Knowing your clients is one thing; knowing how they're changing over time is something else again — something Top 10 Firm RSM knows well, having just literally redefined one of its most important client bases: the middle market.
The firm recently conducted economic research on this very important segment, surveying more than 1,000 companies to analyze operational challenges and exactly how and why the market has changed.
One of the most significant takeaways from the report, "Managing complexity: A renewed imperative for the evolving middle market," is the change to the revenue parameters of this market segment, said chief operating officer Sam Mascareno.
"The brunt of our study was to kind of confirm a couple of things or to discover some things," he explained. "One, the definition was outdated in terms of revenue. The working definition was that the middle market was companies with revenues between $10 million and $1 billion. And what we found based on our research — and this is not just in our clients, but also in the broader economy using outside sources — is that the modern middle market today is really more companies between $30 million and $10 billion, which is a much larger space."
Additionally, there are fewer companies in that wider space than there were 10 years ago, he said, "because of consolidation, all that has happened. So not only is there less companies there, but they're larger, they're more complex, and they're more global. It was interesting just to identify the fact that this new definition is one-third of the economy."
RSM's research not only broadened the scope of the middle-market segment, but how the firm approaches its own midmarket clients.
"What it also helped us to understand is that more so than just solving a client problem or a specific issue that they might reach out to us for, it's really thinking about us as advisors, how do we help them create and unlock enterprise value?" Mascareno explained. "Because they might have a specific need, but their broader need might be more interconnected to other pieces, right? So they're just saying, 'Hey, let's talk about this one solution, how does this impact something else? And what is this connected with?' And maybe this is part — we're talking about this piece, but this is a piece of a larger puzzle. So how do we help you identify and create value and unlock that value for you? So I think it broadens our approach to client service."
As RSM caters to the larger size and complexity of these clients, the firm is transitioning, according to Mascareno, "from an old mindset of 'You know, I'm a tax partner, I'm going to solve this tax issue for you,' to really step back and say, 'OK, what is this connected to and what other pieces to this puzzle are connected to this one issue you called me about and how can we help you?'"
This client service shift aligns with the larger trend in accounting of moving to more proactive, advisory and future-focused work.
RSM's research supports serving these midmarket clients "in a more holistic way that helps you create more value for the organization," Mascareno said. "So it goes from just solving a problem or a pinpoint to diagnosing, 'Is there a broader challenge or a better, a broader opportunity that we can help you uncover?' So it does expand how you serve these clients."
Mapping it out
Also enhancing RSM's client service are road maps the firm created based on its economic research.
"It's something that was in process, but this survey and the results of this survey helped us to identify how important this is, not just to create a road map, but to do it literally by sector," Mascareno explained. "Because what sectors need in order to drive value, it varies from sector to sector in very, very different ways. So it confirmed a hypothesis we had that we should create these road maps — [and produce them with] this information, this survey, and the learnings from all the different segments and where they are in their journeys, what they need."
The maps are also offered to clients as RSM's proprietary Enterprise Value Roadmap framework, which focuses on areas most associated with long-term value creation — revenue growth, operating efficiency and disciplined capital deployment — alongside steps for maximizing that value.
Mascareno emphasized that this documentation builds on RSM's near-century of experience with middle-market businesses. "Again, we have 99 years of history with companies in this space," he said. "We understand the middle market better than any firm out there. And so how do we take that sort of wisdom, and apply it to today's fact pattern and then create something that's sector-specific to help a client get from point A to point B? So we're super excited about these enterprise-value road maps because it's using a lot of our proprietary knowledge. They're sector-specific and they are tailor-made for the middle market."
Internally, RSM is also refining its training so firm professionals can be better guides along these business plans. "Not only are they continuing to get high-quality technical training, they're also getting industry-specialized training and they're also beginning to get training around how to be a business advisor that's thinking enterprise, not just tax," said Mascareno. "A scaling of training to go beyond just the technical — and I don't want to minimize the importance for technical and quality, that still remains fundamental — but in addition to that, knowing the industry and even sector, and what are the needs specific to those sectors that you're using, in our firm."
The industry-specific training is not new, said Mascareno, but it has been boosted by RSM's survey insights. "All of our people are focused on certain specific industries and they get industry-specific training, and that's been going on for some time. We're going deeper on that, and then in addition to that, how do we help you become a business advisor? So you can spot other needs and other opportunities with our clients to help them drive their own value. So I think it makes for a more holistic business professional as opposed to just a technical expert, which I think is exciting for our people."
An organization's people, its "human capital," was one of several sources of operational complexity highlighted in RSM's economic research, along with technology, financial capital, globalization and the regulatory environment.
And while the RSM report redefines a crucial market and offers a guide for better serving its many sectors, the main operational challenges for today's businesses can still be distilled down to the core pillars.
"I would almost put it in the context of people, process and technology, right?" Mascareno said. "Do you have the right people? Are these processes that you have today scalable? And do you have the right technology for today and the right technology platforms for the future for where you want to go?"
In solving these fundamental issues, RSM — armed with its research — aspires to a greater depth of understanding.
"So I'm not just here as a tax partner," Mascareno explained. "I'm not just here as a technology partner. I'm not just here as a name-what-I-do partner. I'm here as an expert in your industry that understands the broader framework under which you operate. That understands the people, process and technology needs for companies in your space. And so no longer am I here just to solve this one thing and walk away. It's to say, 'How can I come alongside you as a client and help you understand?'"
