Profile of how America's fastest-growing small private companies create their markets.
Most businesses are endlessly searching for new markets. Here's how America's growth leaders go out and create their own
Frankly, you have to wonder how Dave Archer's company, Pioneer Pipe, out in Marietta, Ohio, ever made it onto this year's list of the 500 fastest-growing private companies in America. On the face of it, there's nothing special about the business. Just an ordinary company in an ordinary town.
You might ask the same question about Rick Heiniger's company, RHS Fertilizing/Spraying Systems, in Hiawatha, Kans. Most of us wouldn't peg spraying and fertilizing for the prototypical growth industry. And hasn't the Farmbelt been in something of a slump over the past few years?
Maybe you even have to wonder about Gateway 2000, in North Sioux City, S. Dak., which makes and sells personal computers. Sure, Gateway's in an exploding industry. But the competition in that business includes such companies as IBM and Compaq, not to mention low-price manufacturers such as Dell. Only five years ago Gateway employed just two people.
Make no mistake: An appearance on the Inc. 500 is no small feat. As a group, the companies on this year's list boosted their collective revenues from $563 million in 1985 to $9.6 billion last year. They created 56,858 new jobs. The average company on the list has been growing at an annual rate of 103%, adding nearly 23 employees every year.
And what are these companies' secrets? Certainly there are plenty of entrepreneurs scratching their heads and wondering the same thing. What did they do that I'm not doing? How on earth could someone in that business grow so fast? The startling diversity of the Inc. 500 only adds to the puzzle. How can a supplier of metal stampings show up on the same list with a supplier of monoclonal-antibody cancer-diagnosis kits? What does a cheese maker have in common with a computer-chip maker, or either one with a Social Security consultant?
Oddly, when you pose questions about growth to the founders of Inc. 500 companies, you hear little about the specific businesses they're in. Instead, you hear a lot about customers and competitors, all of it adding up to an unusual view of the marketplace. Other businesses typically think about serving a market; they want to do their job as well as, or better than, anyone else. Inc. 500 companies, by contrast, seem to think about creating a market. More often than not, they set out to do something no one else is doing.
How? Often by relentlessly pursuing One Big Idea -- inventing a new product, a new niche, even a new industry. Some of the techno-wizards on our list fit into that category, as do some entrepreneurs who wouldn't know a floppy disk from a slipped disk. But other companies, remarkably enough, grow by exploiting not one idea but several, by creating not one new market but many. These companies -- despite their modest size and deceptively ordinary veneer -- diversify, though in a way that has little to do with old-fashioned, conglomerate-style diversification.
Both approaches have a big payoff. Consider some of the market-making companies on the list and you'll see what it is.
For a select few, market creation and Inc. 500-style growth originate with a big new technological idea -- an idea that's then pursued with as much entrepreneurial as scientific zeal.
Krishan L. Kalra, for example, was working as a research chemist when he realized that the emerging biotechnology of monoclonal antibodies could be utilized for spotting cancer cells. Today Kalra's BioGenex Laboratories (#300) sells $2.3 million worth of diagnostic kits to hospitals and labs, and is spending heavily on research and development to investigate other methods of cancer diagnosis. Brooktree (#7), in San Diego, pioneered and patented a so-called mixed-signal computer chip, capable of condensing 25 square inches of circuit board onto one piece of silicon. Brooktree now holds an estimated 40% of the world market for the chips that produce colors on personal-computer and workstation screens.
But most Big Ideas aren't technological, even for companies in high-tech industries. Back in 1985, for example, Ted Waitt's Gateway 2000 was a tiny company selling software and peripherals for the ill-fated personal computer of Texas Instruments. Looking for growth opportunities, Waitt decided to get into the manufacture and sale of IBM-compatible PCs. But rather than take on all the companies in that crowded business, he figured he would sell through only one channel, mail-order ads in computer magazines. And he would sell for less than anyone else.
In effect, Waitt built an entire company to fill this niche. He located the business in South Dakota, where land and other costs are low. He pays employees as little as $6 an hour -- minimizing fixed costs -- and supplements the wage with regular bonuses from company profits. Gateway's single-minded marketing strategy eliminates retailers' markups and most salespeople's commissions; unlike other mail-order companies, such as Dell, it has no telemarketing expenses and no costly international operations. Its prices, as a result, are about half of IBM's -- and typically are 10% to 20% below those of other direct marketers.
You also don't need any technological acumen to invent a new service, indeed, a whole new industry. Take James Allsup, founder and chief executive of Allsup & Associates (#239), based in Belleville, Ill. Before he started his company, Allsup's chief asset was five years with the government's Social Security Administration, which left him with a sizable store of knowledge and a profound distaste for the way his former employer treated the public. Disability claimants, for instance, were routinely discouraged from getting Social Security benefits, first by the complexity of the forms they had to fill out and then by the chilly reception they got from the agency. The losers in this process, Allsup realized, weren't just the victims themselves but also the insurance companies that wrote long-term disability policies. Disability benefits are typically reduced by the amount a claimant gets from Social Security. If nothing comes in from the feds, insurance foots the whole bill.
