How to Go from “Small Business” to “Middle-Market”

Sal Akbani started Gateway Classic Cars in 1999 with nine employees and high hopes.

Now, the classic car dealer employs about 100.  Revenues have accelerated from $4.5 million in 2010 to nearly $38 million and 2015 and are on track to hit $54 million in 2016, says Sal Akbani, the company’s sole owner.

With 11 showrooms in Florida, Texas and other states, the O’Fallen, Illinois-based company has three new locations opening in summer 2016.

“Some people would be happy with one location, one store, one operation,” Akbani says. “I always had the desire to get more locations going. I wanted to test the limits of how far we could go.”

Like many entrepreneurs, he gunned for the lucrative middle market: big enough to capture economies of scale and to build wealth, small enough to be managed by a hands-on owner.

A Wide Swath

A June 2016 report by American Express and Dun & Bradstreet defines small and large businesses as those that generate annual revenues of less than $10 million and more than $1 billion, respectively. Middle-market enterprises bring in between $10 million and $1 billion.

These middle-market companies employ more than 53 million people and contribute $9.3 trillion annually to the U.S. economy. Since 2011, they’ve outpaced both smaller and larger businesses in both employment and revenue growth, according to the report.

Small companies in the sweet spot between $1 million and $10 million in annual revenues have the greatest potential to approach the middle market, the report stated. On average, these enterprises generate $2.8 million in annual revenues and employ 28 people. Sixty percent are involved in manufacturing, wholesale trade, retail trade, educational services or health services.

Middle-market companies employ more than 53 million people and contribute $9.3 trillion annually to the U.S. economy. Since 2011, they’ve outpaced both smaller and larger businesses in both employment and revenue growth.Tweet This

Scaling Operations, Pacing Expectations

Akbani’s experience offers a case study for small-business owners who aim for controlled growth, not runaway expansion.

Here are four strategies that can help with sustainable growth.

1. Evolve Your Business Plan

Akbani wrote Gateway’s business plan in 2004 and updated it in 2010. An accounting firm refined his initial financial projections and an attorney offered advice about declarations and disclosures.

“Without a business plan, you have no map to go by,” Akbani says. “We’re about 90% to the plan I wrote in 2004.”

Akbani financed Gateway’s operations and expansion with ongoing revenue. He tapped bank financing for real estate and lines of credit to purchase inventory. Ninety percent of Gateway’s sales are on consignment; 10% of sales are of company-owned cars that Gateway buys or accepts in trade from customers.

2. Explore New Markets

A business can only grow as large as the market is for its products and services allows. If the market is limited, new markets must be opened.

“We recognized that a certain market will only produce a certain number of classic and exotic cars. For example, the St. Louis market will average about 34 to 35 cars a month. If you want to bring in 300 cars a month, you have to expand into other markets,” Akbani says.

Gateway is now looking at more than 50 U.S. markets as potential expansion targets.

3. Cultivate Customers

Classic cars are what Akbani calls a “subjective market” – car aficionados themselves set market values because their assessments of unique vehicles are the only opinions that count.

Understanding that psychology and being able to translate it into sales are crucial to Gateway’s success as any business must know why its customers buy its products or services.

“Some people have invested $200,000 in a car that’s worth about $80,000. You have to explain to them when they’re selling it that their investment has nothing to do with the market value,” Akbani says.

Approximately 85% of Gateway’s business comes from customers more than 200 miles away from a company showroom. Many customers buy cars based solely on pictures, videos and information presented on the company’s website.

4. Manage Risk.

The biggest challenge Gateway faces is finding cars that are good quality and priced to sell, Akbani says. Without that inventory, whether on consignment or as opportunity buys, the company cannot grow.

Like many growth-oriented businesses, Gateway also depends on a strong global economy. Its cars aren’t exactly a necessity for most people.

“If there’s global optimism, we’ll do well,” Akbani says. “If the global economy shrinks, our business will suffer big-time.”

Ever the optimist himself, Akbani expects his company’s 14 years of profitable operations to continue.

“We’re going out there and capturing as many (sales) as we can,” he says. “I expect to cross the $100 million mark in 2018 or 2019 and am projecting out to 2025, close to $250 million and more.”

Photo Credit: photosum, Twenty20