Like a bunch of adolescents, the companies on the INC. 100 are an unsettled lot. They have grown so fast that their knees ache. They have consumed capital voraciously, but most haven't yet produced much income. They have come a long way -- but their future is as much in doubt as ever.
An exaggeration? No. The typical company on this year's list of the 100 fastest-growing small public companies in America is less than 10 years old. Since 1980, its revenues have grown 2,733%, and it has added an average of nine new employees every month. Last year alone, the 10 companies that went public raised approximately $100 million. But nearly a third of the companies on the list are still losing money.
As to the future -- well, this year marks INC.'s eighth listing of the 100, and what happens to the list's alumni is by now pretty well established. Some few companies continue their hectic growth and, like Apple Computer Inc. (1982, #1; 1983, #5), take their place on the rosters of the nation's largest enterprises. Many more slow down, and grow into midsize middle age. Still others are grist for the mergers-and-acquisitions mill, or fade away into the nether reaches of bankruptcy court. Like a senior class the day after graduation, companies on an INC. 100 list are filled with possibilities. But only a few are candidates for Most Likely to Succeed.
Whatever the future holds for these companies, though, the past and present of this year's INC. 100 reveal much about the wellsprings of growth -- and about how growing companies can and should do business.
Think back, for example, to the turn of the decade, when many of the companies on the list were founded. Jimmy Carter was using the word "malaise" to describe the nation's state of mind right about then, and few were disagreeing. But some entrepreneurs saw beyond double-digit inflation and record interest rates to spot opportunities in fast-changing segments of the economy. "Aah, Those Were the Days" (page 69), by senior writer Joseph P. Kahn and senior editor Stephen D. Solomon, looks back and -- with the indisputable advantage of hindsight -- shows why those opportunities turned out to be pockets of hypergrowth. Maybe those who learn this history well enough will get the chance to repeat it.
To be sure, spotting an opportunity is one thing; making money on it is another. And while every one of the 100 companies on this year's list identified and took advantage of an opportunity, nearly a third of them lost money last year. Does fast growth necessarily mean lean -- or negative -- income? Is the trade-off between market share and profitability inevitable? Senior writer Tom Richman, in "Seeing Red" (page 77), picks apart the income statements of a selection of companies to show why so many rapidly growing enterprises lose money -- and why, in some cases, losing money isn't such a bad thing in a company's early years.
To an investor, of course, losing money is always bad, and there's no surer way to do so than to invest carelessly in fast-growing companies. Between March 1985 and this past March, for example, the Dow Jones Industrial Average rose 31%, yet 53 of this year's 100 companies watched their stocks decline over the same period. So the trick is to separate the stars from the dogs. In "Look Before You Weep" (page 83), senior writer Robert A. Mamis offers some tips to investors in growth companies, and shows how the nation's most successful growth-stock pickers go about their business.
Behind the unusual numbers of an INC. 100 company are some equally unusual characters. Dr. Robert Jarvik, for example, the famous inventor of the Jarvik-7 artificial heart, whose company posted revenue of $5.7 million last year despite a product that has been called unreliable, unethical, and downright dangerous. Or Irwin Selinger, who is the first chief executive officer to found and lead two different companies on the list. Or Ben Cohen, who plays Ping-Pong at board meetings and takes home a salary of only $50,000. You'll meet many such personalities in "The INC. 100 Portfolio" (page 51).
Finally, in "Line Items," (page 62) we break out a number of bite-size facts, trivial and otherwise. How many founders are still running INC. 100 companies? Which company provides the most unusual benefit? Which CEO used to be a piano distributor in North Dakota?
Study hard. There will be a test on Thursday.
INC. 100:
Overview
Number of companies by sector
Manufacturing 55
Service 26
Mining (including oil and gas) 6
Wholesale and distribution 6
Retail 7
Total sales 1985 (million) $6,044
Change 1981-85 2,773%
Total net income 1985 (million) $79.2
Total net income 1981 (million) ($32.8)
Median sales 1985 (million) $21.40
Median sales 1981 (million) $0.65
INC. 100:
Overview
Compound annual sales growth rate (1981-85)
Total sales 131.52%
Range 81.47%-411.94%
Net income as a % of sales (1985)
Range loss to 0.02%-24.12%
Median 3.47%
No. acquiring other companies (1981-85) 49
No. founded since 1976 84
Median number of employees
1985 207
1981 25
