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The 1985 Inc. 100

Introducing the fastest-growing public companies in America.
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Ten years ago, more than 80% of the companies on this year's INC. 100 list didn't exist. Five years ago, most were still in the start-up stage -- small, struggling, and privately held. Today, they are in the front ranks of America's resurgent economy. If, as Ronald Reagan predicted last January, we are on the verge of a second American revolution, then the chief executive officers of the INC. 100 are the Minutemen of the 1980s, the growth leaders of the entrepreneurial age.

And quite an age it is. Although statistics on the subject are fuzzy, all the indicators point to a record number of new businesses created over the past several years. More to the point -- since the INC. 100 includes only public companies -- is the record number of initial public offerings. While the IPO rush slowed in 1984, with 550 companies raising $3.8 billion compared with 888 companies and $12.6 billion in 1983, the past two years have seen an extraordinary number of new entrants in the public equity markets: 39% more IPOs were issued in 1983 and 1984 alone than in the five preceding years. This year's ranking reflects that explosion. Thirty-three companies on the list went public during 1983, another 19 in 1984.

The 100 companies on this year's list are a testimony to the diversity of markets open to the American entrepreneur. Take James Busby, for example. A systems engineer with Scott Paper Co., he noticed there was no way to print big, easy-to-read labels for the company's huge paper rolls; working out of his bedroom, he developed a circuit board that enabled conventional computer-driven printers to do the job. Today, his company, QMS Inc. (#77), is a $32-million operation that makes intelligent controllers and interface equipment for printers. Or take Joe Corazzi. A one-time producer for public television in Wisconsin, he set up Telstar Corp. (#29) to distribute programming by satellite to hotels, cable systems, and commercial TV stations. A year ago, Telstar launched Country Music Television, a program modeled after the popular Music Television (MTV), and now transmits the program to about 8 million homes.

Overall, the ranking represents a diverse range of manufacturing, wholesaling, retailing, service, and energy-related companies, in 22 states. As in past years, companies in various branches of the computer business dominate the list, spanning a range from integrated-circuit manufacturers to personal computer retailers. Health-related companies are well represented, too; they include biotechnology labs, medical equipment makers, and operators of health care facilities. There are six restaurant companies, five air carriers, and seven oil and gas explorers. Looking for unusual businesses? One company on the list makes pickup truck-bed liners, another sells art-deco sculpture. Five former members of the INC. 500, this magazine's annual ranking of private companies, were able to earn places on this year's list; so were 36 alumni of the 1984 INC. 100 (see "What Ever Happened to the Class of '84?" page 61).

What all these companies have in common, of course, is a phenomenal rate of growth. Companies on the list are ranked by their percentage increase in sales from 1980, the base year, through 1984. Over that five-year period, total revenues of the 100 soared 2,260%, a compound annual growth rate of 120%. To grasp the meaning of such numbers, consider the fact that five years ago, the 100 companies averaged $2.3 million in sales, with only five topping $10 million. Today, the same companies' average volume is $54.6 million, and well over half top $25 million. Every company on this year's list registered more than a tenfold increase in sales, right down to Novan Energy Inc. (#100), a Boulder, Colo., manufacturer of solar water heating systems. The leader -- Convergent Technologies Inc. (#1), a San Jose, Calif., manufacturer and distributor of computer systems -- recorded a whopping 102,969% increase despite its many troubles (see "New Faces of 1985," page 72). From 1983 to '84 alone, the INC. 100 chalked up a vigorous 64% sales growth.

Reflecting the current economic boom, this year's INC. 100 companies are the fastest-growing group in the seven-year history of INC.'s list. They are also the youngest and the largest.

Last year, for example, the average five-year growth rate for members of the list was 2,030%; in the past six years the rate averaged 1,149%. Last year's cutoff point was 783%. This year's was 1,086%, a figure that would have disqualified 26 members of 1984's list.

On average, the 1985 INC. 100 companies have been in business for 10 years, with more than half founded since 1978. To be sure, a company's age can be deceptive. Pope, Evans & Robbins Inc. (PER, #73), for example, is the second-oldest company on the list. Founded in 1926 as an energy engineering firm, it changed direction with its 1980 acquisition of a company that made protective garments for the Department of Defense. Today, PER makes fabric for luggage, swimwear, and rainwear as well, and has diversified into knitwear. Thanks to the repositioning, it has a five-year sales increase of 1,535%.

In 71 of the companies the original founder still serves as CEO, a 10% decrease in founder control from the 79 CEO-founders heading up last year's members. Founders hold an average of 17% of the equity, a drop from the 20% of last year. Whether a founder or an import, however, all but 1 of the 100 CEOs hold at least some equity in his or her company. The exception? James R. Kanely of Byers Communications Systems Inc. (#60), who holds an option on 5.6% of the company's stock.

While the companies in the class of 1985 are the youngest in the ranking's history, they are nonetheless significantly larger than in past years. The average sales volume of 1985's companies is $54.6 million, up considerably from last year's average of $44.6 million and the historical average of $46.4 million over the first six years of the listing. Disk-drive manufacturer Tandon Corp. (#67), a five-year veteran of the 100 and last year's runner-up for total sales, is the volume leader for 1984, with $400.8 million in sales. Convergent Technologies ranks next at $361.8 million, while another 15 companies have also passed the $100-million mark. Roughly half of these sales leaders are in computers or computer-related businesses; the rest are drawn from a variety of industries.

Taken as a group, this year's 100 companies registered $77,773 in sales per employee, down 12% from last year's $88,116, but 9% over the historical figure of $71,251. Who are the leaders? Excluding the highly capital-intensive oil and gas companies on the list, the productivity winner is Micro D Inc. (#38), a Santa Ana, Calif., distributor of microcomputer software, with $580,000 in sales per employee; the runners-up are PER, with $472,000, and Bay Pacific Health Corp. (#57), with $452,000. In general, of course, productivity varies enormously by industry. The seven oil and gas companies averaged $238,000 in sales per employee, while the six food-service companies averaged only $16,000.

These productivity figures have been achieved despite rising payrolls. On average, each company on the list employs 702 workers, a 347% increase in employment over the past five years. In the past year alone, the average company has added 245 workers, an increase of 54%. Dallas-based American Healthcare Management Inc. (#58) experienced the largest percentage gain, swelling from 49 to 5,700 employees over the past five years. Not every company is adding jobs, however. Sales leader Tandon saw employment drop from 3,000 in 1983 to 1,550 in 1984, due largely to plant consolidation and the shift of much of the company's manufacturing to Singapore.

The members of 1984's INC. 100 show a somewhat ragged bottom line. As a group, the 100 companies were unprofitable five years ago, with more than half indicating red ink on their P&Ls. That record has improved significantly, although at the end of fiscal 1984, roughly one-quarter were still wrestling with deficits. Their total net profit was a modest 3.29% of sales. Topping the profit makers for the second straight year was HCW Inc. (#74), with net income of 41% of sales. (That figure is slightly "misleading," however, says president John Plukas, thanks to a $2-million reimbursement for overhead to the company from HCW's managed oil and gas partnerships.) The biggest loser was Masstor Systems Corp. (#34), with a net loss of $17.4 million.

Pegging the INC. 100's return on equity is difficult. Small growth companies in general are highly leveraged, and the companies on the list are no exception. Substantial change in equity due to new stock issues, coupled with the idiosyncrasies of calculating return ratios, further muddy the figures. By INC. estimates, however, the ROE for profitable companies on this year's list comes to 21%, ranging from the 566% chalked up by Nutri-Foods Int'l. Inc. (#61) to the .4% registered by Funddruckers Inc. (#15).

While the majority of the INC. 100 expanded internally during the 1980-84 period, acquisitions played a role in the growth of 44 others, including 8 companies with more than five purchases in the past five years. Healthdyne Inc. (#37), a Georgia maker of electronic medical equipment, was the acquisition leader, with 17 purchases in the past five years. For AGS Computers Inc. (#90), with 10 acquisitions, the goal was to gain market share by adding functional skills and geographic reach.Generally, companies in the medical and health care fields were the most aggressive acquirers; American Healthcare Management, for example, added almost 40 facilities by acquisition.

Because of the requirements for membership on the list (See "How the INC. 100 Are Selected") not every fast-growing company is eligible for membership. Some faces to watch for future years are companies with a growth history that began after 1980. These include Allnet Communication Services Inc., a Chicago-based long-distance telephone service with a 15,064% revenue gain between 1981 and 1984; Ashton-Tate, a Culver City, Calif., software producer with a 9,146% gain; and AST Research Inc., an Irvine, Calif., manufacturer of personal-computer add-ons with a 16,055% increase.

And there are some faces that you will never see: Their growth in the first year vaulted them out of the small company category entirely. In the latter group are such high flying companies as Compaq Computer Corp. and People Express Airlines Inc.

INC. 100: Overview

Number of companies by industry

Manufacturing 53

Service 30

Mining (including oil and gas) 6

Wholesale and distribution 6

Retail 5

Total sales 1984 (million) $5,462

Change (1980-84) +2,260%

Change (1983-84) +64%

Total net income 1984 (million) $179.5

Total net income 1980 (million) ($22.8)

Median sales 1984 (million) $27.11

Median sales 1980 (million) $0.84

Comp. annual sales growth rate (1980-84)

Total sales 120.42%

Range 85.56%-466.61%

Net income as a % of asles (1984)

Range loss to 0.12%-40.51%

Median 4.07%

No. acquiring other companies (1980-84) 44

No. incorporating since 1975 84

Median number of employees

1984 254

1980 30

Change 1980-84 746.67%

THE TOP 10: Productivity

Sales per

Company (rank) employee ($000) *

Micro D (38) $580.1

Pope, Evans & Robbins (73) 472.1

Bay Pacific Health (57) 451.6

Telepictures (91) 420.0

Centuri (45) 375.0

Walker Telecommunications (13) 356.2

Reid-Ashman (35) 280.1

Helm Resources (43) 271.3

Tandon (67) 258.6

Convergent Technologies (1) 229.6

* Excludes capital-intensive energy developers and companies whose primary business is leasing or real estate.

THE TOP 10: Sales

Company (rank) Sales ($000)

Tandon (67) $400,793

Convergent Technologies (1) 361,772

Home Depot (33) 256,184

American Healthcare Mgmt. (58) 255,000

AGS Computers (90) 226,000

Pope Evans & Robbins (73) 196,856

Chi-Chi's (71) 161,706

Xebec (87) 157,700

Centuri (45) 150,000

Endevco (9) 138,420

TOP 10: Profitability

Net income

Company (rank) as % of sales

HCW (74) 40.51

Micron Technology (4) 33.16

G.D. Ritzy's (12) 31.17

Enzo Biochem (41) 25.30

Genex (80) 21.26

Reid-Ashman (35) 20.75

Hogan Systems (20) 19.49

Lee Data (6) 17.83

Information Resources (92) 17.06

C.P. Rehab (49) 16.73

THE TOP 10: New Employees

1980 1984 %

Company (rank) empl. empl. growth

American Healthcare (58) 49 5,700 11,533

Buffton (3) 7 700 9,900

Micron Technology (4) 15 958 6,287

Fuddruckers (15) 17 1,079 6,247

Durakon Industries (39) 6 311 5,083

ComputerCraft (8) 12 615 5,025

Expeditors Int'l. (2) 5 225 4,400

3Com (22) 4 136 3,300

Page America Group (55) 6 175 2,817

G.D. Ritzy's (12) 5 140 2,700

WHERE THE INC. 100

ARE BASED

State 1985 1984

California 27 27

Texas 14 8

New York 12 5

Colorado 5 7

Georgia 5 4

Minnesota 5 4

Massachusetts 4 8

Maryland 4 3

Ohio 4 1

New Jersey 3 8

Oklahoma 3 0

Michigan 3 0

Illinois 2 2

Connecticut 1 4

Pennsylvania 1 3

Kentucky 1 1

Washington 1 1

Florida 1 1

Alabama 1 1

North Carolina 1 1

Utah 1 0

idaho 1 0

Last updated: May 1, 1985




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