Market Makers

How did his company make such a shift? In fact, the change was enabled and encouraged by customers like Texas Instruments. Executives at TI advised Black to consider branching out into the new markets. They counseled him on how to make the move work (for instance, by relocating his headquarters into South Dallas, where he'd be closer to customers). Eventually, they offered On-Target a five-year contract in the new business -- enough to get him started while he tracked down other buyers.

That is how many Inner City 100 companies operate. Their market is a particular group of customers. Their business is doing pretty much what those customers want at any given moment. Of Techead's expansion from desktop publishing into staffing, CEO Philise Conein says, "Our clients started asking us, 'Hey, this is great. You can do all this page layout and stuff, but can you send us somebody? We'd like to have them on site." Of AAA's expansion from office supplies into contract furniture, owner Steve Danziger remembers: "Our customers were saying to us, 'Gee, you folks are not a great furniture source. Can't you work with us more on furniture?" You'd think that purchasing departments would be leery of suppliers who are new to a line of business -- but in the eyes of some big customers, at least, experience is less important than a relationship with a trusted vendor, people that you know will do their utmost to keep you happy.

CASH IS KING: "The name of the game was to grow fast so you wouldn't be over-taken by bigger, more prominent players, but because we were also cash-flow positive, we were more solid than others. Other companies couldn't turn the ship fast enough given the events that unfolded."

There are limits to what Inner City 100 companies will take on for their customers, but the limits can be broad. Take PlastiComm Industries [#19], in Denver. Some years back the company got the contract for supplying telecommunications pipe to the new Denver International Airport. But the airport's procurement folks also needed someone to arrange for other purchases and deliveries to that part of the job -- rebar, fiber-optic cable, and so forth. No problem, said PlastiComm CEO Ron Montoya; the company promptly increased the number of telecom products in its portfolio. Later, PlastiComm began focusing on distributing supplies to the telecom industry. But when a customer asked for a bid on manufacturing components known as pressure cable stubs, what was PlastiComm's response? Right the first time: "No problem." The company didn't win the bid, but the winner proved to be unable to do the job -- so the customer returned to PlastiComm, which promptly took on the work.

So where does this leave the notion of core competency? When management gurus C.K. Prahalad and Gary Hamel first popularized the concept in a 1990 Harvard Business Review article, it was like a bright ray of sunshine illuminating what was then a miasma of big-company strategic thinking. Forget diversification for its own sake, the authors advised. A company needs to focus on what it does best and then find ways to apply those skills in different marketplaces.

On one level, you can see the Inner City 100 companies as textbook cases of core-competency-based management. That's the key, for example, to Black's lengthy and abstract statement about what business On-Target Supplies & Logistics is in ("sourcing, procurement, transportation," and so forth): the company developed a series of related core competencies one at a time and has capitalized on each. In the beginning its only skill was the ability to locate and provide high-quality services and supplies at a competitive price. ("We would be a supply company that had a comparative advantage by being more intelligent about the products we sold," says Black.) When it began to warehouse the supplies itself, it needed -- and developed -- a new set of skills, those relating to inventory management. The more material it moved in and out of those warehouses, the more expertise in transportation and logistics it gained. Eventually, Black's whole laundry list of logistics services became On-Target's core area of expertise.

"I just hate suburbia and I love downtown. I never gave those little ugly rows of cubes any consideration. I wanted an old building with some soul."

Look at what that enabled the company to do when the recession hit. On-Target's sales plummeted 34% in 2001 as key customers faltered, and Black had to lay off nearly a quarter of his workforce. But the company was able to preserve 85% of its earnings by changing its sales mix while still capitalizing on its core skills. Fewer product sales, but more warehouse-management services for companies that could no longer afford to maintain their own facilities. A new emphasis on consulting services, offering clients the benefits of the skills the company had developed. Texas Utilities (TXU Corp.) recently hired On-Target to analyze and streamline its warehousing and distribution operations. Wyndham Hotels asked it to help the chain strengthen and diversify its supplier base. "If we can't sell what we have," says Black about the company's recessionary strategy, "let's sell what we know."