America's fastest-growing small public companies* * *
At a time when big-company layoffs have grabbed the headlines, it's useful to recall that the economy has yet to fall into a black hole and -- barring a collision of the planet with Mars -- won't. That circumstance owes not to the prospect of large companies healing themselves but to the relatively unknown companies that turn up on this list each year, sprouting like hardy perennials through the rubble of corporate America. A free-market economy, like nature, abhors a vacuum. The more things change, well, the more companies doing new and interesting things are born. Sic transit the Fortune 500.
The Inc. 100 is more than a portrait of dynamic growth. It is also aleading indicator of change -- technological, social, and regulatory -- and the economic mutation that accompanies it. Take this year's number-one company, QVC Network, a retailer that couldn't have existed a decade ago, before cable-television and satellite technology were linked to produce some lucrative possibilities. QVC, which stands for quality, value, and convenience, is a televised shopping network that now appears in 45 million cable- and satellite-connected homes -- 24 hours a day, 364 days a year.
"This has become an accepted way of shopping,' QVC's cofounder Mike Boyd says. "Our show is easy to watch, the presentation is soft sell, and the demonstration of products is informative.' When QVC was founded in 1986, it had 20 competitors. Today the field has been winnowed to 2 major players -- QVC and Home Shopping Network -- and they recently leaked word of a possible "business combination."
QVC, just five years old and well on its way to annual sales of $1 billion, now adds 100,000 new users each month -- and 60% of those people will turn into repeat buyers. Technological change in the form of digital compression, which will give cable companies the ability to broadcast up to 10 channels in the same space through which they currently send one, will further boost growth. That could turn QVC into an electronic mall, with viewers able to flip from shoes to cosmetics to lingerie. The company is currently testing a fashion and accessories channel in a small selected market.
QVC is an instructive example of how change yields opportunity, but among Inc. 100 companies, it is hardly an exception. Witness the continuing entrepreneurial response to Ma Bell's breakup. Toiling creatively in the telecommunications arena are 11 of this year's companies, including Peoples Telephone (#83). Peoples, a private-sector phone company, takes a targeted approach to the market, bringing telephoning to where the masses mass. Peoples has thus far installed 19,000 pay phones in high-demand locations, such as gas stations, convenience stores, hospitals, and prisons.
PictureTel (#37) and Phoenix Network (#9) are other by-products of information's brave new world. Phoenix Network buys long-distance phone services and then resells them to an array of small customers who otherwise could not take advantage of volume discounts. PictureTel brings us face-to-face with the present day's McLuhanesque possibilities. It manufactures state-of-the-art videoconferencing systems -- along with equally elegant profits for those visionary enough to have bought its stock some time ago; at press time PictureTel stock had risen 127% in the past year. Which is not bad, but nowhere near the pace of the fastest-appreciating stock on this year's list, Noise Cancellation Technologies (#21), which climbed a not-so-quiet 352% in the past 12 months.
Health care, much in the news lately for better (high stock prices) or worse (high prices), is amply represented here, not surprisingly. The 21 health-care companies on the list include the like-named Summit Technology (#35) and Sunrise Technologies (#8) -- both of which do the same thing: develop laser-based medical technologies that have revolutionized eye surgery. Several companies, meanwhile, are doing their part to keep high health-care costs from killing the body politic. Value Health (#46) manages specialized programs, such as drug treatment and psychiatry, for employee health-benefit plans; Ren Corp.-USA (#78) builds freestanding kidney-dialysis treatment centers; and T2 Medical (#36) provides outpatient infusion therapy.
On the low-tech end of the list are equally intriguing niche openers, such as Rally's (#59) and Rentrak (#44). Rally's, a hamburger chain with 333 units in 22 states gives new meaning to the term fast food. Customers order at drive-through windows and are served within 45 seconds. A Rally's is typically half the size of the average fast-food restaurant, the prices about 25% lower.
Rentrak has done a fast forward on the videocassette revolution by exploiting a simple idea: video stores often cannot afford to stock enough new releases to meet initial demand, which dwindles within weeks or months. Rentrak leases the tapes to retailers, and both parties divvy up the rental income.
So what has all this entrepreneurial vigor done beyond provide the usual windfalls for the boss and a coterie of financiers? A lot. Annual revenues for Inc. 100 companies last year averaged more than $84 million, a 21-fold increase in five years. The number of employees at the typical company grew from 132 to 896, and sales per employee tripled from $31,000 to nearly $94,000.
As for Inc. 100 CEOs, they won't be standing in a soup line tomorrow, but they'll wait to buy the yacht. The average salary -- $202,000 -- would make Steven J. Ross of Time Warner blush. Delayed gratification and future payout, in the form of a solid equity stake with bright prospects for appreciation, are the fashion now. The average Inc. 100 CEO holds 11% of his company's stock. His does indeed seem the operative word here; only three companies -- Innovo Group (#7), Quarterdeck Office Systems (#45), and Software Spectrum (#98) -- are headed by women.
The Inc. 100 are not merely the beneficiaries of change. In their own ways, they are its agents. Their tactics and cultures sometimes reflect trends and ideas that transcend the bottom line. Angeion (#27), a developer and manufacturerof therapeutic cardiovascular devices, teaches English to its Hmong and Vietnamese employees. Aurora Environmental (#90), a consulting and testing company, has established a for-profit environmental-training school for employees and customers. Software developer Platinum Technology (#11) donates up to $50,000 a year to save African wildlife. Automobile Protection (#88), a dozen of whose 50 employees are related, evidently believes the family who works together prospers together. Phoenix Network solicits new customers by offering to rebate 10% of their monthly bills to a charity of their choice. Mycogen (#97), a developer of biopesticides, arranges for its employees to tutor local science students and is developing a science-equipment donation program to schools.
If you've been looking to shake up your professional life but haven't seen evidence to convince you that radical transformations are possible, examine the career path of Frank Martin of The Longwood Group (#50). Before leading his geriatric-care company onto the list, he was a Broadway producer.
Or consider the case of brothers Roy and Larry McKnight, who six years ago sold their small tooling company to Secom General (#87) for $2 million in stock and planned to retire. In 18 months Secom lost $3 million on sales of $5 million, and the McKnights were decidedly poorer. Roy McKnight then stepped in, hired new management, and shed Secom's money-losing high-tech businesses. What was left? The old tooling company. Secom has since acquired four other basic manufacturing companies. This year sales should hit $40 million, and McKnight confidently projects $200 million in annual revenues by 1995. Some retirement.* * *
The Average Inc. 100 Company
*sales per employee, Ã" no. of companies* * *
The Inc. 100 by Sector
Service 35* * *
The Inc. 100 by Industry
Computer related 32
Energy related 5
Health related 21
Miscellaneous 11* * *
The Inc. 100 CEOs
Average equity 11%
Average salary $201,950* * *
Boosting employment: Exabyte,Boulder, Colo.; #12
It's no longer news that small growing companies are the best job generators in the U.S. economy. Less well reported is the fact that fast-growth companies create many more jobs beyond their own walls than they do inside them. In seven years Exabyte, which develops, manufactures, and markets high-capacitycomputer-data-storage applications, created 855 in-house jobs, without acquisitions. We're not talking fast-food counter help; the positions range from engineers and marketers to production workers.
Impressive as that figure is, it represents a fraction of the job growth Exabyte has fostered worldwide, CEO Peter D. Behrendt says. A year ago Behrendt surveyed Exabyte's research and manufacturing partners, customers, and vendors. "If Exabyte did not exist,' he queried, "what difference would that make in your employee numbers?' The answer: about 4,800 jobs.
Exabyte exhibits some of the standard symptoms of a healthy relationship between a company and its employees: Input is encouraged on the production line, in quarterly meetings, and at "pastries with Peter,' informal monthly breakfasts the CEO hosts for 10 randomly selected workers. And thanks to stock options given to employees when they're hired and as performance incentives, approximately 20% of Exabyte stock was owned by employees when the company went public in 1989. -- Betsey Winckler
Employees: 1987, 105; 1991, 855
Boosting profitability: Qual-Med,Monte Vista, Colo.; #19
A fix for the nation's ruinously high health-care costs? Stop using so many diagnostic tests.
That's the solution offered by Qual-Med, which acquired four almost-insolvent health-maintenance organizations in Western states and turned them into profit centers. How? By curing the HMOs' staffs of "intellectual laziness and overindulgence,' founder Malik M. Hasan says. Qual-Med's medical-management system triggers drastic reductions in the number of costly tests and diagnostic procedures ordered per patient, enabling the company to find margin where none existed, he says.
That may sound like medicine practiced by accountants, but Hasan argues otherwise. "When you substitute testing for personal care, you're loyal to your machines, not your patients.' For too many physicians, tests are a crutch, he says, and are resorted to without regard for expense, discomfort, inconvenience, or even usefulness. Not only has fighting this attitude resulted in profits, Qual-Med also boasts a 90% patient-satisfaction rate -- 30% higher than at other local facilities, according to Hasan.
Hasan considers Qual-Med's success a living indictment of U.S. medicine's overreliance on technology. "By working hard at quality, the cost comes down naturally,' he says.
-- Vera Gibbons
Profitability: 1987, 0.08%; 1991, 6.56%
Boosting productivity: Babbage's, Dallas; #73
Nine years ago H. Ross Perot panned James B.McCurry and Gary M. Kusin's business plan for a mall-based software chain. "Start with one store,' he advised, "and run it yourselves.' So the two founders quit their jobs to build, stock, and run the sales floor of the first Babbage's.
Kusin and McCurry have since promoted themselves to executive offices, but they haven't lost sight of where the organization gets its leverage. "Where the customer meets the company is the single most important point in retail,' McCurry says. To make that meeting place a success, Kusin and McCurry focused on hiring approachable, friendly salespeople instead of potentially intimidating computer jocks. Salespeople receive continual training, including company-generated videos. To keep technologically current, the staff can practice on sample software at home, and store managers may buy home computers with no-interest company-sponsored loans.
Perhaps because two vice-presidents and all 32 regional and district managers have climbed from the retail floor, every level of the organization remains closely tied to the field. Every day each store sends headquarters a daily report that includes not only numbers, but also comments, questions, and product requests from customers and staff.
Perot's advice has definitely paid off. "Our sales staff is the most important factor in our success,' Kusin says.
-- Phaedra Hise
Sales per employee: 1987, $76,031; 1991, $151,781
Boosting sales: Innovo Group,Sugar Land, Tex.; #7
In the beginning, Innovo Group founder Patricia D. Anderson had shallow pockets, no proprietary advantage, and almost no notion of what her company would do. But Innovo's humble origins don't appear to have slowed it.
Once a national sales director for a housewares and gift importer, Anderson asked college students in the Houston area, where Innovo Group is based, to create designs for a pot holder and apron that she would silkscreen, sew, and package. She got distribution through gift-shop channels, but she couldn't penetrate the mass merchandisers she needed until a buyer suggested she repackage one of her children's aprons as a craft smock and include a paint set. Anderson made the change and watched sales skyrocket.
Innovo Group now sells aprons, tote bags, and sports bags -- all emblazoned with sports-team logos, cartoon characters, and other images licensed for reproduction. How does Anderson decide which trends, personalities, or styles will sell? For one, she keeps listening. Store buyers continue to provide good guidance. But like every smart trend spotter, she takes note of the colors, textures, and graphics people are wearing everywhere she goes. "And I purposely go to trendy restaurants to see what's in,' she says. -- Betsey Winckler
Sales: 1987, $197,000; 1991,$20,325,000 n