INC.: The average age of those 700,000 growers is the same as the average for all businesses?
BIRCH: Pretty much. They may be a little younger than the population as a whole, but they're generally representative. It's nothing like you'd expect.
What's clear is that that source of entrepreneurship isn't what one might have hypothesized it to be back in the early '80s. The fast growers are not coming out of what we imagined to be the hot industries of the day. I think high-tech firms represent only 2.5% of the growing companies -- they're insignificant. That's about what they represent in the population at large. What's happened is that it's the application of technology, not the creation of the technology itself, that offers the greatest opportunities for rapid growth. There are just as many growth companies in wholesaling, low-tech manufacturing, and publishing as there are in high tech. In fact, people are finding niches everywhere in the economy and applying technology to exploit them. They're using a new kind of computer, a new kind of database, or a new kind of labor-saving device to innovate processes in every industry imaginable.
INC.: So what lessons do you, as CEO of a 12-employee company showing solid but not exceptional growth, draw from all that?
BIRCH: The necessity of staying current, staying informed. The ever-wider application of technology has sped up the rate of economic change, globalized markets, and brought unanticipated opportunity. Also unanticipated competition. You have to be smarter, because you're called on to spend your intellectual capital faster than ever before.
INC.: We've heard you talk before about this concept of intellectual capital -- the idea that people often start businesses with a fund of intellectual capital, specialized insight or know-how, that the firm then thrives on for years. But unless you replenish it, it runs out. And one of the great challenges CEOs face is how to replenish their own intellectual capital while being consumed by administrating and selling and putting out fires. How did you come to the realization at Cognetics that you had to focus on your own store of intellectual capital?
BIRCH: I say to myself, "What have you discovered that's new and different this year?" I tend to sit back in the week between Christmas and New Year's and ask myself, "What the hell have you done that's so great this year? How much knowledge have you created?" You have to be at the edge of something or somebody else will be there. You have got to keep producing new intellectual capital. I always take stock once or twice a year.
INC.: When did this start to become an issue?
BIRCH: It's always been an issue. Always.
INC.: But at one point you got concerned enough about it that you started to question how much time you were going to spend at Cognetics. You developed the idea of setting up separate, non-Cognetics research programs.
BIRCH: There was a point three or four years ago when I knew that if I was honest with myself, I had to work full-time at Cognetics to make it work. It was at a critical threshold where it needed more of my time, and I knew it needed more of my time. I got over that threshold, and got to the point where we have enough people to keep the company going without my constant attention.
Then I wondered, can I just keep managing like this or do I have to go back and generate intellectual capital -- either focused on new-product development or just generally, the intellectual capital that keeps us on the leading edge. The answer was that I had to go back to do more research. In the short run, I could make the company grow faster by not doing research. I could consume capital without replenishing it. In the long run, I can't. My company will die if I'm not involved in what's going on and pushing the current base of knowledge.
INC.: We hear a lot of people talk about this differently. They call it going stale. They started out by creating a business based on something they could do with incredible originality, and then somewhere along the line it turned into repetition. They say they're stale and start talking about the need to go fishing.
BIRCH: That's not the same thing. I don't do research to get away from what I'm doing. I do it because I know the difference between consumption and production of intellectual capital. If all I do is consume it, after a while I become very anxious. I liken it to having a tub of water in your head; as you use your special knowledge you can feel the water draining. And you know that if there isn't a faucet pouring water in at the same time, the tub is getting empty. You've got to keep it full. If I don't keep mine full, I know, the world tends to lose interest in what Cognetics is doing.
INC.: Can we broaden this idea to include more than just service businesses like yours that require intellectual capital so directly? One of the recurring discoveries in your study of fast growers is that the way to grow a company is to know something really well and to parlay your knowledge exhaustively. The way to grow a career in this time of ever-changing jobs is to get more knowledge, accumulate your own personal equity. Even someone running the lowest tech of manufacturing plants ought to be thinking all the time about getting knowledge -- finding ways, while running a business, to get smarter about the fundamental thing that that business does. Is that true?
