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STRATEGY

Growth Happens

A senior Inc. writer learns that many Inc. 500 company owners would have never guess their firms would grow so fast.
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Inc.500

What's the surest path to earning a spot on the Inc. 500? For an astounding number of companies, the answer boils down to this: make other plans

Within a year of its founding in 1982, Compaq Computer posted revenues of $111 million--a record for a start-up. In 1995 Inc. 500 company Telegroup Inc., within six years of its founding in 1989, posted revenues of $129 million--nowhere near a record, but at its core a far more spectacular performance. While Compaq's growth was executed by a phalanx of tough and seasoned executives who followed a detailed script and spent wads of investment capital, Telegroup's growth wasn't planned at all; in fact, it wasn't even wished for. "My intention was to do this business to support my family while I decided what to do with the rest of my life," reports Telegroup founder Fred Gratzon, who, besides having started without any sort of plan, also was dead broke at the time.

He's now at $129 million, and he hadn't wanted to grow? Right. And thus Gratzon's example calls into question (or should that be smashes?) the accepted belief that Inc. 500 growth companies are different from yours and mine--that they feel different to operate, require different talents, change their founders' lives in different ways, and most of all, result only from the obsessive, conscious pursuit of growth above all else. The founders of Inc. 500 companies--we assumed--must from the very start have intended to jump onto the fast track; otherwise, how could they make a list composed of such super-fast-growing companies? Indeed, they must have drawn up plans to grow, responded well to each phase of growth, and through it all, been willing to pay a personal price for making all that extra money.

Or so we continued to assume until, in the 15th year of the Inc. 500, our annual questionnaire offhandedly inquired about entrepreneurial vision, asking company founders to reveal whether their original ambition had been to "just survive" (now, what pessimist would pick that?), to stay small, to grow slowly, to grow fast, or to "grow fast enough to make the Inc. 500." The returns uncovered not one or a dozen Fred Gratzons, but 175 of them--35% of the entire list--declaring their wishes for slow and slower growth. Moreover, a startling 13% of the 500 fastest-growing private companies in America initially chose not to grow at all.

So how did they make Inc.'s list? That more than a third of Inc. 500 companies did not aspire to grow fast--or at all--disproves the theory that supergrowth has to be premeditated. Do the experiences of these accidental empire builders challenge other conventional wisdom about growth? To find out, Inc. polled all 175 founders who acknowledged early ambitions of slow to no growth. Their responses (for complete survey results, see below), along with further testimony in follow-up interviews, suggest that more than a few assumptions about growth--about what it takes to achieve it, what it's like when you're experiencing it, and what personal consequences it brings--might be wrong.

FALSE ASSUMPTION 1
To Grow, You Have to Want To

A leading candidate to rewrite the rule that fast growth requires deliberate intent is A. Robert Moog, who cofounded University Games (#494), in Burlingame, Calif., in 1985. For Moog, devising a company was a university game in itself. Fresh out of the Stanford Graduate School of Business, where he "received training that did more harm than good," he figured that operating at unambitious levels was one way to "learn how to run a bigger business by first doing this little business." He and a partner intended to sell the business as a going concern after three years and apply the return to creating a second business--this time in earnest. There was no point in aspiring to anything beyond mere survival, since the two partners were purposely setting out not to make as much money as possible. When their first product--a game called Murder Mystery Party--unexpectedly became a national hit and the founders ran into production problems, Moog extended the company's bailout deadline. "It will require four years to learn what the hell we're doing," he concluded. In 1996, the company's 11th year, University Games grossed $30 million.

Even less driven in terms of business growth was George Copeland, a fiscal neophyte who was dismayed to find himself in Kansas after a big-company reshuffling. So he returned to the East Coast to become the master of his own fate. Since 40% of the 1996 Inc. 500 founders started their own businesses for just that reason, his would be a typical tale--except that Copeland had no idea what endeavor he'd boss himself around in. By chance, an acquaintance in a printing company offered him a year's use of 500 square feet "to do something" in. Copeland founded digital printer Atlantic Documentation Centers (#350) in 1990 in Durham, N.C. Today he's the master of more than 20,000 square feet of his own.

FALSE ASSUMPTION 2
You Won't Grow Without Business Know-How

Of the 175 unintentional growers surveyed, a whopping 32 explained that they originally hadn't hoped for much because of a lack of "business know-how." By accepted standards, an entrepreneur is someone who both understands basic enterprise and enthusiastically pursues it.

Neither of those criteria applied to Michael Ansara, who reluctantly "inherited" Share Group (#433), in West Somerville, Mass., in 1988. A career political activist with no business experience, Ansara became the proud owner of the failing telemarketing-services provider when its founders defaulted on the $600,000 loan he had guaranteed two years before. "I was not planning to be in business," he says, "and if I had been planning, telemarketing is not what I would have chosen." Share Group's revenues for 1997 will be about $25 million, up from $9.5 million in 1995.

Another accidental entrepreneur is Telegroup's Gratzon, who, down and out after losing his job in 1989, parlayed a way to make a toll call on the cheap into one of the largest long-distance telephone companies in the world. Telegroup (#151 in 1996, #2 in 1995), in Fairfield, Iowa, boasts 440 employees and $210 million in 1996 revenues, but it might never have existed if Gratzon hadn't first--as a way of reducing his own telephone bills--tapped into package deals offered by AT&T.

FALSE ASSUMPTION 3
If You're a Growth Company, You Know It

If you don't realize you're a fast grower, how can you be ready to meet growth's rigorous demands? Exactly 50% of the founders had the answer, although they didn't know it: they just kept their nose to the grindstone and growth took care of itself. "There was so much effort focused on what was yet to be done that we never reached a time when we stopped and realized we were no longer in the 'just survive' category," says Martin Babinec, who founded TriNet Employer Group (#79 in 1996, #12 in 1995), in San Leandro, Calif., in 1988. "Those first years were a fight for survival. We were so woefully undercapitalized that keeping the business afloat was the only objective. My focus was not about dreaming of getting big or strategizing how to stay small. I only wanted to make enough to pay the bills and remain in business." In 1996 TriNet grossed $120 million.

Others endorse that attitude. "I figured that since I was busy, business must be good. It never occurred to me until we made the Inc. 500 precisely how busy we were," says one preoccupied founder. Recalls another: "We'd always compare ourselves to our competitors on the product side but not on the company side. We never asked, 'Are we growing at the same rate as somebody else?' or 'Do we have as many people as somebody else?" Notes a third: "We didn't start out saying, 'We want to grow by leaps and bounds.' Things happened so fast that we didn't realize that other people perceived us as a fast grower. We were more concerned with taking care of business than with people's perception of us."

"The easiest way to accumulate wealth is to run your own outfit" is a tenet oilman John D. Rockefeller might have uttered a century ago. Those words, however, came from Daniel W. Hunt. In 1991 he left a paid position to start Asphalt Specialties (#367), in Henderson, Colo., intending "to be able to do what I wanted without having to worry about where the next mortgage payment was coming from. I was going to remain a little company; my goal was to get to $3 million a year, do that for maybe 20 years, make a comfortable living, and put enough away to retire on." Renting equipment as needed, Hunt advised his five-person crew, "If we're going to grow at all, this is how--pretty darn slowly." Then Denver started to boom. As big highway projects went begging, Hunt's resolve faded. He borrowed money and bought his own machinery. Two years later, he remembers, "I was out on a project, and I looked at everything going on--we had blades and loaders doing dirt, and paving behind that, and I thought, 'This is just like a real company!" Some 50 employees helped the company post revenues of about $8 million in 1996.

FALSE ASSUMPTION 4
Once You Start Growing Fast, You Have to Bring in Expert Management

Ask a venture capitalist what he or she brings to the table (besides capital), and you'll always get the same response: expertise. The thesis is that left to their own devices to grow a company, entrepreneurs are bound to get it wrong. Our 175 founders soundly contradict that conceit: only 10% of them chose "experienced management" as the first thing they needed to respond to fast growth. Road builder Jerry Banicki started J. Banicki Construction (#156), in Tempe, Ariz., in 1990 and runs it himself, because finding someone better proved not so easy. "You can't just go out on the street and hire a manager," he laments. "They have to be trained, they have to come up to your standards. We tried it, and it didn't work all that well." No great loss: the company booked $8 million in business in 1996.

FALSE ASSUMPTION 5
You Won't Grow If Growth Doesn't Matter to You

This supposition isn't even close. Nearly one-quarter of slow-growth-minded founders ignored growth as an absolute, explaining that they "didn't consider 'growth' a relevant concept." Despite Steven Munroe's indifference to free enterprise's ideal, Triumph Technologies (#249 in 1996, #271 in 1995), the Burlington, Mass., company he founded in 1988, was one of the few companies that improved their standing in successive years on the Inc. 500--a difficult feat, whatever your ambitions. As to why he grew that fast, Munroe recapitulates: "For the first three years I was literally in a survival mode. We were lean, lean, lean in terms of money and time. We didn't begin with some aspiration that in four years we'd get to x and achieve y. It was 'Let's do something and see what happens.' I drew up a business plan at the beginning but only to try to get a line of credit. It was pretty comical, actually."

Fired from a position at a consulting firm, Rick Shangraw tapped four charge cards in 1991 to start Project Performance Corp. (#272), the environmental-management firm he hid away in a Sterling, Va., basement. The idea was to "ride out the year" until he could accept a college faculty position for some real money. Shangraw never made it to the ivory tower. By the time fall came, he had eight people working for him. "I had assumed I was going to stay a one-person firm," he says, "another of the thousands out there doing stuff on the side. Within six months it became clear that there was a market, that there were clients, and that I had the ability to build something."

FALSE ASSUMPTION 6
Fast Growers Always Have a Formal Plan

Steven Munroe wasn't the only fast grower to get a chuckle out of his preliminary miscalculations. Many founders didn't bother to calculate at all. (Twenty-six percent of the CEOs did no financial projections.) Says Igal Lichtman, who founded software company Magic Solutions (#238), in Paramus, N.J., in 1987, "We didn't know how to run the business, so we decided that after we started we'd learn what it was going to take. We went where the market took us."

FALSE ASSUMPTION 7
Your Family Gets Shortchanged When You Grow

With 80-hour workweeks and immersion in nonstop problems, growth-company entrepreneurs should expect their work to cut into life outside the office--if they have one at all. Yet only 2% of respondents reported that their personal lives had worsened as a result of sudden growth. In far greater numbers, founders said their personal relationships measurably improved. James Kelly is just one founder who's enjoying the growth-altered good life. When Syscom Services (#99), the communications-software and services reseller Kelly founded in 1988 in Silver Spring, Md., took off, he moved himself and his wife to the ski slopes of Fort Collins, Colo. He runs the company, still located in Maryland, from that home base.

In 1987 John Cummuta left a corporate job to start publisher Financial Independence Network (#295), in Chicago. "I wanted a business that wasn't location-sensitive, so I couldn't be forced to live someplace I didn't want to." Eight years later he moved the company to rural Boscobel, Wis., "because it's where I'd always wanted to live." The climate suits not only Cummuta and his company--revenues for 1996 were about $20 million, a fivefold increase over 1995--but also Cummuta's relatives. There are no fewer than 15 family members among his 100 or so employees. Likewise, Carl Amari's family benefited from the growth of Radio Spirits (#278), the mail-order and retail company he incorporated in 1989 in Buffalo Grove, Ill. With company revenues closing in on $5 million for 1996--a 60% surge from 1995--Amari bought his parents a home in Florida and treated his family to "a nicer house in a nicer community." When his brother needed a job, Amari hired him as warehouse manager, paying him more than he'd made before.

FALSE ASSUMPTION 8
Big Business Is a Good Training Ground for Small-Business Growth

Rodney Martin founded HCI Technologies (#259) in 1985, although he didn't own it at the time: he started it for the $5-billion company he was then working for. He acquired the Reston, Va., telecommunications-systems developer in 1987 through a leveraged buyout. But he didn't find the path to fast growth for four years. The problem: "Before, when I had $500,000 to spend every year, I paid cash for everything. Suddenly, a simple thing, like how to buy a PC, was a big decision--should I lease it or borrow from the bank for it?" Problem solving on a smaller scale was one challenge for Martin. There was at least one other: "We don't have many secretaries. We have to do everything ourselves."

Ironically, Martin's anecdote about scale may provide a clue to understanding the misunderstandings about the effects of growth. Scale affects the way a business can be managed, all right. The resources available to managers of a 5,000-employee corporation are different from those available to a business owner with a payroll of 5--but then again, so are the resources available to the manager of a growth company employing 50 (or 250). For one thing, when companies grow, their founders no longer face the challenge, as Martin did, of having "to do everything ourselves."

But that's just a specific example of the more general finding that because growth brings resources, it creates options and flexibility. By far the biggest reason our accidental hypergrowers intended to avoid swift expansion was their "desire to keep control"--over their companies, over their jobs, and over their lives. But their experiences suggest that it is growth itself, not avoidance of it, that has enabled them to achieve their aim. Growth-company owners are more likely than the proprietors of nongrowing companies to be able to choose their own roles (since they can hire help to do the jobs they vacate) and provide for their families (going so far as to furnish its members with paychecks), and maybe even reinvent their home lives (by relocating to wherever they want to be). With growth comes the wherewithal to make choices--and as our survey respondents kept intimating, isn't that what control is about?

Note: Rankings for all companies are from the 1996 Inc. 500 list, unless otherwise specified.

We Didn't Mean It
A survey of Inc. 500 CEOs who started with slow-growth ambitions

Interviews with CEOs on the current Inc. 500 list yielded an eye-opening discovery: more than a third of them never intended to grow fast in the first place. When we asked about their original ambitions for their companies, they replied as follows:

  • 10% To just survive
  • 3% To stay small
  • 22% To grow slowly
  • 45% To grow fast
  • 20% To grow fast enough to make the Inc. 500

To ensure that we weren't misreading those rather broad findings, this past January we polled the 175 company builders who described their founding ambitions as no greater than "to grow slowly." Their responses were all the more stunning:*

Reasons the company's original ambition was no growth or slow growth (respondents were allowed to choose three):

  • 54% Founder lacked capital
  • 18% Founder lacked business know-how
  • 44% Founder had a desire to keep control
  • 20% Founder underestimated market demand
  • 20% Founder faced uncertain economic climate at the time
  • 6% Founder didn't intend to work as hard as growing fast entails
  • 10% Company's product or service was too new
  • 32% Founder felt fear or caution
  • 23% Founder just didn't consider "growth" a relevant concept
  • 17% Other

The perception of the company as a "fast grower" by outsiders came as a surprise:

  • 50% Yes
  • 50% No

The company's earliest spreadsheet projections were--

  • 41% Understated
  • 22% Accurate
  • 11% Overstated
  • 26% Nonexistent

From its inception, the company's fastest growth took place--

  • 21% Right out of the gate
  • 37% Within two to four years
  • 35% After five or more years
  • 7% At the same rate throughout

When fast growth struck, the company was--

  • 13% Caught unprepared
  • 67% Starting to gear up
  • 21% Fully prepared

In response to the fast-growth stage, the company's first need was for--

  • 27% More money
  • 33% More employees
  • 7% More space
  • 10% Experienced management
  • 21% Better operating structure and internal procedures
  • 3% Sound advice

The most difficult aspect of growing fast enough to reach the Inc. 500 was--

  • 47% Learning to administrate
  • 28% Giving up control
  • 21% Being responsible for people
  • 4% Other

The company turned out as I envisioned it:

  • 48% Yes
  • 52% Not even close

From its founding to today, the company's culture has--

  • 16% Changed radically
  • 72% Changed a bit
  • 12% Not changed at all

As a result of faster growth than I expected, my personal life has--

  • 18% Improved within my family
  • 35% Improved materially
  • 52% Become more complicated
  • 2% Turned for the worse
  • 11% Not been affected

My intention for starting the company was to--

  • 17% Make a lot of money
  • 40% Be my own boss
  • 12% Leave a job or recover from being terminated from a job
  • 23% Prove to myself I could do it
  • 5% Change the world for the better
  • 4% Other

*Some categories total more than 100% because of multiple responses or rounding.

Robert A. Mamis is a senior writer at Inc.


Resources:

ASPHALT SPECIALTIES, Daniel Hunt, 9113 Quince St., Henderson, CO 80640; 303-289-8555

ATLANTIC DOCUMENTATION CENTERS, George Copeland, P.O. Box 143111, Research Triangle Park, NC 27709; 919-544-4633

FINANCIAL INDEPENDENCE NETWORK, John Cummuta, 310 Second St., Boscobel, WI 53805; 608-375-3301

HCI TECHNOLOGIES, Rodney Martin, 11419 Sunset Hills Rd., Suite 300, Reston, VA 20190-5207; 703-736-3000

SHARE GROUP, Michael Ansara, 58 Day St., Somerville, MA 02144; 617-629-4555

TELEGROUP, Fred Gratzon, 2098 Nutmeg Ave., Fairfield, IA 52556; 515-472-5000

SYSCOM SERVICES, James Kelly, 1010 Wayne Ave., Suite 320, Silver Spring, MD 20910; 970-490-2216

TRINET EMPLOYER GROUP, Martin Babinec, 101 Callon Ave., San Leandro, CA 94577; 510-352-5000

TRIUMPH TECHNOLOGIES, Steven Munroe, 3 New England Executive Park, Burlington, MA 01803; 617-273-0073

UNIVERSITY GAMES, Robert Moog, 1633 Adrian Rd., Burlingame, CA 94010; 415-692-2500

J. BANICKI CONSTRUCTION, Jerry Banicki, 203 S. Smith, Suite 101, Tempe, AZ 95281; 888-921-8016

MAGIC SOLUTIONS, Igal Lichtman, 10 Forest Ave., Paramus, NJ 07652; 201-587-1515

PROJECT PERFORMANCE CORP., Rick Shangraw, 46030 Manekin Plaza, Suite 180, Sterling, VA 20166-6518; 703-406-8971

RADIO SPIRITS, Carl Amari, 1609 Barclay Blvd., Buffalo Grove, IL 60089; 847-465-8245




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