The Inc. Second 100

The runners-up to the 1981 INC. 100 are more profitable, more productive, and more stable.

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One might expect the roster of the Second 100 fastest-growing smaller corporations in the United States to be sprinkled with computer producers, fast-food outfits, and perhaps a genetic engineering firm or two. Not so. In fact, there is not a single mainframe-computer maker, hamburger stand, or gene splicer among the runners-up to the top 100 companies (INC., May, page 51).

Anchored somewhere between the Goliaths of the computer field and the infant crop of high-flying bioengineering firms, the Second 100 is a fast-paced contingent of high-tech, health care, and natural resource companies. As fast-growth enterprises, the Second 100 take a backseat to no one in terms of technological breakthroughs and innovative marketing. Among them are companies that produce lasers, tomographic scanners, and radiochemicals, as well as firms that manufacture batteries, garbage trucks, and coin-operated games. There are specialists in night vision engineering, mobile medical services, and cable TV, as well as an airline and a boxcar builder that operates its own railroad. The majority of the Second 100 are manufacturers, although the group also includes 33 service firms and a dozen oil and gas producers.

In the annals of the Second 100 as a group, the past five years represent a period of spectacular performance. Aggregate sales catapulted by 364%, while net earnings exhibit an even more impressive gain of 745%. Thirty-three of the companies on the list more than quintupled their sales during the last five years, while 61 quadrupled their volumes. Such performance translates to compound average annual growth rates ranging from 41% to 57%.

Like the front-running top 100 fastest-growing companies, the Second 100 marched into the 1980s at a meteoric pace. Last year alone, their sales jumped by 50%, only two points behind the 52% gain registered by the INC. 100. Two runner-up companies in particular -- Monolithic Memories (No. 192) and Omnimedical (No. 175) -- turned in outstanding performances in 1980.Both firms more than doubled their sales, registering respective spurts of 111% and 113%, with bottom-line results that were even more spectacular. Monolithic Memories, in fact, ranks as No. 1 among the Second 100 in terms of turnaround on the profit and loss statement. From red ink of close to $1 million in 1979, the California electronics manufacturer rebounded to $9.6 million in earnings last year. Only slightly less outstanding is the 726% gain in profit posted by Omnimedical, a California medical diagnostic firm.

As a group, the Second 100 rang up total sales of $3.4 billion last year, boosting their net earnings by 47.5% in the process. The burgeoning growth rates are even more impressive, of course, when compared with the figures of five years ago. It is in the comparison of 1976 and 1980 figures that the differences between the Second 100 and the top 100 fastest-growing smaller companies begin to emerge. While both groups turned in similarly outstanding performances last year in terms of percentage gains in sales and earnings, the dollar signs and growth rates of the past five years reveal subtle contrasts between the 100 runners-up and the top flight.

As the following table indicates, the Second 100 enterprises were far ahead of today's 100 front-runners five years ago:

The Second 100 The INC. 100

'76 Sales $725.6 mil. $388.1 mil.

'80 Sales 3.4 bil. 5.0 bil.

% Change +364% +1,188%

'76 Income $ 30.1 mil. $ 1.3 mil.

'80 Income 254.2 mil. 347.8 mil.

% Change +745% +26,208%

What happened to the Second 100's broader sales base and thirtyfold edge in profits? The answer, which is only partially reflected in the above figures, rests in the distinction between emerging growth companies and maturing growth companies. In effect, the Second 100 firms are the latter category's leaders. As such, they share these basic characteristics in contrast to the top 100:

1. They are older.With the exception of a couple of companies that were barely generating revenues prior to 1976, the Second 100 are a more mature lot. Seventy-five have been in business more than 10 years, versus 59 among the INC. 100 that have passed the 10-year mark. Perhaps even more significant, however, is the fact that 24 of the runners-up are alumni of last year's top 100 and 11 are veterans of consecutive INC. 100 rankings. In short, almost a quarter of the Second 100 have already discovered that meteoric growth inevitably collides with the unforgiving limits of geometric progression.

2. They're more profitable. In the aggregate, the Second 100's net income as a percent of sales is 7.7%, versus the top 100's 7.0%. Five years ago, only 23 of the companies among the Second 100 were wrestling with deficits, versus 44 of the top 100 performers. Only 8 of the runners-up closed fiscal 1980 with red ink on thir ledgers, compared with 11 among the 100 front-runners. Offsetting the 8 firms that were battling losses at year-end were 20 companies whose earnings soared more than 100% last year.

3. They are more productive. The Second 100 chalks up less total sales volume, but they also maintain leaner payrolls -- by more than 33,300 workers. As a yardstick of performance, they average $60,670 in sales per employee, compared with the $56,300 registered by the top 100.

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