Like the steel industry, the oil and gas industry has more than occasionally suffered for its size. And, again, as in the case of the steel industry, along have come smaller, more flexible, more opportunistic companies that have feasted where others have starved. Case in point: Endevco Inc. (#1), in Dallas, a full-service natural-gas processor/transporter showing $92.4 million in revenues for 1984 and a first-place spot on INC.'s 1984 list of America's fastest-growing small public companies.
With only around 50 employees, Endevco handles all gas services from the wellhead to the wholesale customer; more of its resources are being diverted to exploration and development of reserves as well. But the company's real hallmark has been marketing. "Natural-gas marketing is the budding new development in this industry," avers chief executive officer James W. Bryant. "Because of a temporary oversupply in delivery capacity, a lot of wells have cut way back on production. And much of the gas that is there is tied up in long-term, 'take or pay' contracts that force transporters and users to pay for it whether they take it or not. What we do is go after industrial customers that have either been buying gas at spot prices or are considering switching to alternative fuels such as coal or fuel oil. Then we work our way back to the producers, often getting cheap gas released from existing contracts."
Bryant acknowledges that at least part of Endevco's success has been timing. "You can't really blame the big companies," he continues, "because when they sold [the old gas] under contract, they thought prices and consumption would stay up. It hasn't, and that's stuck them with reserves that are pricing them right out of the market." Endevco's response to this industrywide dilemma has been to market off-price gas with relatively long (up to five-year) contracts featuring "take or release" clauses that effectively open up the fixed-rate price schedule after a period of two years. At the production end, it has negotiated "market out" agreements that have freed it from having to accept expensive gas it can't sell. Thus protected two ways, the company has flourished by handling smaller accounts, and smaller profit margins, than its large competitors simply could afford to bother with.
Despite Endevco's impressive performance, 1983 didn't seem a great year for taking an energy company public; trying to spark investor interest in a gas company, commented one industry newsletter, was like "sending a punk-rock band to a debutante ball." In fact, Endevco had to cut back both its offering (from 1 million shares to 900,000) and price (from $10 to $6) during last-minute softness in the market. According to Bryant, however, the $4.6-million net -- 13 times 1981 earnings -- was adequate to pay down a sizable chunk of bank debt and still fund short-term investments and development efforts. Can Endevco continue to grow at its own swift pace?
"It would be awfully difficult to do if we were much bigger," admits Bryant, "but our five-year plan now is to grow at a compound rate of 40% on an average per year. We estimate we have less than 1% of the market right now. We think 2% to 3% is not unreasonable. For a company our size, we've got a lot of people [seven, including Bryant himself] out there selling deals. It's a marketing game now." And Endevco is playing for keeps.
CONTINENTAL HEALTH AFFILIATES INC.
According to Jack Rosen, CEO of Continental Health Affiliates Inc. (#70), in Englewood Cliffs, N.J., it is a question of costs. With health care already gobbling up close to 10% of our gross national product, doctors, hospital administrators, and government officials alike are under pressure to cut. "The obvious result is that hospitals will be looking to discharge patients much earlier," Rosen argues, "and the only alternative is home care."
Cost-effective home care, already a $2.5-billion market, should continue to be the fastest-growing segment of America's fastest-growing industry, Rosen argues. And Continental -- a $14.1-million company that has expanded from providing home-care nurses to providing the equipment and training for such sophisticated techniques as infusion therapies, dialysis, and chemotherapy -- should continue to expand as well.
The only problem is attitude. Not toward the patients, who generally prefer the comfort and security of treatment at home when possible. Instead, Rosen says, "the biggest constraint we've faced is winning acceptance by physicians and hospital administrators. Both groups traditionally earned their income within a hospital setting, and they are concerned with the loss of that income But they'll have to learn to do their business in a nontraditional way."
JEFFREY MARTIN INC.
Three years ago, Purex Corp. approached Jeffrey Martin Inc. (#75), in Union, N.J., and its CEO, Martin Himmel, with an acquisition offer. Purex, manufacturer of several over-the-counter medicines and beauty aids (including Doan's Pills for backaches, Bantron Smoking-Deterrent Tablets, and AYDS Appetite-Suppressant Candies), wanted Himmel, known as "Mr. Network Radio" of brand-name advertising, to pump some new marketing life into its tired product line -- much as Himmel had done for his own company brands like COMPOZ Nighttime Sleep Ayd and Topol Smokers' Tooth Polish.
After listening to Purex executives talk strategy, however, Himmel had a better idea: buy the Purex line himself and take full charge. Son Jeffrey Himmel, vice-president of corporate development, explains:"There are a lot of products out there with great brand-name recognition and consumer acceptance that are woefully undermarketed," he says. "These products have become marketing misfits, and we go after them aggressively."
Indeed they do. Although it doesn't manufacture any of its health and beauty products, Martin markets them with sufficient zeal that it is now the largest single network radio advertiser in the country (nine-month total in 1983: $13.9 million), the second largest transportation advertiser (more than $6 million last year), and one of the top 100 of all ad agencies; fully half the firm's gross earnings are plowed back into advertising, much of it into off-peak radio slots in which airtime is relatively cheap and the product climate favorable (COMPOZ, for instance, is heavily plugged on late-night talk shows). Martin's in-house production staff and media departments also emphasize product repositioning, as was the case with Cuticura, a 100-year-old soap reintroduced as a product for "combination" dry and oily skin. Topol remains the company board leader with a 3.7% share of the $950-million toothpaste market, good for 41.6% of total earnings.
A 3.5-million-share offering in May of 1983 netted Martin $42 million in additional cash-dollar shares, making the company almost as visible in the investor's marketplace as the old Purex line is now in the consumer marketplace.
The products seem too prosaic for the glamorous label of "biotechnology": a drain cleaner for janitorial services, a feedstock for farmers, an enzyme for making cheese, the raw materials for an artificial sweetener for soft drinks and chewing gum. But by bringing those homely items to market -- or, to be exact, by promising to bring them to market -- Genex Corp. (#23), in Rockville, Md., has become the fourth largest biotech company in the world, with 1983 revenues of $11.1 million, a 4,253% increase over the past five years.
The strategy of avoiding the alluring drug-related products was set before the company's launch, according to CEO J. Leslie Glick. "To do the obvious, to develop pharmaceutical products, would take lots of years and lots of bucks, and we would face serious problems with governmental approval, so the risk factor was enormous," he explains. "Our route offered a lower total [research and development] cost and a faster timetable for bringing products to market."
So far, Genex, like its competitors, has earned most of its revenues from contract research. But 1983 also saw Genex sell more than $1 million of its first major product, phenylalanine, an amino acid used by G.D. Searle & Co. to make aspartame, a low-calorie sweetener being marketed as NutraSweet.
Genex is currently renovating a former Heublein Spirits Corp. bottling plant in Kentucky to produce 4 million pounds of phenylalanine annually, as well as 4 million pounds of aspartic acid, the other active ingredient in aspartame. And by the end of 1984, with its drain cleaner on the market, Glick expects to see revenues almost quadruple, to between $30 million and $40 million. The future looks sweet indeed.
CNEMFIX TECNNOLOGIES INC.
In the early '70s, Chemfix International Inc. (#90) was an interesting little Pittsburgh-based company with an interesting little method for handling hazardous wastes. The process consisted of treating the wastes in such a way that inorganic elements -- especially toxic metals like mercury and arsenic -- did not become water soluble and leach back into the ground soil.
Producing nonpolluting solids from toxic sludge should have made Chemfix a winner. Unfortunately, says Daniel N. Silverman III, current president of Chemfix, "the technology was way ahead of its time. It was six to eight times as expensive as off-site dumping, plus people weren't as aware of the [environmental] damage problem as they are now. It was a tough sell."
A tough sell but a great buy. Having worked with Chemfix on a joint venture in 1976, Silverman's company, National Environmental Controls Inc. (his father, Daniel Jr., is chairman of the board), saw the promise in the process and bought the rights to patents and equipment from the struggling company for about $500,000. Along came tightened Environmental Protection Agency regulations, soaring transportation costs, the horrors of Times Beach and Love Canal, and -- boom: Off-site dumping became bad news, and Chemfix became a hot property. It is already operating the first Chemfix processing municipal plant in the nation, at Blue Plains in Washington, D.C., processing 130,000 gallons of waste a day.
According to Silverman, taking Chemfix (now in Kenner, La.) public was really a marketing decision. "It was getting hard to market what's essentially a high-technology service company from the base of what is essentially a garbage company, which NEC [is]," he says. "Chemfix is a business based on chemists and PhDs, [NEC's] on truck drivers and mechanics. Plus we wanted seed money for new projects." Selling Chemfix stock to a group of private investors, Silverman raised approximately $1.2 million and began implementing a marketing scheme with three broad targets: industries (chemical plants, refineries), municipalities, and oil drillers. Overseas, Chemfix has opened a London branch, which is working on nuclear-waste treatment as well.
JP INDUSTRIES INC.
John Psarouthakis, chief executive officer of JP Industries Inc. (#50), in Ann Arbor, Mich., is a high-tech veteran with a low-tech vision. While others dream of the fortunes to be made in electronics or computers, Psarouthakis has built a $47.5-million-a-year business reclaiming aging midwestern industrial underachievers.
The 51-year-old Psarouthakis, a Massachusetts Institute of Technology engineering graduate who began his career in the U.S. space program, launched JPI in 1977. He had an "Acquisitions Wanted" ad in The Wall Street Journal, and he had a strategy. Psarouthakis's goal was to buy into countercyclical industries, durable-goods makers in which he could use his expertise in metal- and plastic-working to become the low-cost producer. The company went operational in 1979, buying a struggling Ohio metal-stamping plant; eight more marginal companies -- manufacturers of faucets, plumbing fixtures, strainers, drains, truck and tractor components, and cam shafts -- would follow. By narrowing product lines, selling off excess inventory, consolidating marketing and administrative functions, and replacing managers, he revived eight of the nine -- licensing the process and selling a filter manufacturer that he could not turn into a money-maker.
"A lot of people are missing the boat in Michigan, chasing high tech trying to duplicate [Massachusetts's] Route 128 and [California's] Silicon Valley " Psarouthakis argues. "They're missing the fact that there's a significant technology base here, not as glamorous, but one that can make money nonetheless."
Back in the 1960s, when Kaypro Corp. (#42), in Solano Beach, Calif., was the family-owned Non-Linear Systems Inc., The Reader's Digest called it "one of the most revolutionary companies in America" for its personnel and marketing policies. Today, Kaypro is better known as the company that overthrew Adam Osborne's company as the fourth largest seller of small business computers.
Marketing has been the key to Kaypro's success. Consistently undercutting its competitors on price, the company treats its computers as a "commodity," says marketing vice-president (and the son of founder and CEO Andrew Kay) David Kay. Kaypro has avoided the distributors, representatives, and large retail chains as well, building instead a distribution system of more than 1,000 local dealers, who are kept loyal by weekly phone calls, monthly visits, a telephone hotline, and a 48-hour shipping turnaround.
The number of employees has grown from 73 to 543 in five years, but each still meets, albeit briefly, with Andrew or David Kay before he or she is hired. Production remains organized around small work teams with a working supervisor. Every worker learns each aspect of the assembly process; each is entrusted with writing his or her own time card. The new Solano Beach production plant was constructed on the basis of employees' recommendations and criticisms.
It is still Andy Kay's business; he holds 66% of the equity. But once each month the CEO goes out to the shipping dock to report on the company's progress to his employees. With 1983 sales of $75.3 million, a 1,280% increase from 1982 to '83 the news has been good.
COMP-U-CARD INTERNATIONAL INC.
Back in 1973, when Walter Forbes came up with the idea for his electronic home-shopping service, he hoped to catch "the next wave" in retailing and ride it to explosive growth. Now 11 years later he is still convinced that his prediction was right. But just as importantly he is also convinced that after 10 straight years of losses -- more than $7 million on less than $6 million in sales in the past2 years alone -- his company, Comp-U-Card International Inc. (#87) in Stamford Conn., is about to go into the black.
The idea behind Forbes's microchip shopping mall is simple: The system's 1-million-plus subscribers each pay $25 a year to obtain price and product information by their modem-equipped home computer or over a toll-free phone line from a 60,000 item database. It is a brokerage service offering consumers savings of up to 40% on household goods, drugstore products, and gourmet foods by choosing the best price offered by competing vendors.
"We could have turned the 800 number into a profitable operation along the way," Forbes insists, "but the future is with terminals, and we would have lost our lead." Forbes convinced his investors -- including such retailers as Federated Department Store Inc. and Jack Eckert Corp. -- to stay the course, spending the money to develop the computer database and systems. And with a report from the company's underwriter, Morgan Stanley, estimating a $6-million profit in 1984 due this spring, and with the system licensed worldwide, he feels vindicated.
"We knew it was a great idea, but no one else believed it," Forbes recalls. "We spent a long -- and agonizing -- time in the tunnel. But the rough part is over. Our earning potential is so high we probably couldn't suppress it if we wanted to."
THE HOME DEPOT INC.
Riding the wild cycles of the housing industry has proven problematic for any number of ancillary industries, but not so for The Home Depot Inc. (#26), an Atlanta-based chain of retail home-improvement centers.
"We're not a recession baby," says chief executive officer Bernard Marcus, who, in 1978, helped found the company, which hit 1983 sales of $256.1 million. "When new housing starts are down, people remodel. When they're up, more old homes come on the market that need repair. In either case, people want to save money. There's nothing more frustrating than calling in a plumber and spending $75 on what it would cost you $1.95 to do yourself."
Marcus married that kind of thinking to a revolutionary concept: supermarket-size, do-it-yourself centers featuring nationally advertised brands, huge floor plans (The Home Depot's 19 outlets average nearly 80,000 square feet apiece, three to four times the size of most competitors'), deep inventories ($4.5 million to $5 million retail value), and trained sales staffs (125 to 150 per store) who could counsel inexperienced customers in the finer points of undertaking specific projects. Costs have been held down by the lack of need for interim warehousing and distributors' fees. The result: The Home Depot now plans to open 11 stores this coming year (average annual sales: $18 million per location) and 10 to 15 stores thereafter, rapidly expanding from the Southeast (mainly Georgia and Florida) to the Southwest (Arizona).
To fuel that expansion, the company made an initial 400,000-share public offering in 1981. "Our long-term strategy has always been to build a national chain," says Marcus, "and our biggest investment, outside of inventory, has been in our people. Right now, about the only restraint we face is our ability to recruit and train new staff fast enough."
BYERS COMMUNICATIONS SYSTEMS INC.
"If we could figure out which of the three [service] areas we cover was the hottest," says Morgan Payne, president of Byers Communications Systems Inc. (# 74), in Atlanta, "we'd probably concentrate more on that one. As it is, our project-management skills are easily transferred from one area to another, and that gives us terrific flexibility."
Byers designs, installs, manages, and maintains a wide range of communications systems for cable television companies, common carriers (MCI, AT&T, The Bell Operating Cos.), and private networks, from universities to corporations. These systems include coaxial cable, fiber-optic lines, satellite earth stations, microwave transmitters, and cellular radio installations. Currently operating in more than 30 states, Byers has clearly profited from the explosion of private communications networks sparked by American Telephone & Telegraph's breakup. Conversely, according to Payne, the general retrenchment in the $6.1-billion cable TV business brought on by soaring building costs and shrinking profit margins has not cramped the company's style. "We're involved only in the nonconverter part of the system," he explains, "where service and maintenance contracts are still very much in demand."
Last year, Payne helped guide Byers through a reverse merger with Redfern Foods Corp. Having acquired 63% of Redfern stock, Byers sold off the food operation (Pioneer Beef Co.) and netted a quick $5 million in capital, saving, Payne estimates, about $1 million in the costs of a straight public offering. More recently, Byers made a $40-million stock-acquisition move on Cellwave Technologies Inc. of Claremont, N.C., a manufacturer of antennae and fiber-optic and copper cables. The anticipated alliance with Cellwave will more than double Byers's work force and greatly expand the company's already formidable service capabilities.