Exceptions To The Rule

Why some INC. 500 companies are growing in industries that aren't.

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From 1978 to 1981 the construction industry splintered. Industry sales, adjusted for inflation, fell 14%, but not evenly everywhere. Builders in places like Tucson did just fine. It took something special, however, to build a construction-related company situated outside of the booming Southwest.

Many of the construction-related businesses on this year's INC. private 500 got there by selling a product or service that cuts customers' costs, cuts the company's own selling costs, or fills a recession-related niche. Some, like D. C. Taylor Co. (#452), did all three. Taylor, a single-ply roofing installer, claims its 1982 sales will climb to four times last year's level.

Taylor, headquartered in Cedar Rapids, Iowa, and a competitor, Northwest Inc. (#301), in Wichita, Kans., both made the INC. Private 500 by virtue of foresight exercised six or seven years ago. They decided to abandon the conventional flat-roof covering -- built-up layers of asphalt and felt -- and to concentrate instead on installing a new, single-ply roofing material, some of which is imported from Europe. The cost of asphalt has gone out of sight. And, as interest rates have climbed, so has the cost of financing the capital equipment required to install the hot-asphalt roof. Subsequently, the single-ply roof has become cheaper compared with the builtup roof. "A conventional roofer might have $175,000 in equipment tied up on one job," says Bill Taylor, president of D.C. Taylor. "We can spread that same $175,000 over six or seven jobs and get a lot more production."

Also, both companies concentrate on replacement roofs, rather than new construction. "That gives us an inverse relationship with hard times," says Douglas Seidler, president of Northwest, whose major problem seems to be guarding against too-rapid growth. "I could double the size of this company in 12 months," he says, "but I like to take the time to digest growth. I'm not growing for growth's sake, I'm growing to make money."

Keith Swinehart Sr.'s problem is similar. He doesn't want the recession to end too soon, not until he has enough capacity to meet a higher demand for the plumbing pipe made by Vanguard Plastics Inc. (#163) in its McPherson, Kans., plant. "If the housing industry had taken off, say, last year," says Swinehart, "we probably wouldn't have been able to keep up, and we would have lost market share."

The polybutylene pipe and fittings Vanguard manufactures are flexible, unlike earlier plastic piping, and can withstand the pressures and hot water temperatures that domestic plumbing requires. It takes less time to install than copper piping, an appealing characteristic for the homeowner and housing developer. "It's one of the products that will drastically reduce housing costs," Swinehart predicts.

Cloverdale Equipment Co. (#438), of Oak Park, Mich., survives by keeping its costs under control. Cloverdale was hit with a double whammy in the recession: Not only is it a supplier of construction equipment, but the area it supplies is Detroit. Cloverdale's revenues are off 18% in 1982, after climbing 18% last year, but its market share is expanding as competitors drop out. Most of Cloverdale's revenues are from rentals, rather than sales, of construction equipment, and contractors prefer to rent in uncertain times. Furthermore, Cloverdale isn't spending a fortune on interest to finance new equipment. "We're able to generate revenues from a highly depreciated rental fleet," says president Thomas Moilanen, "which puts us in a position to weather this storm."

Richard Lebo, president of Remco Inc. (#263), of Mechanicsburg, Pa., prefers to let supermarkets in the Pennsylvania-Maryland area buy their major refrigeration equipment direct from the manufacturers, rather than from him. "If they buy direct and it doesn't work, we get paid to fix it," he says. Despite recession and high interest rates, Lebo expects Remco's sales to climb by more than 25% this year because he doesn't have to finance a product inventory and because refrigeration equipment requires servicing and repair, reeession or no.

Similar reasons keep Superior Industries of Nebraska Inc. (#391), in Omaha, growing. "Look at supermarkets today," says chief executive officer Charles Myers. "If they had 100 feet of freezer cabinets 10 years ago, they have 300 feet now, and all that frozen food requires refrigeration at every stage of its processing and distribution." Superior Industries designs and builds cold-storage facilities, some of which it operates itself. "The only thing that keeps us from tripling our business next year," Myers complains, "is a lack of qualified people."

When bad times come, the lawyers always do well, and "we're similar to a large law firm," says Irvin E. Richter, president and CEO of Hill International Inc. (#19) Richter is a lawyer, but the more than 130 people the company employs in Willingboro, N.J., are engineers, architects, accountants, schedulers, and other construction specialists, who can help sort out who owes how much to whom if disputes arise in a major construction project. "What used to be a dedication ceremony at the end of a project all too often now becomes confrontation in a court," Richter says, attributing tighter bids to the recession and unexpected cost increases to inflation. Hill International is also called in by public utility companies that are canceling partially constructed nuclear power generating plants. Those cancellations, Richter says, frequently involve settling 100 to 400 separate contracts.

Even a mainstream construction company can grow today outside the boom areas of the country. It just takes more work and more imagination. Consider Construction Management Inc. (#469) of Knoxville, Tenn. "We sat down two or three years before the World's Fair and tried to think what that might mean to us," says Colby Reeves, vice-president of CMI. "The plans we made," he adds modestly, "happened to work out."

CMI did about half the construction work at the fair site, by Reeves's estimate, aud that experience led the fast-growing building company to create a separate marketing effort for the 1984 fair to be held in New Orleans. It expects not only to design and build exhibit pavilions for sponsoring companies, it also wants to operate the pavilions, hire the staff, create the displays, and dismantle the whole thing when the fair ends. "We've become the World's Fair experts, " Reeves brags.