America's Fastest-Growing Private Companies

Today Bill Gates is a household name -- but nine years ago he was just another Inc. 500 chief executive. Microsoft, the $3.8-billion company based in Redmond, Wash., that now dominates the software industry, had 1983 sales of only $50 million, with a work force of 342 people. It was then that Gates and Microsoft first made the Inc. 500, as #80 on our 1984 list.

Each year since 1981, Inc. has named the fastest-growing small privately held companies in the nation. Because our list is based on the percentage revenue growth of companies that do not have publicly traded stock, we catch many of America's hot entrepreneurial growth companies when they are just starting out. When a company appears on our list, odds are, you've never heard of it before.

Just wait. After a few years some of those little companies will start cropping up everywhere, affecting every aspect of the American economy. Eat a Domino's pizza, and you're patronizing a former Inc. 500 company; if you try to take weight off through Jenny Craig's diet program, you're doing it again. Put on a Patagonia jacket or Timberland boots, and there's another Inc. 500 company. Order a gadget from the Sharper Image or stock through Charles Schwab discount brokers and you're doing business with Inc. 500 alumni; hire Paychex to process your company's payroll and it's happening once more. Even kids encounter the Inc. 500: if your children play with the popular Where in the World Is Carmen Sandiego? software, they are customers of Broderbund Software. When it comes time to prepare for the SATs, they will probably consider Princeton Review.

Inc. 500 alumni are concentrated in industries that have grown rapidly during the last decade, such as personal-computer hardware and software. One example: Gateway 2000, based in North Sioux City, S. Dak., a company that sells its personal computers via mail order, is on the list for the fourth time this year, as #6; it grew from sales of $101,000 in 1985 to $1.1 billion last year. And two of the most popular personal-computer software packages on the market today are the Quicken financial software from Intuit, in Menlo Park, Calif., and the word-processing software WordPerfect, from the company of the same name, based in Orem, Utah. Oracle, based in Redwood Shores, Calif., has grown to $1.5 billion in sales with its database-management software.

As new markets continue to emerge, Inc. 500 companies emerge with them. One of today's fastest-growing industries is computer networking, as companies link their desktop computers to share data. The networking market is home to a number of former Inc. 500 companies, such as Artisoft, Microtest, and Chipcom. Probably the best known is Cabletron Systems, which Craig Benson and Bob Levine founded in 1983. By early 1993 the company employed 2,625 and had sales of $418 million and net income of $83 million.

But you don't have to be a high-tech star to make the Inc. 500 -- as Anne Murphy points out in "Masters of the Ordinary," [Article link]. Our list includes companies that have grown by bringing innovation to ordinary businesses, as Domino's did with its emphasis on quick, reliable pizza delivery. Often, the Inc. 500 innovators in established industries have grown by experimenting with new management styles. Take a look at Wabash National. By emphasizing flexible manufacturing, products designed to customer specifications, employee training, and profit sharing, Jerry Ehrlich built a growth company in a distinctly nongrowth industry: the manufacture of truck trailers. In just eight years he grew Wabash National to 1992 sales of $289 million, profits of $9 million, and a work force of 1,800. Today the Lafayette, Ind., company claims the world's largest truck-trailer factory.

In general, since the Inc. 500 represent emerging growth companies, they provide a window into the latest innovations in management thinking. (See "Thinking Flat," by Leslie Brokaw, [Article link].) Consider Solectron, based in Milpitas, Calif., and with 1992 revenues of $407 million. The electronics manufacturer first made the list in 1984. Solectron chairman Winston Chen's success at creating a culture that emphasizes quality and employee training won the company the Malcolm Baldrige National Quality Award in 1991. And throughout the list, we find companies adopting new, more participative management styles: for example, 28% of the 1993 Inc. 500 CEOs share their companies' profits with employees.

Of course, not every Inc. 500 company is a model for aspiring company builders. Because of the difficulty of meaningfully measuring profitability in private companies, the Inc. 500 list is based only on revenue growth. The advantages to that approach are simplicity and objectivity -- but there are also some distinct drawbacks. Earning a spot on the Inc. 500 is nothing like winning the Good Housekeeping seal of approval. There is no filter to exclude companies that have grown through questionable marketing schemes -- or simply through fads or fashions with little staying power. (In 1985 there were some bad moments here in Inc.'s editorial offices because the fastest-growing small private company in the nation turned out to be Herbalife International, a diet-supplement marketer that had been investigated by the Food and Drug Administration and sued for fraudulent marketing by the state of California. Inc. survived, as did Herbalife.)

Then, too, even the best companies hit roadblocks sooner or later. Few forever escape market turbulence, whether caused by changing technologies, shifts in consumer tastes, or simply the wrong management decisions. After making the Inc. 500, some businesses fail, while some join the ranks of the nation's largest companies. But most do neither. Instead, Inc. 500 companies often grow into the successful private small to midsize corporations that form the backbone of our economy.