CENTER OSSIPEE, N.H., IS NOT THE sort of town that makes you think instantly of twenty-first-century America. Deserted by the railroad and skirted by Route 16, the main gateway to the Mount Washington Valley vacationland, it is a small, quiet town lying on the economic fringes of a small, quiet state: the sort of place future generations might drop in on to remind themselves of what life was like in a different, less harried era. In a downtown comprising mostly a post office and a doughnut shop, however, sits the headquarters of a company that symbolizes more the future of the American economy than its past.
"People wander in here asking if we sell antiques," says Douglas Treat, chief executive officer and co-founder (with wife, Nancy) of Yankee Concepts Inc., a state-of-the-art bar-code label manufacturer supplying several Fortune 500 clients and the federal government. "We never see any of our real customers. But that's the reason we moved here in the first place -- to be in a small town where we can take the time to know people, to have a positive impact on an entire community. In a lot of ways, the whole state's like that."
Treat hastens to add that, because Yankee Concepts does all of its orders computer-to-computer and all its product delivery via overnight mail, being off the beaten track hardly means being out of the commercial mainstream.
"We compete directly with the biggest firms in our industry," he avers, "and we beat 'em to death." With his five-year-old company already grossing around $500,000 annually, Treat admits one of his biggest challenges is budgeting enough time for the community activities and recreational pursuits that steered him toward small-town living in the first place.
Compared with a modest hamlet like Center Ossipee, a more obvious indicator of where America is going -- and growing -- is Norcross, Ga., about 20 miles from the heart of downtown Atlanta. A sprawling tableau of shopping malls and industrial parks, Norcross is home base for numerous fast-growth Georgia companies; chief among them is Hayes Microcomputer Products Inc., one of the world's most successful modem manufacturers.
"I knew two things from the outset," says co-founder Dennis Hayes, a Spartanburg, S.C., native and Georgia Institute of Technology grad. "First, that I wanted to live in or near Atlanta, the one southern capital with all the amenities of a majorleague city. And second, that I wanted to start what would become a large company. The range of resources we have here are the real keys to that future growth."
As distinct as the towns and states they inhabit, Treat and Hayes symbolize something new about the pattern of economic growth in the United States -- a pattern captured by, and reflected in, INC.'s 1986 ranking of the nation's hottest spots for growing businesses. Unlike INC.'s previous reports on the states, this year's ranking focuses exclusively on three variables. In the four years from 1982 to 1986, now many new jobs were created in a state? How many new companies were founded? And how many young companies experienced significant growth? Taken together, these three measures provide a strong indication of how successful each state has been at nurturing new businesses and encouraging expansion. The chart on page 58 reports the results. Accompanying the chart is a note explaining definitions, cutoff points, and other methodological matters.
Some of the states at the top of the list are those you would expect to find there: Alaska (#2) and Texas (#3), both hit hard by the oil crunch of the last 12 months but still proven performers over the four-year period; Maryland (#6) and Virginia (#10), each aided by a generous influx of federal dollars; and such perennial high-tech fliers as Massachusetts (#9) and California (#11). But the presence of New Hampshire (#4), Georgia (#5), and, above all, topranked Arizona in the list's First Five suggests a diversity in the geography of economic growth that has gone unrecognized by most politicians and pundits. Without California's Silicon Valley or Massachusetts's Route 128, without vast mineral resources or indeed much of anything else to build on, these three states have somehow constructed entrepreneurial economies that handily outstrip their sovereign competitors. A look at the ingredients of their success reveals a surprising variety of paths to prosperity -- and a glimpse of economic futures both more diverse and more dispersed than anything in the past.
ARIZONA: POWER FROM THE PEOPLE
In 1969, LeRoy Ellison, a young Harvard graduate, left his job at General Electric Corp. to start Capex Corp., one of the Phoenix area's first software companies. Knowing little about business, having no local venture capital sources to turn to, Ellison still managed to cobble together the financing for a company that would grow to about $20 million before its acquisition, in 1982, by Computer Associates International Inc. Since then, Ellison has gone on to become Arizona State University's first Entrepreneur-in-Residence and to lend his support to numerous other high-tech ventures.
"It isn't too surprising that we have a significant number of start-ups here right now," says Ellison. "This state has a very favorable regulatory climate, our tax rates are reasonable, and our labor laws are not nearly as strict as, say, California's. Plus we've got a huge big-company presence in computers and semiconductors, and that tends to spin off a lot of new ventures." But the critical factor, he adds, may be people -- and the amenities like housing and sunshine that Arizona can provide them with.
"I'll tell you," he says, "it's an asset to locate in a community where people want to live. About one in 10 can't take the heat here, but the other 9 get extremely charmed with our circumstance."
So charmed, indeed, that the state's population growth between 1982 and 1986 hit 10.2%, tops in the continental United States. Arizona has long been known for its appeal to comfort-seeking retirees. But in recent years it has begun to attract younger professionals and businesspeople looking for opportunities -- people like Edward Beauvais, who five years ago launched America West Airlines Inc., a Tempe-based regional carrier that now has some 3,000 employees. Beauvais and his fellow immigrants have helped push the state to the top of the chart in new-job growth percentage (27%) and business birth rate (4%).
This growth has, moreover, been remarkably diverse. Arizona has literally been reinventing its economy over the past two decades or so, balancing the demise of its mining and agricultural concerns (the famous "Four Cs" of copper, cattle, cotton, and citrus) with a quantum leap ahead in areas like aerospace and high tech, construction, and finance-insurance-real estate. "Nobody is capable of reversing the decline in, say, the domestic copper market," notes Rita Carrillo, director of Arizona's Department of Commerce. "That condition is permanent. But we've been able to give economic development a much broader perspective, beyond the major manufacturing facilities and more into service industries, financial institutions, tourism, etc."
Economic growth and diversity have been helped along by the "favorable regulatory climate" that is a favorite of state boosters everywhere -- but that, in Arizona's case, seems more than just a cliche. This month, for instance, Arizona becomes only the third state in the nation to allow local banks to be owned by out-of-state institutions. The development has already touched off a wave of banking acquisitions, and the hope is that it will increase the pool of capital available to local companies. "I don't see how it will hurt," reflects James S. Lee, president of the Phoenix-based Thunderbird Bank, a leader in the small-company lending market. "Certainly the consumer will benefit from more competition in products and services. I don't know who'll go after the small-business market, but when you look at the rise of venture capital concerns here over the last three years, investment in growth companies seems like a pretty strong trend."
The reins on other capital sources have loosened as well, thanks in part to attitudinal changes within the securities division of the Arizona Corporation Commission. Stiffening its merit-review regulations in the early 1970s after a series of well-publicized bankrupticies, the local equivalent of the Securities and Exchange Commission once reflected the opinion that, as Gregory C. Michael puts it, "any Arizona company needing money [via public markets] must be run by a bunch of crooks."
Michael is vice-chairman of American Surgery Centers Corp., in Scottsdale (#29 on the 1986 INC. 100). "They took a very protective attitude toward the local citizenry," he explains, noting that ASC's initial offering of $2 million in 1980 was shielded from home-state investors for about 30 days -- precisely long enough for the value of the stock to triple. "Sometimes that hurts the same people it was supposed to help. But that mentality has really changed in the last four years. The venture capital's here, there's a more liberalized outlook, the governor [Bruce Babbitt, rumored to have his eye on the Democratic nationalticket] is very pro-business. . . . Right now, Arizona is a fantastic place to be in a start-up mode."
The state's position at the top of the 1986 INC. list is testament to that. Will it stay there or will it prove to be a flash in the pan? "We're a young state," points out Arizona's chief economist, Ed Sloat, "and young people do not move around haphazardly. They go where they think the opportunities are. What California was 20 years ago, Arizona is today."
GEORGIA: ALOFT ON THE ATLANTA AIRLIFT
Tim Titus can tell you about airplanes. Eight years ago he quit his job as national sales promotional manager for Coca-Cola Co. ("a great company to work for, but I'd become an expert, and when you're an expert in a company as big as Coke, you're effectively retired"), started his own specialty-products firm in his basement, and began logging a lot of air miles looking for accounts. The coupons were nice, he says, but the frequent flying didn't always prove cost-effective.
"When you walk in blind to a company like Anheuser-Busch," remembers Titus, "it can take a long, long time before they'll buy anything from you. I must've made 20 trips to St. Louis before I closed my first sale, and that ate up a hell of a lot of cash."
Now that his company, Markatron Inc; in Norcross, has taken off (twice on the INC. 500, it currently has annual sales of about $5 million), Titus doesn't work the friendly skies quite so much anymore, even though success has still left him strapped for working capital. Instead, he stays near Markatron's parent city -- Atlanta, hub of the Southeast, cradle of the New South, and the main turbine driving Georgia's economic engine.
"The way manufacturing's going, it can be done almost anywhere in the world," posits Titus, sitting in an office adorned with samples of his product line: coolers, mirrors, jewelry, and dozens of other collectibles stamped with the familiar logos of Budweiser and Coke. "The real survivors will be [marketing firms] that package and distribute the merchandise, and that just plays to our strength down here. Atlanta will become the home base for more and more distribution companies that thrive on the advantages of this transportation system."
Already, it's home to more and more people. Black and white, foreigner and native, they are migrating to the South's most socially and racially integrated city in record numbers (over 90,000 new Atlantans last year alone). That influx has helped Georgia, the economic darling of Dixie, to spawn 425,000 new jobs over the past four years. So great is the stream of opportunity-seekers that Atlanta, blessed with an absence of natural boundaries, may someday metamorphose into one solid city all the way to Lake Lanier, 50 miles to the north.
To Gov. Joe Frank Harris, the evolution of his state's economy from an agricultural to an industrial base is as broad and straight as the runway at Hartsfield Airport -- and as cosmoplitan in its implications. "This state has always been aggressive about bringing foreign business here. There are 30 international banks in Atlanta alone [half a decade ago there were only 5] and about 60,000 Georgians employed by foreign firms." But, he adds, "We've [also] had excellent success getting small and midsize companies to come here and grow with us -- in fact, 60% of our growth comes from companies started right here."
Harris's fellow politician-with-a-passport, Atlanta mayor Andrew Young, is already known as the only municipal CEO with a fully developed foreign policy. But Harris, Young, and their colleagues must be doing something right: in 1985, 20% of the 219 companies locating in metropolitan Atlanta had overseas addresses. Georgia's public-education system, boosted by last year's $1-billion legislative commitment, is rapidly spawning a research network of national renown at its upper ends. "There's been a tenfold increase in funded research here," notes Dennis Hayes of Hayes Microcomputer. "I interview engineers who say they don't know if they can come here, because we don't have a technical community. Well, we do. And our universities are getting stronger in disciplines like information systems and marketing, areas you have to be able to draw on when you're in the business of developing growth companies."
Measured against Atlanta, of course, much of the rest of Georgia looks poor and rural by comparison. Not so long ago, however, Atlanta itself was just another layover spot on the way to somewhere else. Now it has reached what economists call the self-sustaining level, where growth only leads to more growth.
How can that be? Go ask Randy Perkinson. Perkinson, 33, co-founder and president of Compack Inc., an Atlanta-based packaging-design firm, started his company in 1980 with 4 employees and 500 square feet of work space. Today, he employs 52 people, occupies 18,000 square feet, and serves such major firms as Coca-Cola, Georgia Pacific, and Kimberly-Clark. Atlanta, says Perkinson, is "young enough that opportunities already taken in other cities are still here.
"If I wanted to get out of this business and into another one," he adds, "I'd go to a city slightly further along that Atlanta, see what they've got that we don't have yet, and then come back and do it here, because our growth notential seems about limitless."
NEW HAMPSHIRE: PROSPERITY BY PROXIMITY
Every four years the Presidential primary parade rolls through New Hampshire like some wayward circus train, inspiring dozens of national news features about this quaint little state somewhere to the north of Boston that turns farmers into political forecasters and political nobodies into front-runners. Often these stories create the impression that New Hampshire residents don't do much between campaigns except make George McGovern buttons and shovel snow. Not so. Truth is, this little nobody of a state (population just now reaching 1 million) is a legitimate front-runner in the national campaign to generate jobs and create growth companies. And it isn't just because Rather, Brokaw, Jennings, et al. book up all the hotel suites six months in advance.
"If you want to look at the macro issues for New Hampshire," says Rick Barber, president of Satter Cos. of New England, a real estate development firm in Lincoln, N.H., "start with the overall strength of the New England economy, because that's really the prime for our pump. Boston is one of the most vigorously growing cities in the country, and New Hampshire is incredibly well positioned to capitalize on conditions like taxes and housing that can make that city unappealing to start a company in."
Barber, former director of economic development under governors Hugh Gallen and John Sununu, has worked both sides of the public-policy fence. He believes that what states try to do in the way of generating growth doesn't amount to a hill of beans compared with larger economic forces at work in the region. This is a fairly common opinion in New Hampshire, where, as one Concord state official puts it, "We allow the entrepreneur to succeed, or fail, fairly easily here, and we do that three ways: by minimizing the downside risks, by letting him keep more of his income, and by not plowing taxpayer dollars into private ventures." To Barber's mind, the user-friendly scale of doing business in New Hampshire is of inestimably more value to a growth economy than any single state initiative.
"State venture capital pools are great," says Barber, "but most entrepreneurs would rather be able to take a regulatory issue to the statehouse and be confident they can work something out. I do business in both Vermont and New Hampshire -- both small, rural New England states. The difference in their attitudes, however, is like night and day." On the chart, the difference between these otherwise similar states is 17 places.
The third macro issue, Barber adds, is a $1.5-billion annual tourist trade, a boon helped, no doubt, by the state's quadrennial exposure on network TV. That and the absence of a state sales tax brings in plenty of visitors. "People drive here from New York and Connecticut," Barber points out, "leave their money, but don't put their kids in our schools. Everything else flows from those three factors."
Plenty of states can boast proximity to growth, a good business climate, and a healthy degree of tourism. New Hampshire's peculiar success has been to mix the three ingredients together and come up with a diversified economy. The state's 22.3% rise in employment is second best on the '86 list. So diversified has that employment growth been that in the period from 1981 to 1984, New Hampshire ranked in the top five nationally in four distinct job-growth categories: manufacturing (5.7%), nonmanufacturing (14.1%), trade (17.7%), and service (18.6%). Nor does the state depend on a few large meployers. In New Hampshire, companies with fewer than 100 workers account for 54% of all employment and 95% of all business establishments.
The Sandwich Research Group Inc., a firm providing market-research and strategic-planning services for several New Hampshire-based companies, is located in tiny Center Sandwich, N. H. Founder and chairman Jourdan Houston likes to say that she and her company are "right on the trailing edge." By "the trailing edge," Houston explains, she not only means that her state follows Boston's lead, but that it offers a wide-open market to small service firms like hers, which face little competition from larger, more entrenched firms statewide.
"A lot of us started right in the middle of the last recession and are still around," says Houston. "I'm not sure that would be true in the real world. Then agan, I'm not sure that this isn't the real world, after all."
Real enough -- and getting smaller all the time. For Doug Treat, being on the trailing edge means sitting in the driver's seat. When he moved Yankee Concepts to Center Ossipee a year ago, forsaking a much tonier location in Manchester's spanking new Technology Center, Treat's main concern was how to save cash in a heavily debt-financed business (after moving, Yankee Concepts's square-footage costs dropped from $12 to $3). Now, says Treat, his dream is to help build an alternative-model industrial park in Center Ossipee, one that comprises small technology companies like his that can play in national markets without having to sit in the mainstream.
"Give me a telephone line and a Federal Express drop," he smiles, "and the rest of the country is mine."