A Little Down. Far From Out
The timing of this year's Inc 500 conference couldn't have been worse for Michael Logal. The festivities kicked off June 20, just 11 days before his company, Techniki Informatica, would file for bankruptcy. At least Logal didn't suffer the irony of achieving a long-cherished dream only to see it instantly dashed. Inclusion on the list was becoming routine for Techniki, which had made the cut every year since 1999. In palmier days the Dallas-based company had $58 million in revenues, 50 employees, and a covetous eye on new markets. "For a while there we were really rocking and rolling," says Logal, Techniki's cofounder and president.
Techniki Informatica was born as a clerical-employment service in 1994. In 1996 it joined the in crowd, morphing into a technology staffing company that catered to the telecommunications industry. For the first year after that, 90% of Techniki's revenues came from -- if you'll pardon the expression -- WorldCom. Then Logal began winning new customers, such as Nortel and Genuity, and soon WorldCom accounted for only 40% of his business.
But while Techniki diversified its customer base, it never diversified its customers' industries. "I should have known better," says Logal. "But who ever thinks that a whole industry is going to go down?"
In late 2000 the telecom industry's foundations began to buckle; by March 2001, "it was a straight line down for us," says Logal. "We couldn't cut expenses fast enough to keep up with losses." Some promising sallies into medical and government markets were curtailed by last year's terrorist attacks, and by April 2002 Techniki was again relying on WorldCom for 90% of its revenues. Then, well, you know. "By the second week of June, I knew the jig was up," says Logal. "We were facing the dragon."
A lot of companies have faced the dragon of late, and the editors of Inc wondered how many of our fast-growth knights would be among them. The Inc 500 recognizes rapid growth, and growth of any kind is a struggle when you're trying to muscle out from under a dead-weight economy. So as we began compiling the Inc 500, we speculated about how it might differ from previous years' lists. Traditionally, about a third of the companies repeat from year to year, and we were prepared for that number to be significantly lower. Since 1986 the lowest rate of growth has hovered around 500%. We considered that that figure, too, might decline precipitously.
We talked about doing a story called "What Ever Happened to the Class of 2001?" -- which we envisioned as a litany of tales like Logal's. We waited uneasily for the applications to flow in.
Worry, as some annoyingly sane person once said, is the down payment on bad stuff that never happens. The Inc 500 companies, it turns out, are as resilient as Steinbeck's farm workers. Of the businesses that appear on our 2002 list, 33% were on last year's list as well. The growth floor is 440% -- more in line with results from the early 1980s than from the '90s, but not bad. Similarly, the average growth rate declined to 1,521%, from 1,933% in 2001, and average sales dropped from $24,976,000 to $24,706,000. In other words, down but nowhere close to out.
Furthermore, although companies described a general sucking in of stomachs, many expect to exhale a bit in the next 12 months. They are branching out into new markets (56%), introducing new products or services (60%), hiring for new positions (79%), and replacing old computer systems (51%). More than 75% said they expect modest to substantial growth for the rest of 2002. And oh, yes, 73% were profitable.
Seeking attitudinal ballast, we checked in with a few dozen CEOs who did not reapply for the list. Their reasons were predictable. Sales, growth, and spirits: down, down, down. Companies that made the list, by contrast, proved to be adept lemonade makers. Some -- like Sensor Technologies (#405), a supplier of military and commercial IT systems, and Freedom Medical (#36), which deals in medical equipment -- saw spikes in demand following September 11. Horizon Consulting (#312) and Legacy Financial Group (#437) flourished as the swooning economy sent more people in search of loans.
More commonly, companies coped by working off unsightly bulges -- reports of modest layoffs and other cuts were common -- or by making forays into new markets. Nu Info Systems (#459), for example, compensated for the dampened demand for software consulting by retraining staff to work part-time in clients' companies. Diversification, says CEO Niraj Kumar, is the smartest move he ever made.
Such reactions are probably instinctual, according to David Birch, president of the research firm Cognetics, in Waltham, Mass., and an authority on the species Homo entrepreneurialis. "They're a very special group of companies," says Birch of the Inc 500. "They all have a vision of what they're trying to do, and they follow it. They're very creative. They're clever. And if you're clever, the downturn doesn't mean customers are going to buy less from you; it means they ought to buy more."
In addition, says Birch, "adversity is what they're used to. What's a downturn? Just another bump in the road."
This particular bump, of course, was enough to send Techniki Informatica off the road and into a ditch. But fortunes change. Exactly one week after Logal filed for Chapter 11, the Department of Defense awarded Techniki a contract for networking services. The preshrunk company (12 people working in an office that's a tenth the size of their former quarters) snapped back to profitability in August, and Logal expects to emerge from bankruptcy early next year, with a dazzlingly heterogeneous customer base of both public- and private-sector organizations.
"We still have great systems and people, and I think we have the ability to do $70 million eventually," says Logal. "We could be back on the Inc 500 by 2007. There's nothing I'd like better."
Leigh Buchanan is a senior editor at Inc.
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