Market Makers

It's a simple-enough question: What business are you in? And it usually elicits simple answers. "We run sales-training seminars." "We distribute parts to the electronics industry." Such simplicity reflects an approach to running a business that has become deeply ingrained. A company should find its niche. Stick to its knitting. Know -- and focus on -- its core competencies. Those strengths usually boil down to expertise in a narrow range of products or services.

Ask the question of Albert Black, however, and you get a wholly different kind of answer. What business is Dallas-based On-Target Supplies & Logistics [#78] in? "You could look at it," says the CEO, as "sourcing, procurement, transportation, warehousing, assembly, distribution, inventory management on the customer side, and second-market management."

All-righty, then. Maybe Black could offer a word of explanation?

The 42-year-old founder recounts his company's rather remarkable history. It started 20 years ago as a nice little everyday business: providing janitorial services and supplies to corporations. Pretty soon it was focusing on supplies alone and stocking them in its own warehouse. Then the market shifted -- more on that later -- and it began selling stuff like paper for copiers and computers. Over the years it added one business after another. Logistics and supply-chain services. Assembly and kitting. Outsourced warehousing and inventory management. (The "second-market management" Black refers to is the business of selling off excess or unwanted goods.) Eventually, the company grew to $28 million in revenues. When the current recession hit On-Target's customers hard -- "nobody defies the laws of gravity," says Black -- sales fell sharply, but the company dealt with the crisis by branching out still further. It entered the consulting business. It began hosting corporate-training sessions in a newly built conference center.

SURVIVING THE DOWNTURN: "Nobody defies the laws of gravity."

But what's truly surprising about this year's list of Inner City 100 companies is the fact that so sprawling a business model isn't unique. Techead [#68] started as a desktop-publishing house, got into staffing, added graphics and multimedia software training, and now includes in its portfolio back-end Web design -- Linux-based databases, for instance. Interactive Ink [#57] started out developing children's CD-ROMs, got into Web-site development and other Internet projects, and is now preparing to market knowledge-management systems. Even companies that stayed roughly in the same line of work seemed to branch out. For example, AAA Business Supplies became AAA Business Supplies & Interiors [#99] when it added an office-furniture division.

What's going on here? It's not surprising that entrepreneurial companies should move from one business to another as Opportunity A fails to pan out and Opportunity B beckons. Nor is it odd to find companies scrambling for new things to do in a downturn like the one we've endured recently. But there's something different about the many-faceted Inner City 100 companies. They seem to embrace new-business development as a way of life, branching out in boom times and bust times alike. And they don't typically exit one business when they get into another; instead, they add on layers of products or services, amalgamating the new with the old and turning themselves into something resembling miniature multidivisional companies. One reason for that contrarian, don't-stick-to-the-knitting approach, no doubt, is that they have grown up in tough economic neighborhoods and so have had to cultivate the fine art of business survival. But there's more at work here than hardscrabble opportunism, as the companies' record of chart-busting growth suggests. Talk to their leaders long enough, and you realize that they approach the world in a manner unlike that of most CEOs. They have a different definition of what constitutes a market. They view their companies' core competencies through a unique set of lenses -- ones that allow them to see opportunity where others might see only stagnation.

Let's look at markets first. Economists, strategy consultants -- heck, even a few business magazines -- assume that markets exist in the abstract. They're "out there," anonymous, waiting to be discovered and exploited. Market research -- surveys, focus groups, tests, and so on -- is how you find out what your prospective customers want. That mind-set makes perfect sense if you're a Procter & Gamble targeting zillions of consumers. The underlying assumptions -- largely true for giant companies like those -- is that every sale is an impersonal transaction and that if customers don't want what you're offering, they'll take their business elsewhere.

ENGINEERING THE FUTURE: "I was in the right place at the right time."

By contrast, consider how On-Target's Black has always regarded his market. Back when the business was starting out by selling janitorial supplies, he didn't hang out a shingle or work his way down the yellow pages; he targeted a few large corporations and focused on selling to them. It wasn't a grand strategy, he admits -- he just needed "people who could pay us fast" because there wasn't much money in the checkbook. Later those large companies began outsourcing janitorial services to small start-up companies. Black had zero confidence that the new entrepreneurial suppliers would pass his pay-us-fast test. So he redefined his market. Suddenly, he wasn't in the janitorial-supplies business, he was in the let's-sell-something-else-to-our-traditional-customers business. "We chose a product line" -- copier paper, computer supplies, and so on -- "that [the corporations] retained while outsourcing the janitorial."