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What sort of company grows an average of 1,600% in sales over five years?In what industries or areas of the country are you most likely to find them?What happens to profits in a fast-growth business? For that matter, what happens to the founders? When push comes to shove, how much do you really know about the dynamics of growth? Try this quiz about the Inc. 500, America's growth leaders, and turn the page to find the answers
True or False?
1. Most Inc. 500 companies are located in cities with 100,000 or more people.
2. To grow so fast, founders have to give up equity; most of the Inc. 500 CEOs who are founders don't own 100% of their companies' stock today.
3. Less than 10% of this year's Inc. 500 companies have CEOs who are women.
4. Most Inc. 500 companies achieved part of their growth through acquisitions.
5. Less than half of the founders of Inc. 500 companies are still the CEOs.
6. Extremely rapid growth is not easily sustainable; as a result, less than one in 10 of this year's class was on the 1989 list.
7. The majority of Inc. 500 companies are less than 10 years old.
8. Over the past five years, there has been almost no change in the industry makeup of the companies that get on the Inc. 500 list.
9. More than one in four companies on the list are in computer-related industries.
10. Many companies have to sacrifice profitability to grow rapidly; more than one-third of the 1990 Inc. 500 didn't make money in 1989.* * *
11. Almost all of the states below have had fewer than six companies make the Inc. 500 over the nine years we've been compiling the list. Which one of these states is the exception?
a. Alabama d. Montana g. South Dakota
b. Maine e. Nevada h. West Virginia
c. Mississippi f. North Dakota i. Wyoming
12. Which one of these companies never appeared on the Inc. 500 or on its predecessor, the 1981 Private 100?
a. Microsoft e. Oracle
b. Lost Arrow (makers of Patagonia clothing)
c. Federal Express f. Charles Schwab
d. Domino's Pizza g. The Sharper Image
If all the Inc. 500 companies were spread evenly throughout the United States, there'd be about two for every 1 million people. But growth doesn't work that way. Some places do much, much better than others at yielding fast-growing small companies for this list. Below is a list of the 10 largest consolidated metro areas in the United States. Just for fun, can you guess the order they rank in as entrepreneurial hot spots -- in this case measured by the number of 1990 Inc. 500 companies per capita?
New York City Philadelphia
Dallas Los Angeles
Detroit Washington, D.C.
San Francisco Houston
Hint: Because this is a per-person measure, the size of the city won't affect its rating. Also, consolidated metro areas include many suburbs. The New York City area, for example, includes parts of New Jersey and Connecticut.
1. False. This is a bit of a trick question, however. The vast majority of Inc. 500 companies are near such cities, but less than half are in them. That's because suburbs are often where the growth is these days, with some suburbs becoming "edge cities" -- new cities that spring up alongside the old ones. For example, there are 12 Inc. 500 companies in the Seattle area this year, but only 3 are in Seattle itself. Bellevue, a fast-growing neighboring community that is about one-fifth the size of Seattle, has just as many Inc. 500 companies as Seattle does.
2. True. Just 26% of the CEOs who were founders told us that they had retained 100% of their company's equity. That is especially true for the fastest-growing companies, which presumably needed capital the most. Only one of the top 20 companies on the list is run by a CEO/founder who still owns 100% of the stock.
3. True. Although the number of female Inc. 500 CEOs has increased substantially over the nine years we've been compiling the list, women are the sole CEOs of only 6.4% of the companies on the 1990 list. Even if we include companies that have more than one CEO, the proportion rises to only 7.6%. However, those statistics understate women's participation in Inc. 500 companies. Some Inc. 500 companies are headed by husband-and-wife teams, and the wife often may have some other title. We don't know for precisely how many companies that's the case, but here's one indication: in a survey of last year's Inc. 500, 18% of chief executives said their spouse was involved in the company's management.
4. False. Only 101 of the 500 made acquisitions between 1985 and 1989, and 49 of those companies made only one. Bryant Management, a Houston-based real estate developer, was the most active buyer, with 36 acquisitions.
5. False. In part because of the young age of these companies, nearly 90% of the founders are still the CEOs.
6. False. Twenty-nine percent of last year's companies made this year's list. Of the 1989 Inc. 500 companies,
2% went public or were acquired
29% made the 1990 Inc. 500
35% did not apply or did not qualify for the 1990 Inc. 500
34% grew but not enough to make the 1990 Inc. 500
7. True. Because our list measures percentage -- not absolute dollar -- growth, it has a strong bias toward young, emerging companies. A company that grows from $200,000 to $2 million will make the 500, while one that grows from $20 million to $100 million won't. As a result, we have many new companies. Although all must be at least five years old, only 90 were founded in 1980 or earlier.
8. False. When economic sectors experience extraordi-nary growth, they are heavily represented on the list. Here's how the representation of three growth industries changed between the 1985 list, which reflects sales growth between 1980 and 1984, and this year's.
Inc. 500 Companies
1985 1990 % Change
Health-care related 17 43 153%
Environmental 4 20 400%
Personnel and employment 8 18 125%
Changes on the list also hint at some more subtle emerging trends. Although the samples are too small to mean much by themselves, we're not surprised that in 1985 there were no companies that described their primary business as computer networking, and this year there are 11. Similarly, not even one company on the '85 list specifically targeted the elderly; this year, 6 do. And there weren't any 1985 Inc. 500 companies that identified their business niche as health-care cost containment. This year 3 found that a market with fast-growing demand.
9. True. Although companies in all sorts of industries -- from insurance to oil drilling -- made this year's list, it certainly helped to be in the still-fast-growing computer-related fields, which were represented by 137 companies.
10. False. Of the 1990 Inc. 500 companies, 423 were profitable in 1989, up from 1985, when only 289 of them were in the black.
The 1990 Inc. 500 Profitability Breakdown
Number of Companies
Profit Margin 1985 1989
16% or more 51 41
11%-15% 33 49
6%-10% 73 108
1%-5% 132 225
Break-even 24 24
Loss 187 53
11. Alabama is the state that's out of place here; it has six companies on this year's list alone. Over the nine-year history of the Inc. 500, Alabama has been represented by 27 companies, most of them located in and around Birmingham and Huntsville.
12. Federal Express. We were too late: by the time Inc. was launched, in 1979, Federal Express was already a public company. However, the firm did make the 1979 Inc. 100 list of the fastest-growing small public companies.
Extra Credit Here's how the cities rank, using 1988 population estimates. Because the sample involved is so small, only substantial differences in the ratings mean much. One illustration: for the New York City area to have as high a rate as the Washington, D.C., area does, it would have to be home to 168 more companies!
Inc. 500 Companies per 1 Million People
Washington, D.C. 10.7 Dallas 2.1
Boston 6.1 National average 2.0
San Francisco 5.6 Detroit 1.9
Houston 3.6 Chicago 1.6
Philadelphia 3.4 New York City 1.5
Los Angeles 2.4
If you were surprised to see D.C. ranked so much higher than the other cities, you're not alone. However, Inc.'s 1990 list of the fastest-growing metro areas in the country (see " The Most Entrepreneurial Cities in America," March 1990, [Article link]) did rank D.C. second overall. That study also shows that a higher percentage of young companies are growing rapidly in D.C. than in all but one other city in the country. What's not clear is how long that growth will continue during an era of federal budget crises.