Where the Growth Is: Hot Spots

The best places to build an Inc. 500 company. a look at the hottest cities, states, and regions. Some strategies for expansion. And a few entrepreneurial hideaways where business is done off the beaten track

Every few years, the economy changes its tune, as one region hits a high C and another struggles in the lower registers. If the Inc. 500 lists of the last five years are any kind of libretto, it's clear that the economy is singing "Dixie."

Growing a company posthaste has been a rather Southern preoccupation in the 1990s. Nearly one-third of this year's class -- 165 companies -- hail from the South, up from 145 five years ago. The South enjoyed this upswing even while a recession idled or stole growth in other regions. The West, which claims 123 growth companies this year, came in only 3 ahead of its 1989 tally. The Northeast rebounded from a count of only 97 companies last year to 110 this year, still carrying a 14-company deficit from 1989. Meanwhile, there has been scant year-to-year change in the Midwest, which has shown only pockets of entrepreneurial vitality. The heartland posted 102 companies to the current Inc. 500 list, the same number as last year but 9 fewer than in 1989.

Of course, the performance of each region was largely determined by economic conditions in the most populous states. As California goes, so goes the West. And although the Golden State, the perennial, albeit battered, single-state leader, fielded 73, or 6 more, companies this year than last, it remained 10 down from its total in 1989 and 13 off its high of 86 in 1984. Arizona continued its recent tumble, from 15 in 1992, to 11 in 1993, to a paltry 6 in 1994. Colorado and Washington picked up some of the slack. Colorado chalked up 13 and Washington 15, perpetuating five-year hot streaks, but those states may be losing steam: both finished slightly off last year's pace. Meanwhile, Utah stalled at 5. Idaho dropped to 3 from 5 last year. Montana rose from the dead to post 2 of its own.

In the Southland, Florida basked in growth. Compared with the 20 companies that headquartered their operations there in 1989, 35 companies from this year's list call the Sunshine State home. Their diversity testifies to the state's vibrant economy: Banyan Construction & Development and Tarheel Roofing rode the building boom, while Payroll 1 and Payroll Transfers, as well as temp service Sprint Staffing, paging service Network USA, and technical-services firm Maria Elena Torano & Associates, benefited from a bullish business climate in south and central Florida. Georgia, a breeding ground for Inc. 500 companies in recentyears, lapsed back to 13 companies, down nearly a third from a 1992 high of 19. But its neighbor to the west, Alabama, which had been holding steady for years at 4, more than doubled this year to 9, thanks to the rise of Huntsville and Birmingham as technology centers. Maryland pressed its upward march, from 12 two years ago and 16 last year to 19 this year. Meanwhile, Virginia took a nosedive and produced only 25, compared with 35 companies last year. Texas beat a sorry retreat with only 25 companies this year, down from 32 last year and 2 less than the 27 it counted in 1987, marking the bottom of the bust.

In the Northeast, only Massachusetts and New Jersey betrayed signs of an entrepreneurial revival. In its jump to 33 companies this year, Massachusetts increased its Inc. 500 ranks a whopping 50% in a single year. New Jersey continued its steady five-year climb, from 17 in 1989 to 21 in 1994. Pennsylvania tanked. After bounding up, it fell from 19 last year to 14 this year. Five years ago it boasted 23. New York fell by one to 24, continuing a bumpy five-year slide from 34.

In the relatively torpid Midwest, bright spots in Illinois, which nearly doubled its force from 12 last year to 23 companies this year, and Missouri, which jumped from 7 last year to 11 this year, helped offset sharp declines in Indiana and Michigan, the latter of which lost a third of its roster in one year and posted only 15 companies this year. And North Dakota continued its long sleep.

Based on the number of Inc. 500 companies per capita, the District of Columbia, Virginia, and Massachusetts led the pack, accounting for more than 60 companies among them. Slumping Indiana, sparsely populated Oregon and Nevada, as well as the usual laggards (Louisiana, Arkansas, West Virginia, and South Carolina), brought up the rear. Mississippi, Hawaii, Alaska, Wyoming, and North Dakota produced none.

The Cities
The perils of life in the city -- high costs, high crime, high tax rates -- have made urban entrepreneurship distinctly unfashionable. Consider the fate of New York City: five years ago it counted 13 Inc. 500 companies as its own. This year it claims only 8. In 1989 there were 7 Chicago-based growth companies on our list. This year: 3. Five years ago Los Angeles had 6, but for 1994 it shows only 5. The heart of a Gotham, it appears, is hardly the place to grow an Inc. 500 company. An exception is San Francisco, the only city with a population of more than half a million that has continued to be a popular habitat for growth companies. There are 8 Inc. 500 companies headquartered within San Francisco's city limits this year, the same number as in New York City, which has more than 10 times the population.

This year's growth companies are more likely to be doing business from a safe and affordable suburb or an emerging edge city than from the center of a metropolis. Don't pronounce downtown dead, however. Smaller cities and Southern cities of all sizes are alive with fast-growing upstarts, who don't mind hanging their shingles in the center city if the local economy (and the climate) is hot enough. Scan the list and you'll note a preponderance of companies with downtown addresses located in cities with fewer than half a million people. Six of the top 10 cities for growing Inc. 500 companies (on a per capita basis) are in the South.