It would be hard to find companies better positioned to avoid serious downturns than those doing environmental cleanups, since recent legislation has mandated what amounts to a national crusade. "We see ups and downs in our business on regional and yearly bases," says David Musser, of Enreco Inc., "but that seems to have less to do with the economy than with the regulatory pressures that are applied at the time." Musser's $13-million company, in Amarillo, Tex., solidifies noxious sludges in industrial pits, ponds, and lagoons.
Not that Musser ignores the specter of a recession. Like many companies that hope to remain buoyant in a downturn, Enreco is debt free. "We are fairly conservative and will continue to be," Musser says. "I want to have staying power. Should there be an industry shakeout, we're in good shape to weather several years of a very poor business climate. I think the economy is skating on thin ice, and if we break through, it could be messy."
For other businesses, unfortunately, the mess is already fast upon them. With sales flat or falling, with markets shrinking, they are moving aggressively to control damage. A search for new markets is at the top of the list. A scramble to speed up collections is another pronounced trend; so is reducing expenditures and debt. Those who still shudder at memories of the early-1980s recession, and the 21% prime rate, are the most concerned. "We desperately need to get into a larger facility, but we're holding off," says Gene Forte, president of Forte Industrial Equipment Systems Inc., a Cincinnati provider of automated conveyors. "Two years ago we were going to move into a new building -- a two-story, high-tech building. We were supposed to break ground, but I backed off. I paid $8,000 to get out of it. I had more new people than old, we were growing like crazy, but I just didn't want to take on the debt."
Some companies are making changes that go straight to the bottom line. "We have eliminated travel and entertainment," says Sal Salvatierra, president of C&S Data Solutions Inc., a technical-services firm in Marlboro, N.J.
Others are scaling back sales forecasts and shelving, or at least slowing, plans for growth. "Our business is expanding from 16 to 50 stores this year," says Sonny Cray, whose Philly's Finest restaurant chain is headquartered in Tucson. "If the economy were different I'd be saying 100 locations." Doug Pearson's NSS Corp. is a systems-integration business in Bedford, N.H. He had hoped to move on a second piece of property this year. Instead, he's concentrating on paying down a home-equity loan.
Otto W. Voit III is also putting expansion on the sidelines. Voit is vice-president and chief financial officer of Educational & Fun Ltd., a Reading, Pa., retailer of educational toys and products. The company made the Inc. 500 in 1989, but Voit is taking a cautious approach. "We were hoping to open new stores this year," he says. "We had plans to open two, then we scaled it back to one, and put it off for two quarters."
Up in Portland, Maine, Thomas Rand is taking advantage of the downturn to get back to basics. His Management Research Group, a consulting firm providing training and development products and services, grew more than 900% last year. "This company has seen tremendous growth in the past several years," Rand says. "In the past six months that curve has leveled off in the Northeast, and in the past two months it has turned downward. We have close relations with our northeastern clients, and the downturn has hit them and hit them quickly, especially in financial services. So 1990 is going to be a tough year.
"But the downturn has given us a breather," Rand goes on. "The growth of the company has been so rapid that we had not done much product development. It's time to get back to that. We had also become something less than efficient in the way we managed expenses. So we're now looking at that more carefully."
The chill of recession is forcing some companies to reach into less troubled locales and industries. Some of the most worried are companies that rely heavily on defense spending. The more prescient companies long ago began shifting to a more dependable business base.
Gary Fitzmartin's $10-million Office Furniture Specialists Inc. is typical of this group. Fitzmartin operates in two southern California locations, Long Beach and San Diego, a kind of ground zero of the potential military mayhem. "The southern California marketplace has extremely close ties to military spending," he says. "With peace breaking out all over and the deficit what it is, it'll affect this market and its concentration of defense suppliers. It's going to give us a downturn."
Fitzmartin anticipated trouble two years ago, when 40% of his customers were Pentagon contractors. The company retargeted its marketing efforts, pitching product maintenance, office redesign, and warehousing, as well as furniture sales. Today Fitzmartin pulls only 10% of his revenues from the defense sector.
C. J. Mead isn't hostage to defense spending, but he is being buffeted by negative currents in the building industry. His $7.5-million Construction Contracting & Management Inc., in Albuquerque, is having a tough go of it. "Most of the private-sector work has just stopped all over the Rio Grande Valley," he notes. "The developers have flat crawled under a rock for a while." Bidding for municipal and government projects is so fierce that contracts are going for 20% below what engineers estimated.
Mead has hunkered down to ride out the slump. "We're looking to sell some of our heavy equipment and pay down our debt," he says. "We're fixing the stuff that we have in order to do what work we get. But we're not buying anything new." He does see a safety valve in Las Vegas, however, where he'd like to open a satellite office. The Vegas market, he declares, is "going nuts."
Mark Ain's company, Kronos Inc., manufactures electronic time clocks in Waltham, Mass. "I don't think we're going to have a recession this year," Ain says. "We may well have a slowdown, and we're preparing for it. We have eliminated bank debt and put seven figures in the bank. We're watching our receivables and our inventory very carefully." Nonetheless, $35-million Kronos just had the best first quarter in its history.
HOW THE SURVEY WAS CONDUCTED
In late December 1989 we sent a two-page questionnaire to the 3,072 companies that have ever appeared on either the Inc. 500 or the Inc. 100, as well as to another 720 growth companies. We received a total of 960 responses -- a response rate of 26%. Survey results were tabulated by Harrison & Goldberg, in Cambridge, Mass.
The survey was conducted under the direction of special projects editor Sara Baer-Sinnott. Additional research was provided by reporter Anne Murphy.
