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Profile of computer companies from the Inc. 500.

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How many times in recent years has the press proclaimed the end of the computer industry's go-go era? Way back in 1983 Business Week told us that IBM and a few other giants would be dominating personal-computer manufacturing -- no openings for new companies there. And just a couple of months ago the Wall Street Journal announced that the software business was consolidating. "I don't see major opportunities" for start-ups, one expert said. The refrain is familiar. Growth in computers is slowing. Smaller companies are being squeezed out. Entrepreneurship? Forget it.

And yet every year more than one-quarter of the Inc. 500, the fastest-growing privately held companies in the United States, turn out to be in the business of providing the hardware, software, systems, technical expertise, and everything else required for the computerization of the world's homes and workplaces. Year in and year out, company builders seem to find in computers widening niches that others have somehow overlooked, and they create businesses that can hardly keep up with demand. Admittedly, the companies on the Inc. 500, which by definition are at least five years old, aren't last week's start-ups. Even so, the fact that so many young enterprises keep growing suggests that there's more to the business than meets the media's jaundiced eye.

The 135 computer-related companies on this year's list are sprinkled all over the industry's map. A few, like top-ranked Gateway 2000, make PCs. Another dozen or so manufacture components and peripherals -- circuit boards, cables, networking devices, add-on memory. There are retailers and distributors, systems integrators, consultants and trainers, maintenance-and-repair specialists. And oh, yes -- there are software developers. Numbering about 50 (thus accounting for one-tenth of the list all by themselves), the software companies provide programs for supermarkets and science labs, for logistics specialists and land planners, for UNIX users and Macintosh mavens and DEC devotees. The aptly named Incredible Technologies (#64) even designed the software for Chicago's BattleTech Center, a futuristic dream world that lets adolescents (of all ages) enter a Star Warslike battlefield and blast away at opposing players.

Like the rest of the 500, the computer-related companies on the list have experienced blistering growth. American Megatrends (#2), a manufacturer of the printed circuits known as motherboards, zipped from less than $200,000 in 1986 sales to nearly $45 million in sales last year. Liuski International (#345), a distributor of PCs and components, ballooned from $12 million to almost $130 million. Even the most modest ventures have undergone a sometimes-bewildering expansion. Small Systems Management (#461), a maintenance and sales company started in 1985 by two young men right out of college, had revenues that rose more than eightfold between 1986 and 1990.

How can such growth coexist with the corporate power and consolidation tracked by the pundits? News reports on the industry naturally focus on its biggest, most visible players -- IBM and Compaq's joint 23% share of PC manufacturing in the United States, for example, or Microsoft's 32% share of the world software market. Were computers a traditional mass-production business, those shares would probably grow, and smaller players would find themselves relegated to the sidelines or the grandstand. But computers aren't like cars; their value derives not just from mass production but from customized configurations of hardware and software. Small companies with specialized, close-to-the-customer knowledge can thus create their own growing markets, well away from those dominated by the giants.

In PC manufacturing, for example, booming upstarts such as Gateway skirt the shadows of IBM and Compaq by targeting knowledgeable, price-sensitive buyers. (See "Betting the Farm," [Article link].) Even smaller manufacturers such as Daniel Armbrust's Softworks Development (#29) can carve out rapidly growing segments of the market simply by serving particular sets of customers. Armbrust sells his Citus line of IBM clones to customers such as a nearby value-added reseller who provides turnkey systems to hospitals. Softworks' competitive edge: the ability to provide buyers with the exact configurations they need, within 48 hours if necessary, and at a price lower than that of any big national marketer.

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