The 500

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#13

APPLIED SYSTEMS INC.

UNIVERSITY PARK, ILL.

You saw it in the stock market. You've seen it in the merger-and-acquisition activity. Now you can see it in the INC. 500: software is hot. On this year's list there are more than 40 companies that design, manufacture, or distribute software, closing in on hardware as the driving force in the technology sector. Most experts see this as the start of a long-term trend, as the hardware becomes more and more like a commodity business and the software -- everything from applications programs to artificial intelligence -- becomes the high-stakes arena.

Near the top of this year's list is Robert Eustace's Applied Systems, which is typical of the successful software firms in its focus on a narrow market niche: applications software for insurance agents.

#44

INTEGRATED SYSTEMS ANALYSTS INC.

ARLINGTON, VA.

As a U.S. Navy combatant in the Persian Gulf detects an enemy plane, the 50-millimeter cannons on its foredecks automatically rotate to zero in on the approaching target. As likely as not, the interfaces that link the radar to the cannon are designed by a company like Integrated Systems Analysts (ISA).

Cofounded by C. Michael Gooden in 1980 after a 17-year career with the navy, ISA gained its foothold in military contracting through the federal government's minority business development program -- and like many minority-owned companies, has spent the time since trying to get out from under its stigma. "It's a strained environment," he says. "We're constantly having to dispel the image that, as a minority contractor, we can't perform successfully." Gooden has apparently been successful enough that he can afford not to bid on such politically controversial projects as the MX missile and the B-1 bomber, which are more likely to be suddenly canceled with a change in Administration or public opinion. He has also been careful not to tie his company's prospects to any particular weapons system: no one contract supports more than 10% of his staff.

#70

APPLIED ENERGY SERVICES INC.

ARLINGTON, VA.

In his capacity as an energy adviser to President Ford and head of the Mellon Institute's Energy Productivity Center, Roger Sant thought he saw a way to make money shipping coals to Newcastle.

It's called cogeneration. Like most other electric companies, Applied Energy Services burns coal or oil or gas to generate heat that turns turbines that generate electricity. And like most electric companies, that process produces a fair amount of waste heat. But unlike most electric companies, Sant doesn't just let the heat go up into the air. He turns it into steam and sells it to his neighbors -- an oil refinery in Houston, for example, or a chemical plant in western Pennsylvania.

"We are part of a major restructuring of a huge industry," says Sant, who estimates cogeneration, on average, cuts the cost of generating a kilowatt of electricity by as much as 10%. Nor is selling such power much of a problem: a 1978 federal law requires large utility companies to buy the electricity from these freelance competitors at a price equal to the cost of the utility's own energy.

#97

SHREDEX INC.

BOHEMIA, N.Y.

Fawn Hall and Ollie North have been very, very good to Shredex. The famous White House duo is credited with boosting shredding machine sales by nearly 50% over this past summer. And the gain is not just government business, either. These days, federal agencies account for only 23% of Shredex sales. The real growth is coming from the private sector, where having a shredding machine has become a status symbol akin to an office with a window or a rosewood desk.

"These are no cloak-and-dagger, back-room machines," says president Michael Falco of the $500 to $18,000 cutter-uppers. "These are among the fastest-growing office products on the market, replacing the trash basket next to copiers and computer printers."

Falco, however, is not unmindful of how important a government scandal can be for boosting private-sector sales. Five years ago, he launched his company with a "Watergate" series. But he doesn't see any long-term market for a "Contragate" model -- at least not yet.

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