Middle Market Meltdown: Why Your Talent Is Disengaged And What Leaders Must Do Now

Author: Tammy Alvarez

It is a great time to lead a company in the middle market sector! Are you enjoying the wave or getting crushed by it??

According to the National Center for the Middle Market’s mid-year 2024 report, the sector continues to outperform forecasts, growing revenue by 12.3% year over year and employment by 10.5% year over year.?

87% of middle market businesses reported revenue growth in the second quarter, continuing a multi-year trend. Economic confidence, reinvestment, and projected revenue and employment growth of 8.8% and 9.5%, respectively, over the next 12 months should have executives and their board of directors flying high.?

Instead of popping the cork at the local champagne bar to celebrate, I see something very different amongst the middle market executives we work with. I’m seeing:?

• Boards of Directors that want answers on how the organization will grow by leveraging artificial intelligence (AI) and other technological advances.?
• Stressed-out executives are trying to outpace last year's growth and keep up with their customers' rising expectations.?
• Leaders are tasked with performing heroics and driving growth despite the lack of resources to scale, which results in burnout and change fatigue.?
• Employees feel disconnected from the work they’re asked to do and simply go through the motions in exchange for a paycheck.??

Business success goes well beyond what you can see on the P&L, and there is a fundamental difference between leaders riding the wave and leaders getting crushed by it.

The few leaders riding the wave have made the connection between their people and company performance. They realize that career fulfillment and business success are inextricably linked. When you solve for the first piece, most of the nagging issues keeping you up at night will resolve themselves. The majority of leaders who are feeling crushed by the wave are using the same playbook that hasn’t worked in decades and are operating under outdated and flawed principles.?

If you’re not popping the champagne cork and are looking to solve the elusive problem of employee apathy, keep reading.?

Chicken and Egg

What came first? The successful business or highly energized employees?? Unfortunately, many organizations can’t answer that question because the second part of this scenario remains an enigma.?

Middle market leaders face a plethora of challenges, including digital transformation, economic uncertainty, supply chain disruptions, high interest rates, cyber security, regulatory compliance, access to capital, sustainability, ESG pressures, and market competition.?

Out of all these factors, the number one challenge facing every industry in the middle market sector is (you guessed it) talent! Attracting the best people, keeping them excited once they get there, and retaining them remains the most significant risk to their business. This is such an issue that many call it the Talent Shortage Crisis.?

Cracking the code for employee retention in the middle market seems complex and inefficient. Many executives accept a sub-par level of employee buy-in as “the way things are.” This approach will work as long as they’re also willing to accept subpar company performance and customer care levels.?

Middle-market firms don’t have the resource fungibility that their larger counterparts do. The loss of key employees can wreak havoc in the blink of an eye. If you can’t bring in the best and brightest, how will your company be considered the best and brightest? Opportunity costs for innovation, disruptions in business continuity, and loving on your customers are all at risk when you don’t get this right.?

As Simon Sinek once said, “When people are financially invested, they want a return. When people are emotionally invested, they want to contribute.” Keeping employees from feeling disconnected requires fostering that emotional investment.

The Talent Crisis - How Did We Get Here?

According to a 2021 report from McKinsey & Company, the middle market sector has been hit significantly harder than larger companies and start-ups in the aftermath of COVID-19's “Great Resignation.”

A National Center for the Middle Market (NCMM) study found that 77% of middle-market executives report challenges in attracting and retaining talent. The workforce shortage is exacerbated by increasing demand for skilled workers in digital transformation, marketing, finance, and other functions where talent is most needed.?

Here are 10 reasons why middle-market companies are disproportionately affected and where you’re probably feeling the squeeze-play:?

1. Career growth limitations.

Employees may feel their upward mobility is limited, especially in flat organizations. Larger firms tend to offer more training programs, mentorship, and internal mobility, making middle-market companies less attractive to ambitious professionals seeking growth.

2. Show me the money.

When the market is tight, many high performers will follow the dollars, leaning into opportunities for higher compensation, stock options, or other incentives that middle-market firms may not have the financial resources to provide.

3. Culture vultures.

While middle-market companies can provide the environment for a tight-knit team, they may struggle too often with formalizing workplace culture and employee engagement initiatives. As a result, employees in middle-market firms may experience disengagement or dissatisfaction with company culture, leading them to seek employment in environments perceived to be more supportive.

4. Flexibility demands.

Resistance to change and lack of modernization (in culture and tech) will lead your best people to more flexible ground. Employees seeking work-life balance, remote opportunities, or more modern workplace policies may leave for companies that offer these perks more readily.

5. Investment in the future.

Budgets set aside to invest in upskilling or career advancement are smaller, making it harder to retain talent. Employees may feel stagnant in their roles and leave for companies that provide more robust support for their professional growth.

6. Leadership gaps.

Employees who seek clearer direction, better leadership, or more dynamic workplace experiences may be on the struggle bus due to the nature of middle-market leadership teams, which tend to be smaller and tenure-based.??

7. Increased job market competition.

Your talent is being poached from bigger and smaller companies. Larger firms can outbid you with comp and benefits, while smaller companies can be sexier, offering equity, flexibility, and innovation.

8. Perceived instability.

Despite evidence to the contrary, middle-market companies are viewed as more vulnerable to economic downturns and disruptions, which can drive employees to leave for what they believe are more secure opportunities.

9. Burnout and overwork.

The scenario is daunting. Middle-market companies have lean organizational structures by nature. 87% of these companies are growing like gangbusters, and 77% of these same companies can’t hire or retain effectively. This is a sure-fire recipe for massive burnout for middle-market employees. Without sufficient support or relief, employees may leave for jobs that offer more balance and resources.

10. Lackluster or non-existent engagement strategies.

Middle-market companies often lack the necessary people strategies, systems, and operators. Without a clear vision, robust systems, and skilled leaders to implement modern HR strategies, middle-market firms can struggle to identify and address employee concerns before they lead to turnover.

Mistakes You’re Probably Making

Getting your organization on the right track can feel challenging. The things we’re taught to do feel a bit esoteric, unmeasurable, and overwhelming. What should a middle-market leader do?? You can start by avoiding these five mistakes almost everyone makes. If you find these look all too familiar, getting on the right track is easy, and fixing this is free.?

Here’s what leaders are getting wrong:?

1. Underestimating culture and purpose.

Peter Drucker famously said, “Culture eats strategy for breakfast.” How many of your best ideas have fallen flat over the years? How many new initiatives leave your teams rolling their eyes or in utter confusion??

Gallup revealed that 60% of employees want more than just a paycheck—they want a sense of purpose and alignment with the company’s mission. Many middle-market companies have failed to cultivate a culture that promotes growth, innovation, and inclusivity, which can disengage employees.?

Let’s get the elephant out of the room. If you are a leader and your corporate culture falls short, it’s time to look in the mirror. Your values and behavior shape the company culture, and your teams will emulate what they see and what you tolerate. You hold the direct line to changing the culture and creating purpose-filled work.?

2. Failing to provide growth opportunities.

Success is not linear, and neither is growth. Often, middle-market organizations need more creativity to provide growth opportunities in a flat organization. Promotions and compensation increases aren’t the only way to grow. You don’t have the money to compete with the big guns; you’re not as sexy as a start-up, so you’ll need to win on agility and creativity.?

In middle-market companies, there is often more work than the team can handle, and this is your ideal opportunity to spur individual growth and create a buzz of enthusiasm. Experiential learning and targeted growth on a personal level is your key to success. Cross-training, job shadowing, mentorship, stretch assignments, feedback, and coaching are all things you can start doing today. Position these opportunities as a way to grow instead of making this one more thing for your overworked team to do. Make it voluntary so you can identify where your pockets of ambition lie.??

3. Tolerating harmful or toxic leadership.

New research by Deloitte shows that 80% of CEOs feel pressure from employees, customers, and boards to improve human sustainability. Value creation for people as human beings creates greater well-being, increased belonging, and a heightened connection to purpose. Toxic leaders are taking you in the opposite direction of travel, and ill-equipped leaders do not have the skills you need to succeed.?

Upskill your leaders and exit toxic leaders regardless of how “good” the leader may seem to the business. It’s your lifeline to longevity. In the Deloitte report, 3 out of 4 executives agree that human sustainability is an enterprise risk that should be measured, monitored, and discussed at the board level. How would that conversation go if you had to have that discussion today??

4. Keeping people in the dark.

How can you rally the team around your vision if they don’t know what it is?? Here’s a good test for you. If you were to ask every member of your leadership team, “How do we define success?” would they all give you the same answer? Probably not. Despite how obvious we may think our company direction and decisions are, the message often gets lost in translation.?

Being transparent, connecting everything to the “why” instead of the (what, where, how, and when), inspiring followership, and soliciting input from the broader organization costs you nothing and goes a long way to bridging the gap between your vision and the team's connection to it.?

5. Being inflexible.

Middle-market organizations have a significant advantage over bigger and smaller companies due to the lack of bureaucracy and the ability to be agile. Instead of staunchly committing to how things have always been done, this can be your golden ticket to attracting and retaining the best and brightest.?

How do you know what is most important to your employees?? Ask them! Regarding work allocation, accountability, recognition, work location, meeting routines, and practically anything else you can think of. If an element of your business disenfranchises your teams, invite them to become part of the solution. You’ll get better results and have employees thrilled to join the team.?

Cracking the Code

Are you ready to turn the biggest thing keeping you up at night into the energy source that propels your organization to unprecedented success?

Here’s a secret few leaders realize: You already have everything you need right under your nose. Your people, products, and processes are waiting for you. All you need to do is to learn how to tap into the unstoppable force lying dormant within your organization.?

One simple concept will transform your organization. It’s the Godzilla of all talent strategies, yet many people aren’t doing it or are doing it wrong. It’s called…

Connection

To reignite your organization, you must create a connection between three aspects of your business:?

1. Your employee's unique aspirations.
2. Leadership principles.?
3. Executive directives.?

When they are in alignment, magic happens fast!?

Before you get started, it's imperative to do a quick self-check to ensure that you’re not part of the problem. The rest is easy when you genuinely believe that career fulfillment and business success are inextricably linked.?

Are you ready??

INDIVIDUAL ASPIRATIONS

When you can connect an individual's aspirations to the company's biggest goals, you, my friend, have taken the first step to crack the code. An individual's aspirations are why they get out of bed in the morning, regardless of what they do for a living. What unique things fire them up, motivate them, and inspire them?

1. What gets each person out of bed in the morning?

Figuring out an individual's aspirations feels odd because it's a conversation we rarely have. We talk about goals, strengths, and growth, but we never talk about aspirations. Figuring out the best way to gain these insights should be done on an individual basis. This is not a one-size-fits-all approach.?

2. Leverage these aspirations to solve your company's biggest problems.

With this invaluable information, it’s time to tap into those aspirations to achieve your company's biggest goals and energize your team members simultaneously. Apply their superpowers to solve your toughest problems and smooth out the areas within your organization that are struggling. When you do this, your company succeeds, and you've given that person the ability to do personally meaningful work, leverage their strengths, and do what lights them up. Everyone wins.?

3. Empower your employees to become the CEOs of their career.

You’ve tapped into what lights people up; they’re using their strengths to help the company win. Next, make sure your team members treat their careers like businesses. You want them to take ownership and accountability and feel empowered as if they were the CEOs of their careers.

When they treat their career like a business and become the CEO of YOU Inc., they make better decisions for themselves and your organization. Things move faster. Ideas are well thought out, and priorities are clear.

PRINCIPLED LEADERSHIP

Now, you have a team that is as excited about the company and its customers as you are. Seeing the lightbulb moments and the energy and enthusiasm return to your organization is a euphoric feeling that’s hard to explain. Unfortunately, these moments of pure joy can become shortened because of an essential element in the ecosystem—your leaders.?

Your leaders will make or break your organization; often, they’re left holding the bag with unclear directives and too little support. You need to create unwavering support and accountability for a principled leadership structure. These leaders need to strengthen each employee's new idea of becoming the CEO of their carers, not squash it. And they’re going to need your help to do that.?

1. Building a foundation of trust.

We cannot underestimate the power of trust. When I interviewed my client Dan Cohn, Founder and CEO of Vitric Advisors, for my book Escaping The Career Trap—Transform Your Apathy Into Ambition And Never Hate Mondays Again, he said something that has always stuck with me:?

“Change happens at the speed of trust.”?

Simple, powerful, and 100% on the money.?

Where are your teams on the trust spectrum? Do your leaders create relevance, clarity, and alignment? Are they transparent with communications? Do they create a fail-safe environment where people can learn? Do they resolve conflicts quickly, directly, and productively? Are they having fun??

2. Three pillars for a thriving organization.

Middle-market organizations need three things to thrive—not just survive.? They need innovation, empowerment, and accountability. In this competitive landscape, if you’re not growing, you're dying. Growing requires innovation in every aspect of your business to become faster, wiser, and better than you were before. Do your leaders have an entrepreneurial spirit? Are they able to instill that in others???

For innovation to thrive, your teams need the freedom to get things done (on their terms, in many cases), support to learn and grow, and accountability for delivering results. If everything lands on your or your leader's desks, you likely have an accountability and empowerment problem.?

3. Embracing an experimental mindset.

If your teams are afraid to fail or if you’re constantly surprised by things going bump in the night, your leaders need more guidance on how to embrace an experimental approach to how work gets done. Small iterations focused on creating the Minimal Viable Product (MVP) in everything you do will move your organization forward faster than a set-it-and-forget-it approach.?

Do your leaders have the proper support to do this consistently and effectively? Many people struggle with this and have an unhealthy relationship with failure. Being placed in a binary success/failure environment will strain your company, leaders, and teams. Realize that nothing is a complete success or failure; your key to future success lies in everyone's ability to leverage the things that work, discard the things that don’t, and replace them with new learnings as you iterate and grow.?

CORPORATE POLICIES AND PEOPLE SYSTEMS

Your employees are fired up, and your leaders are well-positioned to leverage this new awakening. The most important thing to do is ensure you’re not inadvertently undoing all the good work. Many well-intended “people systems” (how you hire, fire, talent plan, promote, compensate, and what you measure) do more harm than good.?

1. Refresh your policies.?

Critically evaluate your people system policies and revise those hurting your business. Examples of policies that don’t work include needing to interview with 7-10 people before you get hired. Requiring individuals to remain in a role for two years before they take on a new role. Capping salary increases at 20% for an internal promotion even though hiring from the outside will cost you 45% more.

These things hurt your company, and I’m sure a few others are lurking around when you start looking. If you’re not sure what policies are hurting rather than helping, just ask. Your team will line them up for you faster than you can imagine.?

2. Your measurements and definitions of success.?

What are you measuring to assess success? Are they the right things, or should you take a more innovative approach? If you are trying to promote a fail-safe environment where people can take the experimental mindset and grow, yet you’re measuring deadlines, and each mistake counts against them, you’re never going to achieve your goals.?

Instead, perhaps you should measure innovation, learning agility, interdepartmental cooperation, conflict resolution, and other behaviors that will advance your team and organization's impact.?

3. Rethinking how work gets done.?

How can you help each team member spend most of their day doing work that lights them up and connects to their ambition and strengths? Reimagining how work gets done doesn’t have to be a massive undertaking. Minor tweaks in everyday routines may be all you need.?

I led a global team of 1,000 people, with seven leaders reporting to me. Each leader oversaw strategy, reporting, operations, communication, and people planning for their respective business units. However, the team was burnt out and disengaged.

Through discussions, we discovered that each leader had a unique strength. One excelled at strategy, another at data, and others at operations or people management. We reorganized the team so that each leader focused on what they loved and were best at rather than doing a little bit of everything for their business unit.?

This simple shift—using the same people, delivering the same work, and using the same processes—boosted productivity by 45% in just three months. Retention issues disappeared, and people were eager to join the team.

This change showed the power of aligning work with passion and strengths. You can have this, too.?

What Great Leaders Do Well

The vision is clear, and the steps to take are manageable. How do you position yourself and your leadership team to keep the momentum going and prevent the apathetic haze from slipping back into your company??

1. Adopt a continuous improvement mindset.

Get into the habit of continuously improving everything about your company in small incremental steps—people, process, technology, customer experience, quality, innovation. When people constantly assess what's working and what's not and adjust as they go, you’ll have a highly engaged workforce for life.?

2. Double down on supporting your leaders.

Invest in your leaders and be scrupulous about who stays in these prized positions within your organization. According to the Society for Human Resource Management (SHRM), businesses prioritizing leadership development report 25% higher revenue per employee than those not. This doesn’t have to break the bank. Mentorships, cross-training, and skill building should be built into their daily routines.?

3. Foster transparency and inclusion.

It’s time to stop considering this a management problem and get everyone involved. It’s your responsibility to make sure the entire organization knows the “What,” “So What,” and “Now What” about everything that's happening. When you overshare (good news and bad), people will lean in to become part of the solution instead of accidentally becoming part of the problem.

4. Align on purpose and values.

?

Employees, especially Millennials and Gen Zers, prioritize working for companies whose values align with theirs. They also consume goods and services through the same lens, so getting clarity around this will serve your company in many ways. PwC revealed that 65% of employees want to work for a company with a solid company purpose. Middle-market executives should focus on communicating the company’s mission and values, ensuring they are authentically integrated into everyday business practices.?

The Impact on Business Performance

Failing to address the talent retention crisis has profound consequences for middle-market firms. First, turnover is costly. Secondly, losing institutional knowledge and client relationships can be even more devastating. Middle-market firms that struggle with talent retention often see slowdowns in innovation, missed growth opportunities, and difficulties maintaining operational efficiency.?

Instead of all the gloom and doom, let’s look at the upside of getting this right. Here are the things you will see improve quickly. I’ve put these in order so you can see the improvements once you’ve gotten on the right track.?

1. Top talent retention.

Your best and brightest will love you for this. Reigniting their excitement, connection, and the importance of their work and growth opportunities is precisely what they’ve been looking for. Top talent retention metrics often improve by as much as 30%.?

2. Customer satisfaction.

When your team loves the company, they will love your customers, too. It's not uncommon to see Net Promoter Scores (NPS) improve by double digits within the first three months after adopting this new operating model.?

3. Productivity.

When people are aligned with their ambitions, playing to their strengths, and doing more of what they love, productivity will significantly increase, often without any intervention from the leadership team.?

4. Quality.

When people care, quality improves. Your organization will see an uptick in quality, a reduction in rework, and innovative ideas coming from the front lines on how to improve even more.?

5. Revenue.

A blend of improved customer satisfaction, better quality, faster delivery, and the ideas and expertise of your top talent will result in top-line growth you can count on. Most organizations will see a 20% increase or higher.?

6. Profitability.

The extra revenue coming in won’t slip out the door due to profitability drains. Profit margins tend to outpace revenue increases, adding more stability to your organization's future.?

Who doesn’t want more of all of these things? While the middle market is grappling with a critical talent retention crisis that threatens the very foundation of its long-term success, you can separate yourself from the pack with one simple shift - Connection.?

Are You Ready to Rally??

This is an incredibly exciting time across virtually all industries in the middle market sector. This can be fun again. Take the time to reflect on how the talent shortage crisis happened and identify what you and your managers may be doing to make the problem worse.?

Focus on adopting good habits and do the work necessary to crack the code by aligning individual aspirations to your most important work, supporting your leaders, and revisiting your policies and people systems. Making the connection will set you on the right path for decades.?

While compensation is important, employees increasingly seek purpose, growth opportunities, and effective leadership. Middle-market leaders must move beyond short-term solutions and implement strategies that foster a strong company culture, clear career pathways, and flexible work options.?

If you’re ready to learn more about how to make this a reality for your organization, contact Tammy to see if the CWC Amplify 360 Program is right for you.