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Not only is it the best time to build an Inc. 500 company--it's also the hardest

The scene remains fresh in Dave Snyder's mind. Sitting before him was a fellow ostensibly eager to acquire the fast-growing consultancy Snyder had founded, and the man's first line of inquiry was this: "Tell me about your inventory." "My... inventory?" Snyder repeated. "Yeah," the would-be buyer responded. "Your people." As of that moment, in Snyder's mind, any chance of an actual deal was obliterated. "I built a very strong company, with good people at the top, and I didn't want them to be treated like pieces of meat," says the 46-year-old entrepreneur.

And, anyway, another suitor would surely come along. Or so it seemed during the 18 months that preceded Snyder's decision to sell Realogic Inc. (#392), his $23-million systems-integration firm, last August. (To qualify for an Inc. 500 ranking, companies must have been privately held and independent through the end of fiscal 1997.) "There are a lot of people out there trying a lot of angles," warns Snyder, who claims he routinely fielded at least one call a week from a would-be acquirer or investor. Even with all the potential partners, he says, in the end "I never dreamed I would sell the business for anywhere near what we sold it for."

Snyder may sound like a braggart, but he's well aware that he's at least partly a beneficiary of circumstance. "We won the Lotto," he says. Quite simply, the Dow's unprecedented eight-year boom has presented the CEOs of America's fastest-growing private companies with a dazzling, if bewildering, array of options for treating their chronic cases of cash starvation. Big companies, even in the face of volatility, have money to spend. "Wonderful growth is a cash eater," notes Barney Adams, founder and CEO of golf-club manufacturer Adams Golf (#5), which went public in July. "We wanted to be in a position to take advantage of opportunities."

Well, what CEO wouldn't want that? Problem is, not every fast-growing company is as ready to play a prime-time part in the drama of high finance as its CEO might think. And founders themselves, eager to seize the opportunity to sweep some of their chips off the table, can find themselves realizing only at the umpteenth hour--after finally calculating the sum they'll really net out, after taxes and closing fees--that the deal that has so consumed them isn't remotely worth their while. "There's such a thirst out there for companies that supply some solid assets that it becomes real important for CEOs and boards to maintain a strong vision of what they are trying to accomplish," says David Giuliani, cofounder of Optiva Corp. (#81), a sonic-toothbrush maker that plans to go public before year's end. He describes the atmosphere as a kind of "mania."

That it is. Multibillion-dollar companies, their pockets stuffed with Wall Street's abundantly generous valuations, have become publicly traded prowlers, eager to snap up fast-growing companies of all types. In fragmented industries, the deal-making drumbeat rarely lets up. "Every week there are two companies in our industry having a conversation," reports Randall Hawks. "All that talk leaves everybody trying to figure out whether they should lead or follow." Hawks served as president of Wheb Systems Inc. (#154) until August, when the forms-processing company merged with a nearly same-sized rival, FormWare Corp., to create Captiva Software Corp. "A capital-available environment encourages this kind of activity," adds Jim Woodruff, a Wheb cofounder. "If the environment was not what it is today, our timing might have been different."

Still, it's hard for any CEO at the center of so much sudden popularity not to feel pressured by the environment to, well, do something. That may mean at least undertaking enough due diligence to ascertain whether your would-be partner's claims of obvious "synergies" amount to anything.

Even that step, as noncommittal as it sounds, can have repercussions. "When you are not a cast of thousands, it can be distracting," warns Woodruff. "If you have a weak team behind you, you can be sucked into a lengthy due-diligence process, which can be a problem." And not just the CEO's problem, either. The more deeply a deal gets explored, the more widely the company gets involved, with the sales team, the engineering function, and the accounting department all doing their bit to test how the pieces might fit together. "We can't even spend too much time talking about these things," notes Jackson Lan, CEO of retailer PC Club (#108). "It's tempting, but I know that if I keep focused, I will do a pretty good job."

Dave Snyder likes to think he did a pretty good job too, selling Realogic to Computer Associates International Inc., the software giant, in an all-cash transaction. "We'll be able to grow three times faster than we would have grown otherwise," predicts Snyder, who is still running the company. Still, having spent 50% of his time over 18 months talking to venture capitalists (8), potential suitors (10), and investment bankers (15)--as opposed to, as he says, "running the damn business"--he's well aware that the company paid a price for his absence. "What suffered was some of the employee and customer interaction I had in the past," he admits. "I got a couple of calls from customers who thought I was on some sort of hiatus. And some employees expressed frustration that they couldn't get to me as easily as they could in the past." Not that he feels he should have acted much differently. "With all the options that were presenting themselves," he says, "I felt an obligation to get really involved."

That attitude surely unites the CEOs of this year's Inc. 500, our 17th annual ranking of the country's fastest-growing private companies. No, they aren't all angling to sell out. "I want to build something here, and I think I'm pretty lucky to be able to do that," says Lan. But their ability to think strategically--even in the most overheated of atmospheres--may be inherited from some members of last year's Inc. 500, based on reporter Mike Hofman's roundup of how a handful of those deal makers have fared. In tracking them down, Hofman was impressed by the finesse that those CEOs had applied to plotting out their future growth plans. "They weren't casual about their decisions," says Hofman. "With few exceptions, they took a very sophisticated look at what they were going to do." His assessment--" The Year of Dealing Dangerously."

Of course, there's a more novel way to coexist with the surrounding chaos: mimic it. Telecommunications provider Justice Technology Corp. (#1) has charted its staggering growth rate--nearly 27,000% over the past five years--by hewing to the simple-sounding organizational principle of keeping its options open. "The only definite for them is that they like to take risks," says contributor David H. Freedman. "But that gets harder, now that they have more to lose." Freedman's profile of America's fastest-growing private company is " Chaos Theory."

As aware of potential exit strategies as they may have to be, the vast majority of Inc. 500 founders aren't going anywhere. It's hard to imagine Richard Tuck, CEO of Lander International (#290), accepting a visit from a Wall Street big shot in the same place where he often interviews job candidates: a "fun house" within his home that draws hundreds of visitors a year. And anyway, "he's having too much fun doing it the way he wants to do it," explains writer Samuel Fromartz's portrait of Lander is " The Right Staff."

That timeless sentiment, shared by company builders of all types, is one that we hope shines through on every page of this very special Inc. 500 issue.