Overcoming the Talent Gap: Attracting and Retaining Tech Expertise in Lower Middle Market Firms

In the lower middle market (LMM), competitive advantage often hinges less on capital access and more on execution. Yet many firms face a persistent barrier: the shortage of technology talent. As portfolio companies scale and private equity sponsors push for digital enablement, the demand for skilled IT leaders, data specialists, and transformation architects far outpaces supply.

This “talent gap” is not simply an HR challenge — it’s a strategic risk that directly impacts operational efficiency, digital transformation, and ultimately enterprise value. But it is also a solvable problem. By rethinking how they attract, develop, and retain talent, LMM firms can close this gap and build sustainable technology capabilities.

Short Summary

The tech talent shortage is magnified in the LMM, where firms compete against larger enterprises with bigger budgets and brand recognition.
Retention matters as much as recruitment — turnover among scarce digital talent can derail transformation timelines and diminish investor confidence.
Creative sourcing and partnerships can help LMM firms access expertise without inflating fixed costs.
Culture and mission alignment are differentiators — mid-sized firms can offer career autonomy, impact, and flexibility that larger corporations can’t.
Building bench strength through upskilling ensures resilience when external hiring is difficult or costly.

A lower middle market business team collaborating on digital transformation strategy to overcome technology talent shortages.

Why the Talent Gap Hurts More in the LMM

Unlike Fortune 500 companies, LMM firms cannot afford endless recruitment cycles or deep benches of specialized IT staff. A single departure — whether a CIO, ERP lead, or cybersecurity manager — can stall critical initiatives and introduce operational risk. For private equity sponsors, this jeopardizes the investment thesis itself: delayed integrations, slowed efficiency gains, or inability to execute on digital growth strategies.
In short: without the right people, even the best technology roadmap remains theoretical.

Attracting Tech Talent Without Fortune 500 Budgets

Recruiting in the LMM requires a differentiated pitch. Compensation is important, but firms that lead with impact, autonomy, and visibility often outcompete on more than dollars.

Highlight impact: A data engineer in a mid-market manufacturer may influence operations across the entire company, not just a single department.

Emphasize autonomy: Smaller firms often allow technologists to shape systems end-to-end, a level of ownership rare in large organizations.

Offer flexibility: Hybrid work arrangements, project-based engagements, or fractional leadership can expand the talent pool.

Positioning roles around these benefits reframes the narrative from “we can’t match Big Tech salaries” to “we offer a career where you matter.”

An overextended IT manager balancing multiple systems in a mid-sized company, representing the technology talent gap in the lower middle market.

Retention: Protecting Investments in People

Once onboard, retaining talent becomes mission-critical. Frequent turnover not only wastes recruiting spend but also erodes institutional knowledge. LMM firms can strengthen retention by:

Creating clear growth paths — even lean organizations can provide progression via skill development, leadership exposure, or cross-functional roles.

Investing in culture — a workplace that values collaboration, transparency, and recognition is harder to leave.

Linking to the bigger picture — when employees understand how their work drives EBITDA growth or supports an eventual exit, engagement deepens.

Retention, in this context, isn’t just about perks. It’s about building an environment where talent sees both professional and personal value in staying.

Leveraging Partnerships and Ecosystems

Not every capability must be hired in-house. Strategic use of managed service providers, consulting partners, or “fractional CIO” arrangements can provide immediate access to specialized expertise without burdening payroll. This hybrid model — blending internal champions with external experts — gives LMM firms agility while longer-term talent strategies mature.

A lower middle market executive interviewing a technology candidate in a flexible workspace, highlighting autonomy and impact over salary.

Building Talent from Within

When external hiring is slow or expensive, upskilling becomes a competitive advantage. Sponsoring certifications, providing on-the-job digital training, and encouraging cross-functional learning can transform existing employees into capable tech contributors. These programs create loyalty and help firms adapt faster when the external market is tight.

Looking Ahead

For lower middle market firms, closing the talent gap is less about “winning the war for talent” and more about competing differently. By reframing the value proposition, prioritizing retention, and creatively augmenting teams, firms can secure the expertise needed to deliver digital transformation and unlock portfolio value.
In an era where technology is no longer optional, building and sustaining tech talent is one of the most important levers LMM leaders can pull.

$Business leaders forming strategic technology partnerships to access specialized expertise through managed services and fractional CIO models.$

FAQs

Why is hiring tech talent more difficult for lower middle market firms than for larger enterprises?

LMM firms compete against Fortune 500 companies and high-growth startups that can offer higher salaries, bigger brand recognition, and expansive career paths. The challenge is not just fewer candidates — it’s a perception problem. Smaller firms often have to work harder to communicate the unique value they offer, such as broader impact, faster decision-making, and direct visibility with leadership.

What roles are most critical to fill first when building technology capabilities?

While every firm is different, core leadership roles — such as a CIO, Head of Data, or ERP specialist — typically create the foundation. From there, portfolio companies often prioritize roles tied to value creation, like analytics leads who drive pricing insights, or cybersecurity managers who mitigate operational risk. The key is aligning hires directly to the investment thesis and operational priorities.

How can LMM firms attract tech expertise if they can’t match top-tier salaries?

Compensation matters, but it’s rarely the only driver. LMM firms can highlight the autonomy, ownership, and visibility tech professionals gain in smaller organizations. They can also offer flexible work structures, direct exposure to C-suite decision-makers, and a chance to shape technology strategy rather than just maintain systems.

What retention strategies work best for digital and IT talent?

Retention hinges on creating clear growth opportunities and a compelling culture. That means investing in continuous learning, offering career progression even in lean environments, and tying work to meaningful business outcomes. Employees who see their contributions driving EBITDA growth or enabling a portfolio’s exit strategy are more likely to stay engaged and committed.

Should LMM firms rely on outsourcing instead of hiring in-house?

It doesn’t have to be either/or. Outsourcing to managed service providers, consultants, or fractional leaders can provide immediate expertise and reduce hiring pressure. However, internal champions are essential for alignment, cultural adoption, and long-term resilience. The most successful firms blend both approaches — leveraging external specialists for surge capacity while nurturing internal talent for sustainability.

Michael Fillios

Founder and CEO of ITAlly

Michael C. Fillios is the founder and CEO of IT Ally, a business and technology advisory firm for family owned and private equity backed small- and medium-sized businesses (SMBs). He is a former Fortune 500 global CIO, small business CFO, technology entrepreneur and management consultant with more than 25 years of experience. His first book, Tech Debt 2.0®: How to Future Proof Your Small Business and Improve Your Tech Bottom Line, was published by the IT Ally Institute in April 2020. His new book is, Tech Equity, How to Future Ready Your Small Business and Outperform Your Competition (IT Ally Institute, May 4, 2023). Learn more at itallyllc.com.