Where the Growth Is

It's where number-one-ranked Wellfleet Communications Inc. is doing business, for starters. But this year's list is an insider's guide to other hot opportunities, too

Paul J. Severino has a tough job. That's because Wellfleet Communications Inc., the company Severino cofounded in 1986, grew 26,497% during the past five years, from sales of $320,000 in 1988 to more than $85 million in 1992. With that kind of growth, it's hard to imagine how CEO Severino keeps track of hiring and paper clips, let alone profits.

But he does. While Wellfleet's explosive growth secured the number one spot on Inc.'s annual list of the fastest-growing small public companies, profits didn't suffer. In fact, net income rose in 1992 to an impressive 16.8% of sales.

Wellfleet's growth strategy? Like many Inc. 100 companies, it sells a product that didn't exist 10 years ago to a market now coming into its own. Wellfleet produces internetworking equipment that, to quote its marketing literature, supports "mission-critical, enterprise-wide networks."

Translation: During the 1980s companies began linking their desktop computers, first in local-area networks (LANs) and then gradually in wide-area networks (WANs), which include computers at more than one site. But just as computers differ in their operating systems, so, too, do LANs and WANs vary. Enter companies such as Wellfleet, with equipment that lets LANs of different stripes communicate. Now large companies can link all their networks together into one huge, companywide network -- and ship data from continent to continent as readily as they can send it across the hall.

How hot is this market? Worldwide sales of products like Wellfleet's, called routers, totaled $949 million in 1991, up from $128 million in 1989, according to market researcher International Data Corp. (IDC). Furthermore, sales will reach $2 billion by 1994, IDC projects.

For a more vivid measure of computer networking and internetworking growth, take a look at the rest of the Inc. 100. Wellfleet's chief competitor -- and the market leader -- is Cisco Systems, in Menlo Park, Calif. (#11; last year #6). CrossComm (#40) is another, smaller competitor specializing in the IBM internetworking market. Chipcom (#96) builds the hubs that serve as the central switchboards of the networks, while Netrix (#3) makes products that allow a single network to carry voice, data, and video. Artisoft (#29) provides network operating systems, and Cabletron Systems (#80) has evolved into a full-service LAN vendor, selling and installing a wide range of networking products.

Sybase (#83) and PeopleSoft (#2) are also riding the wave of the networked-computing environment; they specialize in software for large networks. Naturally, network repair and maintenance is another growth industry. Network General (#81) provides tools for diagnosing network glitches, and Microtest (#31) makes equipment that locates problems with LAN cabling. American Power Conversion's (#94) products, which protect computers from power surges or failures, sell briskly under the slogan LAN's Best Friend.

All of those entrepreneurial companies have what it usually takes to make the Inc. 100: a new market growing so fast that they need lots of outside capital, and growth prospects good enough to persuade the public markets to provide it. Sure, a few make the list by developing a new twist on an old industry. This year's list includes everything from a manufacturer of golf clubs, Callaway Golf (#41), to a chain of restaurants, Outback Steakhouse (#18). But those are the exceptions. Three-quarters of Inc. 100 CEOs surveyed describe their industries as high growth, and more than half say they are high tech.

View this list, then, not as a list of the best-managed companies or the best stocks. What this list measures is where the growth is and which new sectors of the economy are attracting capital and sales. Internetworking is only one example this year. This year's Inc. 100 contains an unprecedented 35 companies in health-related industries. Over the past decade the computer industry has dominated the list, but this year it's definitely in second place. What does it augur for the economy if health care replaces the computer industry as the next growth sector?

It's another sure sign that a market is worth watching when two or more companies in the same field appear on our list. Besides internetworking companies, the 100 includes several such pairings: PictureTel (#48) and VideoTelecom (#21) supply videoconferencing equipment. VISX (#25) and Summit Technology (#38) pioneer the use of lasers to correct nearsightedness. Cirrus Logic (#67) and Trident Microsystems (#13) design the integrated circuits that help give PCs their graphics capabilities. A trio -- Curaflex Health Services (#14), Quantum Health Resources (#16), and T2 Medical (#90) -- all provide infusion therapy, treating outpatients with intravenous drugs.

Beyond the macroeconomic implications, however, the Inc. 100 is just plain fun. This is capitalism at its most rambunctious, entrepreneurs seizing opportunities and opening markets. The 100 is a peek at the brave new economy of tomorrow: DNX (#68) develops genetically altered pigs, and Amtech (#35) hopes to plaster the world's trucks and cars with electronic tags -- so tolls can be collected by radio signals from moving vehicles as easily as groceries pass through a scanner.

Then there are the entrepreneurs who spot silver linings in life's clouds: Education Alternatives (#91) sells business management to the country's troubled public-school systems, and Curaflex has grown its infusion-therapy business in part by targeting the growing number of AIDS patients. The Inc. 100 also includes the why-didn't-I-think-of-that? variety of hypergrowth company. Look closely, and you'll see that much of the growth of Charter Golf (#6) stems from the recognition that there are people who like golf but not fluorescent polyester. The company made a name for itself with a line of 100% cotton golf apparel in subdued tones. Finally, don't forget the time-honored tradition of growing a company by annoying the U.S. public: Regal Communications (#10) specializes in "infomercials," and Electronic Information Systems (#47) provides technology that enables telemarketers to bother more consumers at home, faster.

What all those companies have in common is that they are thriving on change; it fuels their extraordinary growth. That's a risky way to grow a business since, in rapidly shifting markets, each successive surge produces losers as well as winners. But to the smart CEO, change is a constant like payroll and taxes, to be managed continuously.