The Inc. 100
The 12th annual ranking of America's fastest-growing small public companies* * *
What a system! At the beginning of the past decade the average company tabulated in these pages didn't even exist. Which means the jobs each of those companies now bestow -- an average of 667 -- didn't exist, either. Neither did hundreds of new products, scores of happy stockholders, a dozen novel ideas and trends, nor a handful of new millionaires. Nor, to be sure, a couple of instances of fiduciary excess, a scattering of chief executive resignations, a number of lawsuits, and the rest of the typical detritus that competitive commerce throws off -- a small enough fee to enjoy the air-your-laundry-in-public wonder of free enterprise.
If there is a lesson in these pages for Russians and Czechs and other Johnnies-come-lately to a market economy, it's that for all the years they've wasted on systems that fizzled, the table of free and private enterprise remains bountiful. And that it's available to anyone with money to risk, energy to burn, hours to spend, a belief in him- or herself, and chutzpah enough to coax capital from people he has never met and never will.
That's the hard part. The rest is easier still, suggests this 1990 gathering, Inc.'s 12th annual roundup. For example, the presence on the list of fast-food chain Rally's (#5) shows that you can beard giants in their kitchens and still gain a share of hamburger spoils. And you don't have to be seasoned in the ways of business to pull it off. IBM-PC clonemaker Dell Computer (#32) was founded in 1984 by a teenager who naïvely -- but successfully -- took on a huge corporation founded more than 70 years earlier.
And what's proffered for sale needn't be glamorous or pricey. Specialty retailer Silk Greenhouse (#31) has been on the Inc. 100 for two consecutive years, simply through selling artificial flowers and genuine party favors. Jean Philippe Fragrances (#42) distributes and markets alternative perfumes; its Shangrila, a self-admitted rip-off of Shalimar, retails at K mart at a fraction of Shalimar's price. And what humbler endeavor is there than cashing checks and selling lottery tickets out of a storefront, as does Supermail International (#58)?
In the end, though, the most persuasive testimony to exactly how free free enterprise can get is the way products put out by one fast grower can be recirculated by another, allowing the latter to flourish just as fast. On the list for two straight years -- following 30 straight centuries during which no other aspirant from its particular industry sector qualified -- six-year-old Cash America Investments (#79) has twice occupied Inc. 100 slots by dint of becoming what the company claims is the largest pawn-shop operation in the country. Now there's food for Eastern Bloc thought.
Other notes and observations from the 1990 Inc. 100:
But What Do They Do?
In a brief description, the list attempts to capture the essentials of what business each company is really in. Sometimes, though, far more than a scant line of type is required to do it justice. Metro Mobile CTS (#37), for example, is described herein as both a cellular phone service and seller of propane. How one endeavor ties in with the other might escape the uninitiated observer; to CEO George Lindemann, they're "entirely compatible. . . . Both are consistent with our long-standing preference to operate utilitylike businesses." Ironically, he may consider his setup utilitylike, but if Inc. did, the company wouldn't have made the list: Inc.'s criteria specifically exclude utilities.
When the market-driven company couldn't leave well enough alone with a line of nonaerosol spray containers, two-time listee Selvac (#47) moved into the personal-care market with a proprietary hair-removal device. Recently, it plunged into beauty parlors. Not only does that sequence follow the logic of complementary businesses, explains CEO Allan Borkowski, but the salons provide built-in consumer testing labs for untold lines of businesses to come.
Amerihost Properties (#67), on the other hand, had the good sense to change its corporate name at the same time it changed -- quite markedly -- its line of business. In 1987, as America Pop Inc., the company sold off a string of refreshment stands and began building motels.
With 72 entries profitable and 3 breaking even in 1989, the list is little better or worse than usual. But 7 of the remaining 25 showed no profit in fiscal '89 -- nor did they post one in any of the four previous years. Of these perennial money losers, 3 are cellular phone services, an industry distinguished by odd arrangements that don't seem intended to yield profits in our lifetime.
The other 4:
* Infrasonics (#59). After eight years this medical-equipment manufacturer has yet to post an annual profit, but president Jim Hitchin is starting to breathe easier. The company's line of respirators was developed in-house and is fully paid for. As a result, "all future revenues and profits will belong to the company and benefit our shareholders without having to share the profits with outside partners," he says. The company posted its first-ever profitable quarter in '89.
* CNS (#76). For this eight-year-old venture-backed manufacturer of brain-wave monitors, the transition from development to marketing was "a difficult maturation process," claims CEO Daniel Cohen, a doctor-turned-businessperson. There's hope for annual consistency: after nine consecutive quarters of record sales, in '88 CNS reported one quarter, anyway, of profit: a penny per share.
* FranchiseIt (#77). Faced with negative earnings from a core business that focused on franchising activities for most of its seven years, the company up and bought an Israeli biotech concern last September. Why so distant and so seemingly unfranchiseable an acquisition? Investors may never know: at a special directors meeting less than two months later, its president resigned.
* Environmental Diagnostics (#86). Depending mostly on equity placements for working capital since its founding in '83, this drug-detector manufacturer is still in transition from R&D stages. Again, that process is "seldom without delays and difficulties," explains CEO James D. Skinner. True, but a $500,000 proxy fight did little to foster shareholder patience: the stock was among the 100's worst performers (see "Fair to Middling," page 3).
Anyone moved to question small business's importance as a job creator need only examine the list's top five employers, which provide jobs to more than 22,000 people. The leaders of '89: Blockbuster Entertainment (#14), 9,000 employees; Oracle (#50), 4,148; Rally's (#5), 4,000; Healthsouth Rehabilitation (#39), 3,000; and Silk Greenhouse (#31), 2,200.
The revenue per employee of this year's throng is $133,184, up an impressive $80,315 from its 1985 performance. The pace of the rise in productivity far exceeds the rate of inflation, suggesting that either -- your choice -- the labor force is working harder and more efficiently or that its employers have caught on to nonlabor-intensive sources of revenue such as joint ventures, international licensing, and subcontracted manufacturing. The 100's most productive employees: Intelligent Electronics (#27), 287 employees producing $2.5 million each in '89 sales; Pentech International (#82), 10 doing $2.3 million; Action Staffing (#57), 84 doing $1.5 million; Selectronics (#26), 27 doing $799,000; and Entertainment Marketing (#53) 280 doing $670,000.
The list's most identifiable trend is that conspicuous consumption has caught on well enough to spur fast growth among even small businesses. Regency Cruises (#48) books air and sea tours and operates steamships. Vacation Publications (#95) runs a travel club. For anyone electing to hang around near home, three companies fill idle hours: Blockbuster Entertainment (#14) rents videocassettes. International Broadcasting (#44) produces movies and traveling shows and operates amusement parks. Entertainment Marketing (#53) distributes consumer electronics, but -- the start of another trend? -- has abandoned its cable home-shopping service.
You're the Greatest
A selection of distinctions, the 1990 Inc. 100 versus its predecessors:
* Youngest ever. A listee's average age is 8 years, significantly down from the early '80s, when it hovered between 12 and 13.
* Fewest oil- and/or gas-oriented. Only 2 are energy-related, compared with 25 in 1982, energy's heyday.
* Most computer-related companies.
* Once again, a company from Hawaii, Mississippi, Montana, North Dakota, or South Dakota has yet to make it.
Don't Blame Us -- We Just Report It
Only 2% of America's fastest-growing small public companies are run by women: Marina Zazanis, president of NMR of America (#40), and Christine Umbertino, CEO of Supermail International (#58).
Public vs. Private
Comparing public-company profits with similar claims to the black side of the ledger by private companies is like comparing baldwins and granny smiths. It's apples with apples, all right, but the recipe is different: while public corporations stress profits, private entities tend to minimize them. Even so, in some categories the contrasts between the Inc. 100 public companies and the top 100 companies from the latest Inc. 500 private-company fast-growth list (see The 1989 Inc. 500., December 1989,) are sometimes surprising, if not definitive. (Bear in mind that Inc.'s public companies may have been private right up to a month before the closing date for this year's list.)
For example, examining the profitability (net income after taxes divided by gross sales) of the two groups discloses more of a tendency toward negative earnings among public than private companies. In their base year, 64 of the former showed losses versus 50 of the latter; four years later 25 public companies posted losing figures, while only 10 private companies did.
Closer to expectations, 47 private companies told Inc. their profitability in their final year was in the 1% to 5% range, while only 25 public companies reported so modest a ratio. At the other end of the tax collector's scale, 16 public companies boasted profitability of 16% or more, compared with only 12 private companies.
The average age of Inc.'s public companies is steadily coming down, but the private group is similarly youthful; average public company age is 8, 9 for private companies. Yet in their first year reporting to Inc., the average former outsells the average latter $3.2 million to $500,000. In the fifth reporting year, the percentage imbalance closes, $88.8 million to $27 million -- which is to say either private companies grow faster than public companies, or their base-year bookkeeping was, let us say, a bit sloppy.
One other variance of note: the typical public-company CEO owns a token 15% of his or her company, the typical private CEO a commanding 53%. Who's better off? Sorry, an assessment of personal net worth is out of our reach.
FAIR TO MIDDLING
Relative stock performance: how the Inc. 100 stack up
Every March, as sure as maple sap rises in maple trees, Inc. evaluates the 12-month market performance of its latest crop of fast growers. Mathematically speaking, Inc. performs this exercise by pretending to have invested $100 the previous year in the stock of every company on the new table. (Those that went public during the period -- as did a baker's dozen this year -- are "bought" at the price at which the IPO begins trading.)
On March 1, 1990, Inc. "sold" its holdings, with the happy result that our initial $10,000 investment had grown to $11,165. That return (not adding in cash dividends, of which, of course, there are scant few in any Inc. 100 list) nicely bettered its speculative brethren, the American Exchange Index and the NASDAQ Industrials, by more than two percentage points. However, the more conservative body of stocks as represented by the DJI and S&P averages solidly outdid Inc.'s bunch.
Nearly as many stocks went up, 48, as went down, 50. And, compared with the past, 1990 was only moderately fecund: a mere 10 companies split their stocks 3-for-2 or more, all but 2 of those ending up among the list's gainers.
A relatively large number of issues -- 22 -- were selling for $2 or less on March 1, 1990. Of these, only 2 were on the rise, suggesting that a comparatively low price may adversely affect market performance. Fearing exactly that, 2 companies declared a reverse split, employing the tactic to propel their respective stock prices from well under to well over $2; both finished up the year among the gainers.
For all the nail chewing involved in watching 100 speculative stocks go up and down for 12 months, a 12% return isn't that much better than could have been squeezed out of T-bills.
Still, if the year proffered better opportunities than the majority of these stocks, it also hazarded far worse. Ask anyone who invested with Drexel Burnham Lambert. Or used to work there.
RELATIVE MARKET PERFORMANCE
Index 3/1/89 3/1/90 Change
Inc. 100 112 +12.0
DJIA 2,243 2,636 +17.5
S&P 331 383 +15.7
AMEX 322 354 +9.9
NASDAQ 394 432 +9.6
THE TEN BEST GAINS . . .
What $100 invested on 3/1/89 was worth on 3/1/90:
Software Toolworks (#73) $321
AutoInfo (#38) 283
Occupational-Urgent Care Health Systems (#68) 280
Candela Laser (#94) 233
SynOptics Communications (#21) 207
Oracle (#50) 201
T2 Medical (#12) 200
Silicon Graphics (#97) 193
Altera (#74) 188
Sequent Computer Systems (#36) 187
. . . AND THE TEN WORST LOSSES
What $100 invested on 3/1/89 was worth on 3/1/90:
FranchiseIt (#77) $15
Supermail International (#58) 27
Environmental Diagnostics (#86) 28
Action Auto Rental (#85) 37
USMX (#62) 39
Measurement Specialties (#25) 39
CCAir (#93) 42a
Osicom Technologies (#8) 44
Symbol Technologies (#80) 47
Brite Voice Systems (#81) 48b
a first public 7/89; b first public 9/89