The economy may be on one long roller-coaster ride, but you would never know it by looking at the data on this year's Inc 500. Collectively, the class of 2001 coasted to a new record for sales: $12.5 billion. Their average five-year growth rate of 1,933% is also higher than that of any other class in the past five years. At the close of their 2000 fiscal years, the companies on this year's list were still overwhelmingly profitable, still growing, and still hiring.

But as boom turns to bust, will these companies continue their upward climb? It's hard to predict. One thing in their favor: the CEOs of these companies aren't naive. For starters, they don't view the Web through rose-tinted Ray-Bans. And they know how to tighten their belts. The 2001 Inc 500 companies are carrying an average debt of $3.5 million, down from the $7.9-million average reported by the class of 1999.

The CEOs of this year's Inc 500 also believe in leaning on others for help. When launching their companies, they didn't hesitate to hit up friends, family, cofounders, and strategic partners for funding. And 62% of this year's companies were founded by two or more partners, compared with 55% of last year's list.

The 2001 CEOs also are realistic about what lies ahead. Only 38% are considering selling their business to another company in the foreseeable future. The majority, or 74% of this year's CEOs, say their plan is to stay at the helm of their company for the next five years. Only 29% are anticipating an initial public offering, down from 43% among last year's group.

Perhaps there's something about adversity that brings out the inner entrepreneur. For example, Mike Mendiburu, CEO of the #1 ranked company, High Point Solutions, says he never would have started his own business if his previous employers had treated him right. "I'm grateful for the hard times," he says. "I was pushed out of my comfort zone." If discomfort makes entrepreneurial impulses stronger, we expect to see a bumper crop of Inc 500 applications in the coming years.


The Big Picture

The 2001 Inc 500

Average five-year growth rate: 1,933%
Average 2000 sales: $24,976,000
Median 2000 sales: $10,728,000
Collective 2000 sales: $12,487,994,000
Average number of employees: 160
Median number of employees: 64
Collective number of jobs generated: 80,188
Percentage of companies turning a profit: 76%
Number of companies that broke $100 million in sales: 22
Percentage of companies that also made last year's list: 31%
Average age of companies: 8 years
Percentage of companies planning to go public in the foreseeable future: 29%


The CEOs

The More Things Change ...

The more they don't. Although the Inc 500 list turns over completely about every four years, the class of '01 bears an eerie resemblance to the class of '97. This year and that year, about 90% of the CEOs described their background as working-class or middle-class. The list is still predominantly a boys' club, though we know through many anecdotes that wives play a huge supporting role, both emotionally and financially, in building Inc 500 companies.

So what's it like to be the chief exec of an Inc 500 company? Here's how, on average, this year's CEOs say they spend their day. They devote more than 25% of their working hours to handling all the onerous obligations that fall under the category of "managing." Another 9% or so of the time, they get on their knees to pray to assorted angels and bankers. Inc 500 CEOs devote about 21% of their working moments to sales, 19% to strategic planning, 15% to marketing, 14% to product development, and 7% to recruiting. In short, there's not enough time in their day to do everything. Which may explain why, when asked what percentage of his day was devoted to each kind of task, the average Inc 500 CEO's responses added up to 109%! But at least our CEOs are paid well for their time: their median compensation was $215,000 a year.


Money Matters

The paycheck
Number of this year's CEOs who admitted to going without a salary in 1996: 33
Number of this year's CEOs who went without a salary in 2000: 0
Median annual compensation of this year's CEOs: $215,000
Number of this year's CEOs who had compensation of $1 million or more in 2000: 18

CEO equity
Percentage of this year's CEOs who own 100% of the company: 24%
Percentage of this year's CEOs who own less than 50% of the company: 35%
Median equity stake owned by the CEOs on this year's list: 51%

The angels
Percentage of this year's companies that received angel investments: 12%
Percentage of this year's CEOs who've made angel investments in other companies: 20%


Personal Profile of the Class of 2001

Percentage of CEOs who are
Male: 93%
Female: 7%

Median age of CEO: 41
Median age of CEO when company started: 34

Highest level of education completed
High school: 6.90%
Two-year college: 8.49%
Four-year college: 54.38%
M.B.A.: 15.38%
Other advanced degree: 14.85%

Economic background
Poor: 3.97%
Working-class: 31.48%
Middle-class: 57.94%
Affluent: 6.61%

Ethnicity
Caucasian: 87.20%
Asian or Pacific Islander: 8.27%
Hispanic: 2.40%
Black or African American: 1.33%
American Indian or Alaskan Native: 0.8%

Marital status
Married: 81.15%
Single, never married: 9.16%
Divorced: 8.38%
Other long-term relationship: 0.79%
Widow or widower: 0.52%

Top Four Worries
Percentage of the 2001 Inc 500 CEOs who say they worry about
Rising cost of benefits: 19%
Federal taxes: 16%
Tighter capital markets: 13%
Employment laws: 12%


If I Could Write the Book on Starting and Growing a Business ...

The CEOs of the class of 2001 have kept their sense of humor in the midst of fast growth. Here's our pick of the titles they suggest:

  • How to Change Tires While Moving at 300 MPH
  • Boss Lady: How to Be Both
  • The Art and Science of Juggling Bowling Balls
  • Thriving in Chaos
  • How to Grow a Business by Avoiding the 100 Dumbest Mistakes That I've Made for You
  • And finally, James D. Murphy of Afterburner Seminars (#355) has actually gone ahead and written his book, Business Is Combat, published by HarperCollins last year.

Starting Up

Home but Not Alone

Basements, garages, and second-floor guest rooms have been converted into start-up offices like no one's business. Back in 1995, 39% of the Inc 500 companies told us home was where the start was; last year 61% of them did. But 56% of this year's class were launched from home, leading us to believe the trend has peaked. Still, as in the past, it was well over a year before the 2001 Inc 500 companies that were started at home finally flew the coop, often with handful of employees in tow.

Among the 2001 Inc 500 companies started at home, the percentage that, when they moved to their next location, had
One to 5 employees: 62.98%
6 to 10 employees: 10.58%
More than 10 employees: 7.69%
No employees: 18.75%

Average age of those companies when they moved to their next location: 1.5 years

Percentage of this year's companies started by two or more people: 62%
Percentage of those companies with a written partnership agreement: 56%


One for the Money, Two for the Show ...

You don't have to be wealthy to launch an Inc 500 company. Half the group left the starting gate with $20,000 or less. Most, or 88%, of the CEOs reached into their own personal piggy banks for seed money, and more than a third of them turned to their cofounders for funds. That's almost five times the percentage of CEOs on the 1999 list who tapped their cofounders. Likewise, compared with the figures from the list just two years ago, nearly three times as many companies, or 11%, found a sugar daddy in strategic partners and customers.

If money was tough to find in the beginning, it got easier to locate later on. Fully half the group went on to raise more than $1.1 million in additional rounds of financing. Bankers stopped laughing and started lending. Even venture capitalists were captivated. Of course, the money came at a price: although the majority of the chief executives today retain at least 50% of the equity in their companies, only about a quarter of them own the whole show.


Seed Capital

Percentage of the 2001 Inc 500 that had initial start-up capital of
Less than $1,000: 14.66%
$1,000 to $10,000: 23.82%
$10,001 to $20,000: 11.26%
$20,001 to $50,000: 19.63%
$50,001 to $100,000: 8.64%
More than $100,000: 21.99%

Percentage of 2001 Inc 500 CEOs who raised start-up capital by tapping
Personal assets: 88%
Other cofounders' personal assets: 39%
Assets of family and friends: 30%
Bank lines of credit: 15%
Commercial loans; 11%
Strategic partners and customers: 11%
Venture capital: 3%
Government grants: 1%

Percentage of CEOs who got seed money from

Class of
2001
Class of
2000
Class of
1999
Cofounders 39% 36% 8%
Family and friends 30% 33% 14%
Strategic partners and customers 11% 6% 4%

Later-Stage Money

Percentage of the 2001 Inc 500 that raised additional financing from
Bank lines of credit: 80%
Commercial loans: 52%
Personal assets: 45%
Assets of family and friends: 26%
Venture capital: 18%
Other cofounders' personal assets: 17%
Strategic partners or customers: 13%
Grants from the government or nonprofits: 3%


Exit Strategies at Start-up

Percentage of this year's CEOs who had an exit strategy when they founded the company: 40%
Percentage of those CEOs whose exit strategy was to go public: 33%
Percentage whose exit strategy was to sell out to another company: 53%


The Companies

The 2001 Inc 500 by Industry

Computer software and services: 38%
Diversified services: 21%
Telecommunications: 5%
Computer hardware: 4%
Materials and construction: 4%
Consumer products: 4%
Manufacturing; 3%
Electronics and miscellaneous technology: 3%
Health products and services: 3%
Financial services: 2%
Aerospace and defense: 2%
Other: 11%


Growth Hurdles

Certainly, it's hard to hold on to customers that are going through layoffs and mergers. But for the first time, CEOs tell us that "customer acquisition" is the biggest barrier to business growth. Incidentally, on this year's list fewer companies rely on "Fortune 1,000" customers as their main source of revenues than on lists from the past three years.

Percentage of companies that were limited by difficulties in

Class of
2001
Class of
2000
Class of
1999
Acquiring new customers 34% 16% 12%
Recruiting enough employees 25% 50% 47%
Getting enough capital 17% 16% 16%
Finding the right strategic partner 7% 4% 5%
Remaining profitable 6% 3% 4%

Growth Accelerators

Does getting venture capital at the start increase a company's chances of achieving hypergrowth? There's no doubt about it. While the average five-year growth rate among this year's Inc 500 was 1,933%, the growth rate among VC-backed companies on the list was more than double that. Other correlations, though not scientifically proven, raise some interesting issues. For example, the companies whose CEOs took brief vacations fared better than those with CEOs who took more than 10 days off. But both groups experienced above-average growth.

Average five-year growth rate among the 2001 Inc 500 that had
Venture-capital funding at start-up: 4,619%
CEO with an M.B.A.: 2,542%
CEO who took 5 days or fewer of vacation yearly: 2,385%
Open-book management: 2,283%
CEO who took more than 10 days of vacation yearly: 1,983%


What's Happening to Employee Benefits?

News flash: according to the survey information we've gathered on the 2001 Inc 500, the tight labor market has loosened. You knew that, but our data reflect the new reality in two ways. First, recruiting is no longer cited as the number one factor limiting growth, as it was by the companies that made the 2000 and 1999 lists. Second, the percentage of companies offering two key employee benefits -- bonus plans and profit sharing -- continues to decline. And two popular benefits without direct price tags -- flextime and telecommuting -- are offered by fewer companies this year than last.

Percentage of companies offering

Class of
2001
Class of
2000
Class of
1999
Bonus plans 67% 69% 81%
Profit sharing 43% 47% 48%

Percentage of this year's companies that offer full-time employees
Health insurance: 97%
Retirement plan: 84%
Life insurance: 72%
Disability insurance: 71%
Flextime: 64%
Telecommuting: 51%
Tuition reimbursement: 45%
Job sharing: 23%
Sabbaticals: 16%
Child-care services: 3%


Where Sales Come From

Percentage of companies whose main source of business is

Class of
2001
Class of
2000
Class of
1999
"Fortune 1,000" companies 40% 48% 42%
Small to midsize companies 37% 31% 33%
Consumers 12% 10% 12%
Government 10% 9% 12%
Nonprofits 2% 1% 1%

Note: Numbers do not add up to 100% because of rounding.


Seeing Through the Web

Last year's class of Inc 500 companies was betting big on the future of E-commerce. In fact, 61% thought developing a strategy for selling online would be critical to survival. Ahem, things have changed, and more than a little. This year, only 44% feel as strongly about hanging a shingle online.

Percentage of 2001 Inc 500 companies with Internet sales: 25%
Percentage of overall revenues that come from Internet sales among those companies: 13%


What's Ahead

The Money Hunt, 2002

When it comes to capital, Inc 500 execs aren't shy about going after it. However, only 40% of this year's CEOs plan to raise money in the next year. (In contrast, 63% of the 1996 companies aimed to raise money in '97, and 47% of the 2000 companies planned to raise funds this year.) And although 89% of the capital seekers on this year's Inc 500 expect to bring in more than $100,000, 95% of the money hunters on last year's list thought they'd bring in that amount. Still, only 13% of responding CEOs tell us they're even concerned about the current credit crunch. More likely, the Inc 500 will finance themselves with internal cash flow, as they've always done, until the terms of the deals are more to their liking.


Where They'll Be in 2006

More of the current crop of CEOs plan to stay just where they are -- as CEO. In fact, 74% plan to still be leading the company five years from now; only 64% of the CEOs on last year's list made a similar bold prediction. Will CEOs build longer-lasting companies by staying at the top? Or will the CEOs miss the wild jolt of stimulation that a new start-up brings? Stay tuned. One thing's certain: many more of this year's CEOs plan to delegate than their counterparts in years past.

Percentage of the 2001 Inc 500 CEOs who plan to remain as CEO: 74%
Percentage of those CEOs who plan to retain all their duties: 44%
Percentage who plan to delegate to professional managers: 56%


Strategic Plans

Percentage of the 2001 Inc 500 CEOs who, in the foreseeable future, are considering
Acquiring other companies: 57%
Selling the company: 38%
Going public: 29%
Doing a roll-up: 17%


Where they're located

The 2001 Inc 500 by Location

Alabama: 8
Alaska: 0
Arizona: 5
Arkansas: 2
California: 59
Colorado: 20
Connecticut: 9
Delaware: 2
District of Columbia: 4
Florida: 26
Georgia: 19
Hawaii: 0
Idaho: 1
Illinois: 24
Indiana: 11
Iowa: 2
Kansas: 1
Kentucky: 7
Louisiana: 2
Maine: 1
Maryland: 9
Massachusetts: 29
Michigan: 14
Minnesota: 11
Mississippi: 4
Montana: 1
Missouri: 10
Nebraska: 2
Nevada: 2
New Hampshire: 5
New Jersey: 19
New Mexico: 4
New York: 33
North Carolina: 8
North Dakota: 0
Ohio: 17
Oklahoma: 4
Oregon: 9
Pennsylvania: 25
Rhode Island: 3
South Carolina: 2
South Dakota: 0
Tennessee: 8
Texas: 29
Utah: 11
Vermont: 0
Virginia: 27
Washington: 4
West Virginia: 0
Wisconsin: 7
Wyoming: 0

Biggest Gain

State with biggest gain in companies since 2000
New York, up 9 companies


Biggest Drop

States with biggest drop from 2000
California, down 10 companies
Texas, down 10 companies


Entrepreneurial Deserts

States with no Inc 500 companies
VT, ND, AK, HI, WV, WY, SD


Homegrown

Percentage of companies located in states where their CEOs were born: 34%


Top Metro Areas

Top five metro areas, by number of companies
1. New York City: 39
2. Washington, D.C.: 31
3. Boston: 30
4. San Francisco: 26
5. Chicago: 24
Note: Metro areas as defined by Rand McNally 2001 Commercial Atlas and Marketing Guide.


Top States

Top five states, by number of companies per million residents
1. Utah: 4.9
2. Colorado: 4.6
3. Massachusetts: 4.5
4. New Hampshire: 4.0
5. Virginia: 3.8
Note: Based on population figures from the U.S. Census Bureau.


Small Towns

A sampling of small towns where companies are based
1. Greenville, IN (pop.: 604)
2. Dripping Springs, TX (pop.: 1,100)
3. Ringgold, GA (pop.: 1,920)
4. Berlin, PA (pop.: 2,115)
5. Oakbrook Terrace, IL (pop.: 2,436)
6. Glenwood, MN (pop.: 2,600)
7. West Lebanon, NH (pop.: 3,784)
8. Wayzata, MN (pop.: 4,088)
9. Arcade, NY (pop.: 4,184)
10. West Dundee, IL (pop.: 4,347)

Susan Greco is a senior writer at Inc.


View the 2001 Inc 500 list .


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