the questions we asked specifically about COVID 19 and its impact in March. So we have a before, beginning and six and three months later.

POC: And during.
TS: And during, yes. I was going to say after but it ain’t after yet, right?

POC: Not yet.
TS: So here are a couple things. The first things is that when we asked these 260 companies what the impact was, they knew it was bad but they had no idea how bad. Twenty-five percent said that they believed that the impact could be catastrophic within the next three months. That was in March. Now by June he number who said catastrophic was 13 percent. Now that is still one in eight, it’s still a bad number, but it is a lot better than the number that we saw in March.

My sense from talking to people too is that in March people were basically saying, “Oh my God we just got hit by a bus, what happened?” They didn’t know. Something like 76 percent, 78 percent, I can’t remember the exact number, it doesn’t matter, said that the single biggest issue for them was uncertainty. It was 76 percent. Uncertainty is the single biggest, hardest thing to manage. We just don’t know.

In June, that number was down. It was down to 66 percent, still a high number but there is more certainty. So these people who said catastrophe, again, it’s like you think about a car crash and you think about falling off a cliff or something, you think, “Oh my God, I’m going to die, are any limbs broken?” Their No. 1 concern in March was uncertainty. Their No. 2 concern was continuing operations.

And three months operational continuity is still a big concern but it drops. Uncertainty is still No. 1e but not as intense. What emerges as No. 2 and 3 concerns going forward, the toughest things for managers to manage: employees and customers.

POC: That’s what you’re seeing now in June.
TS: In June, yes. So first thing they say in March is, “Can I keep my business operating?” Just keep the factory going or keep alive, right?

And then as you move towards three months later: “I can keep it going, now let me get my people back, get my people safe, get my people feeling good, figure out how to work with Zoom rooms and whatever else you need to, and can I get my customers back, can I talk to them? Can I re-engage with the, can I find new ones? How do I get work done and business done?”

Those start emerging as the most challenging problems. Now there’s still plenty of other things like investment and deal making and things like that.

POC: Did people talk about access to capital?
TS: They did, they did. And we didn’t ask that question in March. We simply asked a set of straightforward questions about COVID. But there were a few things that we asked about access to capital. One question we asked is “did you get help, did you go for a PPP loan, did you talk to your bank, did you need or get outside financial help?”

And the overall number is really interesting. Overall, basically, more than half of middle market companies said that they got some help of some kind or another. PPP was the biggest; 25 percent of the people we talked to in June said that they received a PPP loan. And another bunch applied for one but either didn’t receive it or hadn’t got it at the time that we surveyed them.

And then underneath it were: drawing on an existing bank line of credit, getting a new bank loan, getting private equity investment, or getting an SBA loan, and each of those were 11 percent. Some people got more than one. I mean most people got some financial help from more than one source. But clearly PPP was a help to a major number of companies.

And then their existing financial relationships were very important. Their bank, if they were private equity owned or some sort of private equity investment, and as I said, SBA, which would be applied to the lower end of the middle market. So those government supports were a lot but those existing private sources were really important.

POC: I think it’s worth pointing out, correct me if I’m wrong, that many companies in the middle market are not public.
TS: Eighty-five percent are private. The vast majority are private. And within that private group about a third are family businesses, about a third have private equity investment. And then there’s sole proprietorships, there’s some partnerships, there’s some other kinds of structures in there.

POC: But of course the idea that they are not public means that they don’t have some of the traditional means of raising capital that public companies do.
TS: I mean if they’re going to get equity, they’re not going to get it by issuing stock on a public market. They might get an equity investment from mom, from a private equity firm, from individual investors, or from private equity investors in one form or another. Or they will take on debt.

POC: Did you see anything specific to industries that surprised you?
TS: Yes. So this is also, as they say, the rain falls on the rich and the poor alike, and COVID had an effect on businesses across all industries but some more grievous than others.

And, first of all, before I even go into that, I should say some companies have prospered in this. Companies providing medical equipment. One of my colleagues Doug Farren, at the National Center for the Middle Market, has a relative who works in a company that produces the kinds of materials that restaurants use for takeout – clamshells and things like that. And man, they are booming. So there have been some people for whom it has been very good.

But across industries, no surprise, retail got clobbered the most and within retail of course the hospitality business is…our hotels and restaurants were just shut down largely. So retail, the most. Wholesale as again you would figure supplying the retailers, also a big impact. And then health care.

Health care had a really serious set of negative impacts. My first reaction was “huh?” Because of course nobody has been busier, nobody is more essential. But it’s like there has been this massive shift in what the health care industry is caring for. And plastic surgery is out and ventilators in emergency rooms are in. I have a nephew who is an orthopedic surgeon who was basically asked by the hospital he works for, “You’re not going to be doing any orthopedic surgery unless it’s an emergency, in the meantime would you like to work in the ER?”

POC: [Ambulance in background] It’s very nice, Tom, that you were able to supply an ambulance in the background just as you were talking about ER work.
TS: Yes, exactly.

POC: Very impressive.
TS: Yes, although I’ll tell you, we are both in Manhattan and as you know the number of ambulances that we hear is down to nothing compared to what it was in April.

POC: But health care…
TS: Yes, the impact on health care is really interesting and it shows across the whole…I mean obviously physicians’ practices, many of them closed. I mean try going to an ophthalmologist in March or April. Many of them closed.

So those providers, hospitals with a major shift, and a shift to some areas that are less profitable for hospitals. But then also in other parts of the health care universe, we were talking to some companies in the life sciences business and a whole lot of clinical trials… if it wasn’t COVID and it wasn’t a trial for something that was a life-or-death matter, your clinical trial was suspended because most clinical trials are conducted in person by taking somebody to a hospital. They weren’t doing it.

And so clinical trials got suspended and so many of those biotech and pharmaceutical companies took a hit. Others took a hit because different medications that were used for things that people were postponing took a hit. So big impacts. And one of the things that is really striking is that going forward the health care industry is the most likely to say that – of the industry groups that we look at that there will be major restructuring in the company or in the organization.

Now some others, less impact. Manufacturing, less impact. Many closed down or reduced capacity but the impact on manufacturing, not as great as on retail, wholesale, and health care. Construction, some sites stopped but then, as you know, in most re-openings, construction was one of those things that re-opened either in the first or second phase.

And again, living in Manhattan, no sooner did we enter our second phase where construction could happen than right outside my window, when I was trying to do a couple of podcasts and Zoom meetings and webinars, jackhammers. Right across the street. So I thought the return of construction was very definitely a mixed blessing.

POC: I guess it depends on where you are.
TS: Exactly. But that’s also interesting. One of the things that – and we could talk about this as we go on I guess – but one of the big questions going forward is how much are you going to restructure your business and your operations? And construction, again, in some ways is going to have an easier time of it than say retail because the construction industry doesn’t have to worry usually about customers being on premises.

So they may have to fix the operations, and they’re mostly working outdoors, so they may have to do some operational changes for safety but they are not going to have to do operational changes for customer safety the way say a retailer might or a hospital or a doctor’s office might.

POC: Is there anything else worth noting from an industry perspective before we get onto looking at the numbers that tell us what does this all mean or where might we be going?
TS: I think that is pretty much the industry picture, those three big industries with the biggest impact: retail, wholesale, and healthcare. Construction, financial services, business services, not so much.

We do a cut of technology industries and that… some of those are manufacturers, some of those are services companies; they spread across other groups. The technology cluster, not so badly affected and projecting stronger growth in the coming months than the other industries. And of course we have probably all seen that in our behavior and in some of the ways in which we are buying and selling things, the ways we are communicating.

So technology is coming out of this with having taken less of a beating and in a stronger growth position than the other industries.

POC: Where do people see themselves going forward? You talked about one of the options that people talked about was restructuring.
TS: We had a hypothesis coming in that deals would get put on hold and boy were we right. We asked about six different kinds of transitions: selling the business, merging with another business, bringing in a major investor, or making a transformative acquisition. So, four kinds of deals. And then two other kinds: senior leadership transition, a new CEO, voluntarily or not; and restructuring. And how likely do you think that these things are, are they more likely or are they less likely.

POC: Let me ask you, Tom, are these questions you would normally ask as part of your research or were these questions that you brought up specifically because of what you were seeing with COVID?
TS: These were specific COVID questions. We regularly ask “In the last 12 months did you make an acquisition or did you sell something?” And we regularly ask “In the next 12 months do you expect to make an acquisition or do you expect to sell something?” So we will have that trending data that we can take a look at and it will be interesting to see 12 months from now, or six months from now, what we see.

Because we have been doing this for like 10 years and over that 10-year period those deal-making lines look like a resting heartbeat. They are fairly consistent. So it will be very interesting to see if we see some fibrillations over the…when we look at the data.

POC: Interesting. Because when you say 10 years, the Center for the Middle Market started operating after the financial crisis.
TS: Yes. It came into being in 2011, coming out of the crisis. I guess technically speaking the economy was no longer in recession, it had started to grow. It had started to grow but there was that one heck of a hangover and unemployment was very high. So we watched this whole long expansion.

POC: Right but this is the first seismic shock…
TS: Yes, exactly.

POC: …that the Middle Market has been around to measure for?
TS: Yes. And I’ve described the business climate of the last 10 years until this as being sort of like Bermuda. It’s not too hot, it’s not too cold, it’s really nice out and fairly benign with yes, surprises in trade things and other things but basically for that whole period there hasn’t been a lot of cost pressure, there hasn’t… for wages, fuel, raw materials, there hasn’t been a lot of… There’s been very little inflation. The cost of capital has been relatively low.

In March we saw a big pause button on deals. If you come back in June, there’s more some resumption In March, four out of ten said “We are less likely to make a transformative acquisition.” In June, that number was one out of four – twenty-six percent.

So the number that said “I am less likely” dropped dramatically. And, so I get this sense that there’s some people out there that can…oh, there’s some opportunities. “There’s somebody who is struggling there or I have an opportunity to buy the guy down the street or the competitor or something and I’ve got access to capital and I’m going to take it.”

So you see some resumption but not a lot, not a lot yet, but we’ll see more. And when we see more in the deals, let’s not forget that private equity is sitting on a trillion dollars with of dry powder that they’ve got to put to work. So as people start getting ready to sell there is a pent-up amount of demand. And if you’re running a company, when you think I might want to sell one day before too long, now might be a really good time to think about it and get ready for it because you might be able to get a pretty attractive offer.

These other transitions, the CEO transitions, the change in senior leadership and restructuring, those we saw big increases. The CEO leadership transition, by 10 points people say it’s more likely rather than less likely.

POC: Any idea why?
TS: I think there are two possibilities. And I have not actually.… This is one of those things where I need to go deeper into the data because I want to see this in terms of ownership structure. So one possibility: I’m a public company and the board says, “You know what, Tom, you are not the right guy to lead us out of this,” so I’m forced out. Or, I’m private equity owned and somebody says, “We need somebody else in there.”

The other possibility might be it’s a family business, “I’m 60 years old, I went through this the last time with the financial crisis, I’m through. Golf looks pretty good right now and maybe my daughter or son can take over.”

The other thing we’re seeing a lot more on the senior leadership, some may be, “Let somebody else handle it, I’ve done my job.” And some may be, “We actually need somebody else in here for this more turbulent weather.”

The restructuring, again, by a substantial margin – is almost three to one – people saying restructuring is more likely rather than less likely. And a number say that it won’t happen but… And you can just see that, “You can see where we’re going to get rid of this division, we can’t support it anymore, we’ll sell off this piece, we need the cash.” Or it could be restructuring of another sort: “We’ve been B2C, let’s build a B2B arm, or vice versa.” There may be some other kinds of restructuring.

And there may be some significant restructuring involving onshoring. I have heard an awful lot about bringing businesses back here for supply chain resilience. And in some cases, like in the case of PPE – personal protective equipment – and other medical things because there may be national policy on that.

So, deals on pause; other kinds of transitions up. That’s one sort of change. Another change is this change in how we organize. I mentioned the…

POC: What do you mean “how we organize?”
TS: How we do work. You hear people talk about the new normal, people talk about getting back to normal. We’re not going to get back to normal, we’re going to get back to different. There will be a new different, not a new normal, or a new “new” and we don’t quite know what that is. Some elements of it we can see. You go to the drugstore and there’s a plastic shield between you and the person who…if you’re not using a kiosk…who’s buying things. So some of it is visible but there will be a lot more behind the scenes.

More than 80 percent of middle market companies say that they expect that there will be significant and long-lasting changes in the way they organize work, including issues of worker safety and worker productivity. So, “How do we get our people organized and work with them?” and another 80 percent, actually a slightly smaller number, say likewise on the customer front. I think the reason it’s a slightly smaller number on the customer front is what I said earlier about construction and places where people are not so face-to-face with customers.

So, on the employee side, that’s everything from working remotely, people are talking about having split shifts, there’s conversation now about schools, about bringing students back two days a week or in different kinds of things, that’s happening in factories as well and other workplaces. So there’s that kind…there’s how much hybrid remote work vs. not remote work.

There’s all these questions about how you make remote work engaging and productive. Right now people are saying, “Gee, I love it,” but within six months they’ll be saying, “Gee, how do you onboard somebody from their home? How do you think about culture, how do you think about some of these issues about workplace?” And those aren’t going to be easy. So a lot of people are thinking about that. And then there’s all the stuff about temperature tests and tactical safety things.

POC: Which are time-consuming.
TS: Yes.

POC: And they also have an expense, which is one of the things that people really haven’t talked about.
TS: They do, yes. Yeah.

POC: I don’t know if any of that has come up in your survey yet or maybe that’s for the next round of survey is what are the expenses. How much more expensive is getting to the new “new?” Is that what you called it?
TS: Yeah, the new “new” or the new different.

POC: The new different. As we look toward getting to the new different there are going to be expenses incurred in that and where do these expenses get picked up? Do they get built into  cost to the customer? Do they mean lower returns for shareholders or private equity partners? An interesting thing.
TS: Yes, “Will you pay for my wi-fi. Will the company pay? If the company is expecting me to work from home three days a week or a half of a month or whatever, who is going to pay for my wi-fi? Why should I pay 100 percent?” There are issues like that too. And if I haven’t got it, if I’m a minimum wage worker, how does that work? Or if I’m disabled, how do we work with that?

POC: Has the Ohio State University – and notice I was very careful to say THE Ohio State University…
TS: I’m glad you said THE, yes.

POC: Have you made decisions yet about going back to campus? You normally work on campus; you haven’t been on campus yourself in almost four months now.
TS: Yes. This is actually interesting and it is an example. The universities, like the schools, are an interesting example. The students… Everything is prefaced by saying these plans are still in flux. So, these plans are still in flux and I know less about them than the people who are fluxing and fluxing them. But school is supposed to start at the end of August. The students are going to come back. They will come back to a different world with different residential situations and things like that.

There will be no large lecture courses. All large lectures will be delivered virtually. Faculty are instructed that they are basically not to be on campus unless they are teaching. So I only do the occasional guest lecture but if I have a course, all lectures would be remote. But if I had a seminar or a lab, I’d show up for that and then go home.

And there are also going to be requirements for daily…either on an app or on a computer or whatever it is, temperature. “This is my temperature, a certification that I do not have any of these symptoms,” and without that you won’t be able to get on campus. And those of us who can continue to work remotely are expected to continue to work remotely.

POC: As you say, it’s just a little example of how companies and organizations are trying to figure it out. Tom, anything else you think we need to know right now about what’s happening in the middle market and what it is telling us about the bigger picture?
TS: Yes, let me go, first of all, to this question about recovery. When we went out and asked companies in March, “How soon do you think you’d be back to full capacity?” 40 percent, 39 percent, said “within a month.”

Once this is gone, once this is under control, 40 percent said “we’d be back within a month.” And I think it was 19 percent, but I’ll check that, it was 19 percent said that they thought that it would take more than a year or said that it would take six months or longer.

So, 40 percent said now, within a month;19 percent said six months or longer. We go back in June, we asked the same question, and instead of 40 percent saying within a month, only 23 percent say within a month. And instead of 19 percent saying six months or more, 40 percent say within six months or more. So we’re thinking this is a longer road out.

I sort of think that three months ago people thought this was kind of a light switch. It will turn back on; the light will come on and we’ll be back to work.

POC: It’s the way it was March 1st, let’s say.
TS: And instead it’s…rather than flicking on a light it’s going to be one of those January mornings when it’s cold and cloudy and it’s really early in the morning and the dawn…the sky gets light very slowly and you think “is it ever going to get light?” So it’ll be like that.

Another thing that is really interesting is we asked about some company capabilities. And we asked about them during “the Bermuda weather” and we have asked about them again. Things like sales force effectiveness, ability to get access to capital at a reasonable price, strength of your relationship with a bank, marketing and communications capability, ability to retain valuable talent.

So we asked about a bunch of these things and we asked people to self-grade themselves, give them A, B, C, D or F.

And the companies…there were five things that were associated with a less hard impact from COVID. Companies that said that they had ready access to capital they could afford, that they were investing for the long-term, that they had a three to five year strategic plan, that they had the ability to keep the talent they want, and they had a strong marketing and communications capability – that was the wild card in there.

Those companies are much less likely to say that the pandemic had a big impact on them. I mean it’s like with those four or five capabilities they had more of a cushion when the blow fell. And the same capabilities are associated with their projection of a faster growth rate in the next 12 months. Softer landing, better springboard out. It’s really interesting.

POC: It strikes me, as I was hearing you talk about those five things, they strike me as strong foundational elements of a well-operating company. So it might be a not-surprising deduction to make here that companies that already had the foundations in place, the strong foundational elements in place, were…
TS: Yes, but there were a few that played less of a role. Like, operational excellence, operational efficiency didn’t have as much of an impact. Marketing and sales capability had more of an impact than salesforce effectiveness. Sales force effectiveness helped but not as much.So there were a couple of things there. It’s partly like fortune favors the prepared, luck is the recipe.

POC: Fortune favors the brave is one way to look at it.
TS: Yes, but also ants outperform grasshoppers. The people who planned ahead, strategic planning, talent planning.

POC: Access to cash.
TS: “I’ve got capital if I need it.”

POC: That rainy day fund.
TS: “I’ve got a good line of credit and I can get it inexpensively. And I’ve got good people around.” Those things. To me the marketing and communications thing is a little bit like…well that’s a little bit different in kind. The other four are you’re well prepared, you’re well trained, you know how to handle yourself in the wilderness. But then there’s this one, which I’m struck by. It’s right there in the data. But the other thing is boy, this is a time when ants are doing a lot better than grasshoppers.

POC: I think you’re going to have a lot of great information for us going forward, Tom. We will look forward to finding out what the data holds the next time. Tom, where can people find information about the National Center for the Middle Market?
TS: You took the words out of my mouth. Our website is And if you don’t remember that just google the National Center for the Middle Market at The Ohio State University and you will find it.

POC: Tom, thanks so much for joining us today on This Is Capitalism. I’m Patricia O’Connell. Thanks very much for listening. And of course, you can find us at

About the Series: Featured stories from the intersection of the free market and entrepreneurial success. Here we speak with leading CEOs, academics, philanthropists and up and comers on their contributions and perspectives on the American economy.

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