"Rapid growth can sound sexy," says location consultant Dennis Donovan of the Wadley-Donovan Group, in Morristown, N.J., "but it can overtax an area's infrastructure. By itself it isn't necessarily a good thing."
The healthiest cities, by contrast, have evolved distinct economic roles in the emerging global marketplace. (See "Pick Your Place," below.) Miami, emulating New York City and Los Angeles, is becoming a center of international trade and finance; it's the hub for the United States' growing business with Latin American nations. Phoenix, capitalizing not just on sunshine and retirees but on a booming electronics sector led by companies such as Motorola and Intel, is an up-and-coming regional capital. (DRI/ McGraw Hill projects that Phoenix will be ninth among the top 10 job growers between now and the year 2000; it's the largest city to make the list.)
Midwestern metro areas, home to the manufacturers that are storming back into global markets, are on the upswing as well. "The major exporters in this country are in the Midwest," says Stan Duobinis, senior vice-president with the WEFA Group, an economics-forecasting and consulting firm in Bala Cynwyd, Pa. "The states that touch water may do the shipping, but they don't have the export industries."
The Raleigh-Durham area of North Carolina -- high on Freese's list -- is a good example of a metropolitan area with just such a "core competence," to use the currently fashionable term. Its Research Triangle Park alone houses about 60 high-tech companies and is in the process of expanding into 2,000 undeveloped acres. Recession? At last report the region's unemployment rate had climbed all the way to 3.5%, which is less than half the national rate. A different kind of core competence accounts for the continuing position of Las Vegas at or near the top of everybody's economic charts, including our Most Business Starts rankings. (See page 38.) Sure, Vegas has been fed by huge population flows. But it's the gaming-and-entertainment industry that's really watering the desert city's bloom. "Las Vegas has become an international destination city," observes Duobinis.
For brand-new companies, of course, a healthy economy can be a bane as well as a blessing. The reason: high costs. The San Francisco Bay area, for example -- particularly Silicon Valley -- continues to boom; as it did last year, San Jose tops our list for highest number of young high-growth companies. But it's also one of the nation's most expensive regions, which is why even high-tech entrepreneurs frequently set up shop elsewhere. Nor is it easy for newcomers to navigate California's maze of regulations. "California is a very antibusiness state," says Freese.
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Ingredients of Growth
Who would start a company in New York City? The Big Apple has slumped in the last couple of years, losing more than 100,000 jobs. Its costs are astronomical, its public services dreadful, the hassles of doing business off the charts. None of that fazes entrepreneurs such as Sandy Chilewich, who cofounded Hue Legwear 13 years ago in New York and would do the same thing today in a minute. "There's no other place for our kind of business," says Chilewich. "It's where the buyers come. Any fashion services we might use have offices here. It's the place to be."
The attractions of world capitals such as New York and Los Angeles have always been apparent to company builders with highly specialized needs. For certain industries -- fashion and financial services are only two -- the mammoth metropoles provide unparalleled access to customers and suppliers, a large pool of specially skilled employees, and a variety of supportive institutions such as training schools. What's often forgotten, however, is that other cities, too, offer their own unique combinations of these business inputs. A new or small company does best in a city with just the right blend.
Take Kansas City. Home to Hallmark and H&R Block, a suitor for McDonnell Douglas's planned new plant, the bistate burg scarcely has a reputation as a hotbed of 1990s-style entrepreneurship. Yet Jack Pierson, for one, is convinced that his Kansas City location is a key element in his small company's growth. Bill Crooks thinks the same way -- for a completely different set of reasons.
Pierson's company is Preco Industries Inc., a $7-million, 60-employee manufacturer of specialty machine tools that are sold worldwide. Since each sale represents an investment on the customer's part of from $40,000 to $250,000, Preco relies heavily on mutual plant visits and other elements of face-to-face selling. The Kansas City advantage: easy air access for domestic customers, not-too-difficult access for buyers from both Europe and the Far East, and $60 hotel rooms for all. Then too, Preco relies on engineers and skilled technicians, which the region's well-regarded schools and universities turn out in quantity, and on a dense network of highly specialized suppliers, hard to find outside a world-class manufacturing region like Kansas City. "If we were located even 50 miles away, I'd be tearing my hair out every day," says Pierson. "Here, we get instant support from a dozen different suppliers that are just critical to us."
Unlike Pierson, Bill Crooks sells locally and needs little specialized talent. But he's no less enamored of his location. Crooks and partner Paul Khoury, having pursued nationwide careers in the restaurant industry, came home to Kansas City a few years ago to start PB&J Restaurants Inc. The company, which now includes four eating establishments and a catering service, boasts annual sales of around $8 million.
