The trend toward industry experience helps explain why successful companies are so often started by teams. Corporate refugees have learned not only their industries but the habit of bringing product developers, salespeople, and finance minds together; once on their own, they carry over the team habit. "My interpretation," says Reynolds, "is that these are people who've been searching for an opportunity for something like this or who simply see an opportunity, and they form a team and go after it."
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3. They're headed by people who have started other businesses. Successful company builders often haven't spent their entire careers at one large corporation: at some point they've practiced the business of running a business. Half the 1992 Inc. 500 CEOs had started at least one other business before their current one took off, and a sizable number (17%) had started three or more. The pattern is mirrored by the founders of highly successful companies in Reynolds's study. Sixty-three percent of them had started at least one other business, and 23% had started three or more. On the other hand, only 20% of the general business-owner population has been self-employed before, according to a survey by the Bureau of the Census. (That survey looked at partnerships, sole proprietorships, and S corporations.)
Many of the people now running the most successful start-ups in the country have at one time been losers. Multiple foundings have meant multiple failures; among the Inc. 500 CEOs, of the 343 businesses they'd started in earlier lives, only 27% are still in existence.
Having grown an earlier venture instills an awareness of the risks of running a company and a better understanding of what it takes to construct organizations from scratch. Founders of multiple companies learn how much time it takes to do the "little things" that are part of establishing a company -- from selecting a computer system to putting in place a health plan -- and how potentially derailing those details can be when they're not handled right.
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4. They're headed by men. Much has been written about the number of women starting businesses over the last decade. The tally of woman-owned enterprises did increase in the 1980s, at twice the rate that the overall number of enterprises did, according to the Census Bureau. By the bureau's count (excluding C corporations and companies reporting less than $500 in revenues), there were 2.6 million woman-owned businesses in 1982 and 4.1 million in 1987, a 58% increase. The number of businesses overall increased 29% in the same period. By 1987 one in three companies in the general business population was woman-owned. (Researcher Reynolds also is finding that 30% of the start-up teams he's looking at now in a new study in Wisconsin include women.)
But the running of fast-growth companies still remains a predominantly male endeavor. Of Inc. 500 companies founded from 1985 to 1987, 93% are run by men. Reynolds, too, found that 93% of hypergrowth companies have male CEOs.
Why do women, who account for 30% of general business ownership, account for only 7% of the fast-growth subset? It's not just that women are more likely to be running tiny, employeeless ventures than men are: while as many as 90% of the businesses women run are indeed sole proprietorships, so too are the vast majority of businesses run by men. It may be that because founders of the most successful companies come to their start-ups with years of corporate experience in their fields, proportionately fewer women going into business fit that description. And woman business owners -- at least the majority of those running emerging companies at this point -- seem to try less often for rapid growth.
Worth noting, however, is that women are more involved in the growth-company world than it first appears. Fully one-quarter of 1992 Inc. 500 CEOs say their spouse works at their company. Many fast-growth ventures are in fact cofounded by husband-and-wife teams, even if the female half of the partnership doesn't get the more senior position or accompanying recognition.
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5. They're disproportionately manufacturers, and they're high tech. If you count all enterprises in the U.S. economy, including sole proprietorships, about 16% are retail operations, and just 3% are manufacturers. Confine the field to businesses that have employees (eliminating the huge number of single-person companies), and still just 6% are manufacturers. The rest are in services, construction, finance, and so on.
The fast-growth start-ups have significantly different ratios. Manufacturers represent 27% of the Inc. 500 companies founded from 1985 to 1987, retailers just 7%. The lion's share -- 56% -- are in services, with the rest in distribution.
What's more, the fast-growth start-ups often are high tech. A sizable 47% of the Inc. 500 hot starts call themselves high-tech ventures. (And with just 27% being manufacturers of any kind, that 47% includes not just producers of high-tech products, but business services and retailers that use technology.)
The skewed percentage of high-tech manufacturers among that Inc. 500 group is not surprising: in his study in the 1980s of high-tech manufacturers, researcher David Birch of Cognetics Inc. found those companies to be twice as likely as other manufacturers to have more than 50 employees by their fifth year. They also were more stable, he found, failing in smaller percentages over time than other manufacturers did.
Bruce Kirchhoff, a professor of entrepreneurship at the New Jersey Institute of Technology, has reported similar findings. "Twice as many of what we call technology-based firms, which are largely manufacturers, achieve high growth in the first eight years of their life than low-technology firms."
Why is that so? As Inc.'s Edward O. Welles noted in his article "How to Get Rich in America" (January, [Article link]), technical changes have made competing easier for small manufacturers. The automation of machine tools has meant that large-company economies of scale no longer produce insuperable advantages over fast-on-their-feet innovators.
It would be a mistake, however, to ignore the expansion of many nonmanufacturing segments of the economy. Though manufacturers are disproportionately represented among fast-growth companies and employ more people than any other sector, more than half the fast-growth start-ups are in services. Their importance should not be underestimated, says Bruce Phillips, senior economist with the Small Business Administration in Washington, D.C. "Look at the major growth sectors of the economy today and there are some manufacturing sectors, like biotechnology, but certainly there are plenty of service industries -- health services, social services, data-processing services -- which are growing equally rapidly. And more rapidly, in many cases."
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6. They're better financed -- but not by much. If a company's characterization as "high tech" is open to interpretation, even more ambiguous is how much money constitutes "being well financed." Some businesses have to plow more cash into their launches than other businesses will see in 10 years. Others bootstrap along and expand through cash flow alone all the way onto the Inc. 500. While one can assume that well-financed companies have a better chance of doing well, there is no similar corollary that says less well financed companies will do poorly.
