The Entrepreneur of the Year: Our fifth annual company-building awards

Our fifth annual company-building awards

'As national judges of this program, we are a reflection point for the country. We should define and interpret the word entrepreneur to keep it in line with the evolving scenario of the American economy.'
-- Rick Inatome, chairman of $1-billion-a-year Inacom Information Services and national judge for the Entrepreneur of the Year award program, founded by Ernst & Young and cosponsored by Inc. and Merrill Lynch

Boston, July 26, 1993: After hours of sizzling debate, the national judges decided on the winners of the 1993 Entrepreneur of the Year awards, marking the end of a journey the candidates had begun in the depths of winter.

Thanks to the reams of information collected by Ernst & Young accountants across the country, the judges were hardly operating by the seats of their pants. The following benchmarks were among those that helped determine their selections: the years of time invested, the capital risked, the jobs created, and the profits generated.

From the first regional cut through the last one, in Boston, the criteria used to evaluate candidates were based on the standard definition of entrepreneur: a person who organizes, operates, and assumes the risk for a business venture.

But as Rick Inatome's comment, at left, reveals, in the rarefied, competitive air of the national finals, not even the basic definition of entrepreneur could be taken for granted. The judges argued over the basic underpinnings of entrepreneurship (including risk, vision, equity, and organization) to decide who most deserved the awards.

As a group, this year's national finalists bore faint resemblance to the clichÉd image of an entrepreneur who bets his or her life savings on the business and works out of a garage. It became apparent to the judges that they were dealing with a new, more sophisticated type of entrepreneur: instead of bearing starry-eyed visions and second mortgages, the national finalists were armed with elaborate strategic plans and big money. They are a respected new breed occupying center stage in the U.S. economy.

The Regional Level In 1993 the 41 Ernst & Young regional offices received a total of 3,813 applications.

Just filling out the application tests a nominee's work ethic. A lifetime of achievement must be boiled down to three years' worth of financial data and six 250-word essays covering the entrepreneur's company and its history. "Our fearless leader is a truly wonderful and successful entrepreneur" just can't compete with the lists of accomplishments of the best nominees.

Each region gives out 6 to 10 awards, some of which match the national-award categories, while others reflect the region's economic strengths. In northern California, for example, it's not uncommon to have software, high-tech, and electronics awards. In San Diego there's intense competition for awards in biotechnology and medical technology.

The basic definition of entrepreneur served as a good first filter. For instance, the chief executive of a very successful software company was nominated at the regional level. But he was a professional manager brought in by investors when the real entrepreneur stumbled in trying to keep up with the company's growth. He hadn't risked or undertaken anything to start the company. The same question was raised regarding nominees from family-owned companies that had been handed down through generations. They may have been great company managers, but where was the risk, the vision, the creation?

Of course, there were exceptions to the rule. Some categories, like the Supporter of Entrepreneurship, the Entrepreneurship Educator of the Year (a new category), or even the Turnaround Entrepreneur did not require the candidate to be an entrepreneur in the classic sense. But to get to the national level in every other category, a candidate had to be an active, dynamic company builder.

The National Level By Memorial Day the Ernst & Young offices had shipped the dossiers of 357 regional winners (representing 402 individuals) to Inc. to be considered for the national awards. After some regional winners were rejected because of incomplete data, the companies that remained were eligible for the national Turnaround, Master, and Emerging Entrepreneur categories, as well as for the overall Entrepreneur of the Year.

Senior editorial staffers then rejected those nominees whose companies were losing money, or had slow or negative sales growth, a poor return on investment, or low sales. The remaining pool was then subjected to further due diligence. Inc. reporters consulted industry analysts; compared key financial ratios with industry standards in the banker's bible, Robert Morris Associates' Annual Statement Studies; and interviewed the most promising candidates about everything from distribution strategies to compensation practices and customer relations.

The findings were then passed on to Inc.'s internal judging panel, made up of senior editors with 30 years' experience among them analyzing growth companies. It was clear to the judges that competition for the awards had been heating up, and the Ernst & Young data support their observations. The number of nominations received was up by 10.2% from last year. Average sales for the 255 companies rose from almost $57 million in 1992 to nearly $65 million in 1993. And the number of jobs created by the 704 finalists climbed from 171,000 to 369,000 over the past two years.

By July 1 a list of 19 finalists (see page 3) in six categories (not including the Entrepreneurship Educator of the Year, which was selected by Ernst & Young) had been selected.

The Final Vote On July 26 the 19 companies were under final consideration by the national judges. (See page 4.) Those judges' relentless questioning of fundamental assumptions about the nature of entrepreneurship yielded some fascinating insights.