Inflation topping 15%, the prime nudging 20%, and business failure rates skyrocketing. When it came to starting a company. . .
SIX YEARS AGO, THE ENTREPRENEUR listening for the music of opportunity amidst the din of economic disaster had to fine-tune his receiver -- or surrender to the static. Dial in any wavelength and there were few clear signals one could confidently decode. Who knew, for instance, whether start-up ventures would have access again to cheap capital -- or the primelending rate would continue to flirt with 20%? Who could predict with certainty, say, the shake-up in the airline industry that deregulation would cause, or how cost-control legislation would revolutionize the health-care industry?
In putting together the INC. 100 list of the fastest-growing public companies, however, we couldn't help notice the large number of companies born during this era of uncertainty and unrest. We wondered: Did they know something nobody else knew? Hear things no one else heard? Have a crystal ball hooked to a rooftop dish? Punching our own playback button, we decided to rewind the tape and listen once more to the background noise so dominant at the beginning of the decade. Some surprising sounds emerged.
Nineteen eighty, you remember, was a Presidential election year, and the air was filled with debate and despair. Followers of the Ayatollah Khomeini held 52 Americans hostage in Iran. World oil supplies were short, tempers shorter. As the political season began in earnest, President Carter started arguing with Ted Kennedy, Kennedy argued with Ronald Reagan, Reagan argued with Carter, and all of them argued with Paul Volcker, who wasn't even running for office. Economists spoke of supply-side theory and reindustrialization, yet the enduring images beamed back to the electorate were of a U.S. President omitting crucial sections of his anti-inflation address when two pages of the speech inexplicably stuck together, and of a Vice-President-to-be labeling his future boss's theories "voodoo" economics.
Actually, as Mr. Bush himself might concede today, voodoo had a certain appropriateness for an economy by all rights more dead than alive. In 1980, consumer prices soared 13.5% and the prime interest rate climbed past 20%, higher than ever before. Corporate profits fell about 9% and productivity 0.5%. Businesses were failing at the rate of 42 per 10,000 concerns, up from 28 the year before -- and up again, to 61, in 1981. Energy costs hit an all-time peak in 1981, six and a half times their level of 11 years earlier. Companies shopping for start-up money in 1980 were further hampered by a general lack of venture capital (a total of only $1.1 billion, compared with $2.8 billion in 1983) and an anemic initial public offering market ($420 million raised by venture capital-backed firms, versus $3 billion three years later).
Where so many heard only the buzz of bad economic times, however, others marched forward to a different sort of tune: the tune of opportunity. For Forum Group Inc., the #1 company on this year's INC. 100, it was the opportunity to move nimbly from the auto-parts business to health care and to the burgeoning nursing-home market. For Durakon Industries Inc. (#78), maker of bed liners for pickup trucks, it meant capturing a commanding (60% to 70%) share of a market expected to continue growing dramatically. For VLSI Technology Inc. (#9), it was the ingenuity to adapt product to market so swiftly that more than half its 1985 revenues came from products introduced during the same year. And for Jet America Airlines Inc. (#24), it was seizing the opportunity offered by deregulation to establish full-service routes to a variety of midwestern and southwestern cities out of Long Beach (Calif.) Municipal Airport.
Whatever their business and whatever the economic conditions when they started, companies on this year's list and on lists past have all had a much more important common characteristic than breakneck growth. They have, as individual companies and as a group, provided a blueprint of the major business opportunities provided by the American economy over the past decade, opportunities created by vast changes in technology, politics, and social and economic policy.
Look at the Fortune 500 and you won't find such ready evidence of new opportunity. The Fortune list is a rich anthropological dig into another era of American business history, a time when the steel, the auto, the chemical, and other heavy manufacturing industries made the United States the world's preeminent industrial power. You won't find any auto companies on the INC. 100.
Look at the INC. 100 lists since the first was published in 1979, and you'll have a tour of recent business history -- and, perhaps, a glimpse of the kind of companies that will dominate tomorrow's economy. Some will grow into big companies in their own right; others will be absorbed by Fortune 500 firms and influence their direction, as biotechnology companies have with some big pharmaceutical manufacturers. Still others will die because the opportunity they saw turned out to be a chimera, or because they mismanaged the brief chance they had.
The tour can start with the INC. list of 1979, when Federal Express Corp. (#19) was tapping a growing need for fast package delivery and establishing what became the model for a major new service industry. Or to the 1981 list, when Nike Inc. (#29) was taking advantage of vast social changes that brought new interest in fitness and leisure. Or look at the 1982 list and see Apple Computer Inc. (#1) establishing a personal-computer industry.
This year's list is no different. It is a window into the sea change taking place in the $387-billion health-care industry, where the major opportunities are now in cost control. Look at HealthAmerica Corp. (#20) and United HealthCare Corp. (#49), two of the leaders in health maintenance organizations (HMOs). Look at the other medical companies that provide such cost-cutting services as home health care, home diagnostic kits, and outpatient surgical and diagnostic clinics. Or look at the nine telecommunications companies that are seizing the opportunities created by the breakup of AT&T's monopoly. Or at the two airlines taking advantage of deregulation. Or at the 26 computer-related companies, including Ashton-Tate (#4), already a pacesetter in software, and Apollo Computer Inc. (#14), a leader in engineering workstations, a fast-growing segment of the computer market. Or at Expeditors International of Washington Inc. (#7), trying to exploit the growing need for fast delivery of business packages overseas. Will it be the next Federal Express?
If the success of these businesses seems routine today, turn up the volume and listen to the faint sonata that their founders heard before it played loudly enough for the rest of us.
Nothing would have been possible for Computer Telephone Corp. (#53), if not for the landmark Carterfone decision in 1968. The Federal Communications Commission began unraveling the AT&T monopoly in telecommunications by permitting the interconnection of non-Bell equipment to the Bell System's phone lines. Nine years later, a federal judge shattered another part of the monopoly by allowing MCI Communications Corp. to compete with AT&T in long-distance service.
