The Class of 1989: Where Are They Now?

If you have any doubts about the volatility of fast-growing companies in the new economy, take a look at some of the experiences of the Inc. 500 class of '89

The companies of the class of 1989 are at least 10 years old now. Some have been slammed by the recession, while others have faced showdowns with deep-pocketed competitors. Some have gone bankrupt, while others have topped $100 million in revenues. Some CEOs have sold out and moved to Florida. Others are still plugging away, selling the same product in the same market at the same price. Almost anything that can happen in business has happened to the Class of '89.

Many of those companies have grown up. No longer does the president return the calls; that task has been delegated to corporate-communications professionals. Many CEOs have exit plans in place -- if they haven't sold out already.

Taking a peek at how some companies on the list have fared gives this year's winners a glimpse of the challenges they'll face in the future. If present trends continue, the stakes will be higher and the competition even hotter in the years to come.

Almost Curtains for #336
In business, timing is everything. Unfortunately for Rue de France (#336), and for many other mail-order companies on the list, the timing of the 1991 Gulf War couldn't have been worse. Competition was heating up in the mail-order business as more and more companies chased fewer discretionary dollars. Says CEO Pamela Kelley, "What kind of person can think about ordering curtains when we don't know if we're going to war? The country was transfixed in front of its television sets." It was a money-losing year for Rue de France.

The company, which sells French-lace curtains, had just mailed 300,000 copies of its catalog in January 1991 when it was hit by a triple whammy: the Gulf War struck, postal rates were jacked up, and the franc-to-dollar exchange rate made imports expensive. That's when Kelley's new banker (her original bank had been sold) paid a visit to renegotiate her loan. "They wanted more collateral for the loan," says Kelley, "since my house, which had collateralized the loan, had dropped in value."

Kelley ponied up a portion of her stock portfolio, then went to work trimming the lace from her operations; she closed one retail store, and that plus attrition decreased her staff by 30%. She also forged an alliance with a French bedding manufacturer to defray catalog costs. Rue de France is expected to do nearly $5 million in revenues in 1994 -- up from $2.6 million in 1988 (the fifth revenue year for the Class of '89) -- and is back in the black.

Now bankers are calling Kelley. "They say to me, 'I will be a relationship banker,' and I say, 'I don't think so. We haven't had good relationships with bankers.' I like being debt free."

Dancing with Giants
Sometimes academics know what they're talking about. Take the case of Carts of Colorado (#431). The designer and maker of mobile kiosks and pushcarts is bringing to life the theme of Harvard professor Rosabeth Moss Kanter's 1989 hit management-theory book, When Giants Learn to Dance. PepsiCo purchased 49% of the Denver-based company from the Gallery family in early 1992. The corporate giant invested in Carts of Colorado, then with $10 million in sales, to fuel its rollout of the souped-up Pizza Hut, Taco Bell, and Kentucky Fried Chicken pushcart stands we see in airports and malls today. (All three restaurants are PepsiCo subsidiaries.) But that's not all. According to president and CEO Stanley Gallery, PepsiCo also hopes to cure its case of "big company-itis." The strategic alliance includes a clause that requires Gallery to share his knowledge of and experience in "mobile merchandising units" with PepsiCo subsidiary managers. The hope is that those managers will learn to be more entrepreneurially minded.

Gallery says that in 1993 sales to PepsiCo accounted for 38% of his company's business. PepsiCo has the option to buy the remaining 51% of stock in 1998.

My Company, Myself
Princeton Review (#263) has been growing up with its customers. In 1981, at the age of 21, John Katzman founded the company to prep students for SATs and graduate-school tests. Inc. reported how Katzman and his staff would order pizza at midnight and pull all-nighters to keep up with their workload.

By 1992 Princeton Review had hatched about 65 offices around the country and abroad and was offering classes for most standardized tests. Fishing for growth strategies, Katzman again turned to his own generation's need for pointers and hit upon the idea of a support group for people recently out of college and struggling to get settled -- something similar to the American Association of Retired Persons.

While the discount network, called Student Access, isn't as ambitious as Katzman originally envisioned, the market research used to get it up and running created a host of additional products, including a series of 35 how-to books and guides (for example, How to Survive Without Your Parents' Money). Katzman reports that a million books were sold through Random House in 1993. To date, Princeton Review's revenues have climbed to $20 million, from $2.6 million in 1988.

The High Price of Excellence
American Rug Craftsmen (ARC) reached #237 by being a technological leader in rug and doormat manufacturing. By offering quick turnaround and unique products, such as contemporary-design area rugs, to the mass market, it earned sales of $15 million by 1988. Since then, things have just gotten better. In 1991 and 1993 the company was named Wal-Mart's Vendor of the Year, and it received the same honor in 1993 from J.C. Penney. The company's edge? Its competitive pricing and its on-time shipment rate, according to company spokesperson John Azzolino.

In 1993 ARC founder and CEO John Thornton switched gears from selling rugs to selling equity. "Revenues were hovering at $43 million, and the company needed a cash infusion to maintain a growth rate of 40%," says Azzolino. Thornton considered going public but decided the hassles weren't worth it. He chose instead to court $1.4-billion carpet and rug manufacturer Mohawk Industries, based in Atlanta. In May 1993 the two inked a deal. Mohawk bought the company for $20 million, with a proviso to toss in another $15 million if ARC met certain earnings goals. It did, and the earnout was paid in June 1994. Mohawk also gave ARC an $18-million cash infusion to build more plants and pursue new technologies. ARC has since tripled its plant capacity, to 810,000 square feet, and forecasts 1994 sales in the $85-million-to-$90-million range, up from $63 million in 1993.

Working for a big company doesn't appear to faze Thornton. After all, he started ARC after leaving his job as national sales manager for a big rug company; at the time, the company wouldn't take the risk of manufacturing the items he reported mass merchandisers were demanding. Mohawk ultimately paid big bucks for that sales manager's advice.

If It Ain't Broke
Peppering the 1989 Inc. 500 list were 58 companies that had gotten in on the gold rush to equip the nation's businesses with computers. CompuAdd (#104) had achieved sales of $240 million in 1988 by selling via mail order, a channel whose use the company had pioneered in 1982. But by 1990 that distribution channel was becoming saturated by the competition, not the least of which was Dell Computer, just down the road from CompuAdd in Austin.