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Follow the Numbers

What the characteristics of the Inc. 500 reveal about trends in the national economy.
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Almanac: Analysis

Follow the Numbers

What the characteristics of the 2000 Inc. 500, Inc.'s list of the fastest-growing privately held U.S. companies, reveal about trends in the national economy

Looking at the Inc. 500 list is a great way to get perspective on growth patterns in the economy. Forget the fashions of Wall Street; these companies reflect the tastes of customers.

That's not to say the list is an equal-opportunity representation of the economy as a whole. Far from it. If, say, the companies on this year's list were suddenly all relocated to your hometown, it would become a very weird place. You could buy E-business services and IT consulting galore -- but just try to find a hardware store or a dry cleaner.

That's because one of the easiest ways to grow a company is to find a market that's just starting to boom and start a business in it -- in fact, that's what many Inc. 500 founders do. The 2000 list, as a result, is heavily weighted toward growth sectors.

It's also a bastion of grassroots entrepreneurship. Only 4% of the companies on the list began with venture backing. The vast majority of company founders, of course, don't have much of a chance of getting venture capital for their start-ups. The world of VC funding is still much more open to certain types of CEOs in certain types of industries; only about 4,000 companies in the entire country got venture capital last year.

The companies on the Inc. 500 list often start small and scrappy, when a founder or founders spot a niche that must be served. Sooner or later, the companies take off during a period of intense growth. Those companies are more than just market-driven; they're market-fueled.

Each year we look forward to "listening" to the list, studying the patterns that emerge from it and what those patterns can tell us about our changing economy and its hot spots. Here are some things we've heard:

It's the year of the other Internet company

This is the year the Internet hit the 500, big-time. One indicator? Of the 500 companies, 64, or 12.8%, used the word Internet, E-commerce, Web, E-business, E-something, .com, .net, or on-line either in their name or in the brief description we publish of what their companies do.

That's more than a twofold increase from 1999, when there were 31 (6.2%) such companies, and a dramatic increase from 1998, when there were only 9 (1.8%). Last year our list included two dot-coms and one dot-net; this year it contains 10 dot-coms and 2 dot-nets.

These are not, however, the fly-by-night dot-com start-ups you heard so much about in the general press last year -- and this year, as some of them ran out of capital. The Internet-related companies on our list tend to be of a somewhat different breed. They're companies that didn't go public when they were raw start-ups and that were still private at the end of 1999 and growing very fast. These companies have business models that work at least well enough to bring in dramatic sales growth. And many are making money: for example, of the 12 dot-coms or dot-nets on the 2000 Inc. 500 list, two-thirds were profitable in 1999.

These Inc. 500 companies often supply growth markets

Some of the 64 explicitly Internet-related companies on this year's list are following a time-honored tactic of entrepreneurs with growing, young privately held companies: they're supplying emerging growth markets rather than participating directly in them. A classic example of this type of business model is TechBooks (#173), which started out in technical publishing. Today, the company, which had more than $20 million in 1999 sales, processes content for large publishers who want Internet-ready versions of their work.

TechBooks isn't alone in growing by addressing other businesses' Internet needs. Scan the list and, in the top 50 alone, you'll see companies offering E-business services (ePartners, #3), E-business consulting (Meritage Technologies, #15), and Internet consulting services (Thaumaturgix, #41).

Look a little further and you'll see companies profiting from the general rush -- among consumers as well as businesses -- to get on-line. Logical Net (#47) sells Internet access not only to businesses, but also, through its Capital.NET subsidiary, to consumers. Meanwhile, Deerfield.com (#116) sells software designed to help both home and business users make the most of their Internet connections. The model of supplying growth markets isn't limited to the Internet companies on the list. InfoNXX (#334) supplies the growing wireless-phone industry with directory-assistance services, while Cytomation's (#371) flagship biotech-instrumentation product was developed for use in the Human Genome Project.

And those growth markets need information-technology professionals

You knew that, of course. The Inc. 500 list reflects the tight IT-labor market with a vengeance. A substantial fraction of the companies on this year's list are in the business of providing IT talent for rent -- whether in the form of E-business services, IT consulting, IT staffing, or some similar service that forms all or part of their business model.

These companies' growth market? Your IT recruiting and retention headaches. This year, about one in 5 companies on the list could be described as being in the business of supplying IT talent -- offering consulting, staffing, or IT services. A decade ago, that number was closer to one in 16. Another sign of the labor-hungry times? The Hamel Group (#456) has found a fast-growing market in employment-marketing and recruitment-advertising services.

It's all about technology

In the 19 years we've been compiling the Inc. 500, we may never have had a list that was as technology-intensive as this one. The tech bias is a result of partly the Internet, partly the general growth in the IT sectors of the economy, and partly the appearance of other new technologies. This year's list includes companies, such as PrairieComm (#25), that are involved in the rapidly growing wireless industry, as well as some, like MasterMind Technologies (#354), whose products and services involve computer and Internet telephony, or the integration of computer and telecom systems.

The list of technologies used by the companies on the list seems almost endless: Lifecodes (#348) provides DNA testing while PowerLight (#186) sells solar-electric products. Even in seemingly nontech markets some Inc. 500 companies are using patented technical innovations: both Pro-Tech Welding and Fabrication (#185), which manufactures snow-removal equipment, and Aquascape Designs (#91), which makes kits for building ponds, boast of patented technologies on their Web sites.

From start-up to globalization: That's the 2000 Inc. 500

The technical savvy of many companies on this year's Inc. 500 is just one aspect of the high level of sophistication exhibited by many of today's Inc. 500 companies. A number of them already have an international presence; Program Planning Professionals (#48), for example, reports that it has offices in the United States, the United Kingdom, Hong Kong, Germany, Australia, Mexico, and Brazil.

This year's Inc. 500 companies offer some heartening messages about entrepreneurial opportunity. Today they are hot young growth companies -- but members of the class of 2000 didn't necessarily start out that way. In fact, one of the more noticeable statistics is their low start-up capital: 58% started with $20,000 or less. That compares with 49% of the companies on last year's list starting with $20,000 or less.

It's hard to say for sure why this year's class had so many companies starting with relatively little money -- but the answer may be another effect of the Internet revolution. As a transforming technology enters the marketplace, it creates new entrepreneurial opportunities. And those opportunities belong to the savvy -- well-heeled or not. To study this year's Inc. 500 is to be reminded once again of what the spirit of entrepreneurship is all about -- the ability to create value from scratch.

Martha E. Mangelsdorf is a senior editorial producer at inc.com.

In the spirit of the Internet-savvy class of 2000, the information about the companies used in this story comes from their Web sites or from the Inc. 500 list itself.


Please e-mail your comments to editors@inc.com.

To learn more about the Inc. 500, visit the Inc. 500 area.

Last updated: Oct 15, 2000




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