The Inc. 500 Honor Roll

In which we recognize six companies that have grown so fast for so long that they have won a place on the INC. 500 for the fifth consecutive year

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ROYAL WATERBEDS INC.

ST. LOUIS

FURNITURE RETAILER

Dennis Boyd, the 32-year-old founder of Royal Waterbeds (#346), is hardly the stereotypical new-age entrepreneur riding the wave of a fad. Oh, yes, he did grow up in California. And yes, he made his start-up money as a lifeguard. But unlike most of his competitors, Boyd never saw much of a future selling low-priced waterbeds to students. The money and the long-term viability, he figured, were in selling to older, professional customers who looked on the waterbed as furniture rather than a sexual novelty or a political statement. Soon he was selling them the frames and dressers as well.

The early bubble of enthusiasm for waterbeds has long since burst, drowning many of Boyd's original competitors in a sea of red ink. But thanks to his initial strategy, Boyd's operation continues to grow. Instead of one store with 1,000 square feet and 5 different waterbed models, he is showing as many as 65 bedroom sets at each of his 18 outlets -- showrooms that run as large as 13,500 square feet. And because he has patented and manufactures his own line of waveless mattresses, he is able to sell his products at very competitive prices without having to lower his margins. Profits last year were more than $1 million on sales of $15 million.

For all that success, does Boyd still sleep on a waterbed? Very soundly, he says.

INTEGRAL SYSTEMS INC.

WALNUT CREEK, CALIF.

APPLICATIONS SOFTWARE

In 1981, Integral Systems (#320) was a relatively minor player in the market for personnel software, with sales of about $2 million. Four years later, it was an industry leader. Its formula for success has been one followed by just about all the successful software companies we've encountered: a product designed for a highly focused market; a willingness to make a heavy investment in product improvements; and close and continual communication with customers.

Although designing software can be technical, and the jargon of selling it can sometimes be a bit oblique, the driving concept behind building a software company is really quite simple, explains ISI chairman Brian Aspland: people don't buy software, they buy solutions to problems. In this case, customers wanted programs that could help them with personnel reporting, benefits advancement, and payroll processing. And they wanted software not just for maniframes, but for minicomputers and later personal computers, too. Perhaps most important, they wanted software that could communicate with users in English, not in COBOL or FORTRAN, and that would allow even a relative novice to establish security for files, provide flexible benefits programs, and download data from a mainframe system to a PC. Responding to those requests, Aspland says, was always challenging, usually expensive, but in the end quite profitable. Last year ISI reported a 75% increase on aftertax income of $3 million on $25 million in sales.

SAGE FEDERAL SYSTEMS INC.

ROCKVILLE, MD.

APPLICATIONS SOFTWARE

Let other INC. 500 chief executive officers boast of their prowess with mergers or acquisitions. Sage Federal Systems (#496) is proof that a company can grow by going in exactly the opposite direction -- by breaking itself in two.

Back in 1974, when CEO Howard Arnold and three partners started the original Sage Systems Inc., they created a computer-software company to serve government agencies and Fortune 500 companies. But by early 1983, with $3.5 million in sales, the company was developing a split personality. One part was selling off-the-shelf software to commercial customers while another provided computer-programming support to the government. As the business grew, it was pulled in two directions at the same time.

It came down to a question of money. Arnold and his partners felt it necessary to go to the public markets to finance the company's next stage of growth, but they were not sure how to go about it. "We really were two different businesses -- and we were perceived to be so by the capital markets," Arnold recalls. The immediate problem was putting a price tage on the company. By the usual rules of thumb, the product half of the company -- the software division -- could normally be expected to bring 40 times earnings, while the service half doing the programming could be expected to fetch a price-earnings ratio of 12 or 14. The only practical solution seemed to be to divide the company.

The reorganization was relatively painless. Arnold became CEO of a private company, Sage Federal Systems, which would continue to provide programming services to government agencies, while his partners went public in 1986 with Sage Software to develop and sell new software products. Now, both companies are thriving. Sage Software watched its sales grow from $10.4 million to $14.5 million in its first year of independent operation. And at Sage Federal, sales jumped from $13.2 million to $22.2 million -- enough to win Arnold a place on the INC. 500 for the fifth year running.

NATIONAL HEALTH CARE AFFILIATES INC.

BUFFALO

NURSING HOMES

Most people find nursing homes doleful places, but Mark E. Hamister is different. Fourteen years ago, just one year out of college, Hamister took his first job, in a private long-term health-care facility as an administrative trainee -- "with neither passion nor compassion," he remembers. But within six months he was entranced.

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