To hear these Inc 500 all-stars tell it, it's not from books or market research; it's from keeping your eyes and ears open.
For Kenny Kramm, it was the anguish of watching his infant daughter struggle to swallow the vile-tasting medicine she needed to stay alive. For Bob Perini, it was seeing earthy-looking water flow from his home's faucets. Mike Pratt just got fed up with trying to cram his duffel bag into the boxy little lockers at his gym.
The common thread: all faced situations they simply couldn't stand. They couldn't find existing solutions, so they invented their own. Then, after much tinkering and some false starts, they launched businesses selling what they'd created. And judging by their companies' presence on this year's list of America's fastest-growing private businesses, they've done well at it.
But despite that old saw about the single Chinese phrase that translates as both crisis and opportunity, trauma and frustration aren't the only stimuli for concepts that grow into Inc 500 businesses. Sometimes it's a quiet epiphany: Jerry Handsaker's plan took shape during a holiday boating excursion with friends. Sometimes it's a course correction: Mike Robson initially sold parts for automated teller machines but switched to servicing them after noticing one bank's dilapidated equipment. And sometimes it's just plain serendipity: Deborah Weidenhamer launched her auction company after a chat with an elderly stranger on a commuter flight.
From your kids
Kenny Kramm borrowed a page from Mary Poppins, the fictional nanny who trills that "a spoonful of sugar helps the medicine go down." Except in Kramm's case, it was a spoonful of banana that made his youngest daughter's bitter antiseizure medication more palatable -- and ultimately prompted Kramm to start a company that manufactures flavorings that disguise the nasty taste of many medicines.
The story of FlavorX (#295) dates to 1992, when Kramm's daughter Hadley, a premature newborn, developed cerebral palsy and a seizure disorder that required her to take liquid phenobarbital four times a day. Frequently, Hadley either spat out or threw up the medicine, leaving her parents uncertain about how much she'd absorbed. When it wasn't enough, she continued suffering seizures. "We were ending up in the emergency room on a weekly basis," Kramm recalls. So Kramm, then working in his parents' suburban Washington, D.C., pharmacy, began experimenting with harmless additives intended to sweeten Hadley's experience without diluting her drugs. He hit the jackpot with a banana mixture. In the 10 years since then, Hadley has never had a medication-related hospital visit.
FlavorX offers more than 40 choices -- bubble-gum, root beer, and licorice, among others -- for "taking the 'yuck' out of medicine."
Kramm figured, correctly, that he couldn't be the only parent facing the daily medicine struggle. He began concocting other recipes to improve the taste of many frequently prescribed liquids, pills, and even powdered medications, and incorporated his company in 1995.
The company, based in Bethesda, Md., reported revenues of $1.8 million last year and, Kramm says, is on track for $5 million in sales this year, thanks to distribution agreements with Kroger, Winn-Dixie, and other major drugstore and pharmacy chains. He has expanded his offerings to vet clinics -- apparently, dogs and cats don't like foul-flavored drugs any more than people do -- and is now adding flavors to some popular over-the-counter medications as well.
57 % of the Inc 500 CEOs surveyed got the original idea for their business by spotting an opportunity in the industry they worked in.
From questioning authority
A decade ago officials in Bob Perini's Maryland community told residents not to worry about the muddy-looking water that occasionally flowed from their faucets. It was, officials said, a harmless by-product caused by back-flushing pipes to wash dirt, grit, and other sediments out of an aging water system. Perini says, incredulously, "They'd say, 'It's perfectly OK to drink -- but you might not want to do your laundry in it."
Although Perini acknowledges that the brown water "isn't necessarily going to kill you," he didn't want his three kids -- then all younger than six -- drinking it. Besides, he says, at its best the town water had an unpleasant chemical taste and odor. At first the family switched to springwater but was disappointed with the brand-to-brand inconsistency in taste. And Perini wasn't convinced it was any cleaner than tap water. Furthermore, he didn't have much faith in low-cost home-filtering systems.
Then he thought back to his first postcollege job as a mechanical engineer working on an oil rig 1,200 miles off the coast of Louisiana, where he'd drunk water that his company purified on-site to save the expense of shipping it from the mainland. He knew he'd have to spend too much to build a similar system for his home -- but the investment might be cost-effective if he built a business around it.
So Perini, then a partner in a Virginia energy-consulting firm, and his brother Jack, a chemical engineer, researched and designed a compact 10-stage purification system. In 1993 they opened a retail store in Rockville, Md. Nearly three years later the brothers launched a separate delivery service, DrinkMore Water (#325), based in Gaithersburg, Md. Perini, his wife, Kim, and his brother initially funded the business themselves; later they brought in investors, who now own 20% of the company.
Last year the delivery service generated almost $2.8 million in revenues, serving more than 12,000 customers in the Washington, D.C., area. Are Perini's kids, now 11 to 16 years old, among them? His oldest daughter won't touch anything but DrinkMore water. But the younger two, he admits, "aren't that picky."
From a chance meeting with a stranger
When Deborah Weidenhamer upgraded to a first-class airline seat one weekend in 1995, she got a much bigger bargain than she had expected. At the time Weidenhamer was practically living on planes, working in San Francisco as a consultant during the week and commuting home to her husband, Bruce, in Phoenix on weekends.
Deborah Weidenhamer launched her auction company after a chat with an elderly stranger on a commuter flight.
On one flight home, Weidenhamer traded frequent-flier miles for a seat upgrade. By chance she sat next to a garrulous man in his nineties, a veteran auctioneer who mesmerized her with tales of his profession: its rich history, its financial potential, its constant excitement. By the time the plane landed 90 minutes later, Weidenhamer saw a way to end her grueling commute and become her own boss.
That same year she launched her company, Auction Systems Auctioneers & Appraisers (#100). After taking a class to learn how to chant -- that is, talk in that rapid-fire auctioneer patter -- she jumped into selling. At first, Weidenhamer says, her inventory was "nothing special, garage-sale type of stuff." Then she graduated to government contracts, selling items like surplus road equipment and property confiscated from convicted drug dealers. These days she handles everything from Native American artifacts to antique furniture to Rolex watches.
Weidenhamer, who worked alone that first year, now employs 25 people. Revenues have grown from $160,000 the first year to this year's projected $7 million, thanks largely to Weidenhamer's decision to broaden her audiences by simulcasting auctions over the Internet. She travels less and, of course, runs the show. And what of the man who inspired her? She didn't get his card or even his name. "I never talked to him again," she says. If she had, she'd have asked him why he didn't warn her it was going to be so challenging -- but she'd thank him anyway.
From sheer frustration
Back in the mid 1980s, whenever Mike Pratt hit his Salt Lake City health club, he started his workout by wrestling a too-big gym bag into a too-small locker. One day Pratt -- a high school graduate working as a car salesman -- pried out his bag, drove home, and headed for the drafting table he had acquired to support his design hobby.
Using cardboard, scissors, and tape, the 24-year-old athlete created the model for his dream duffel. He shaped the rectangular bag not only so that it would slide into a standard gym storage unit -- measurements he'd obtained that same day by calling several manufacturers -- but so that it would easily hold shoes, a water bottle, and toiletries. And unlike most soft-sided bags, Pratt's prototype surrounded a durable rigid frame that made it easier to access the bag's contents.
That wasn't Pratt's first invention. At 19 he'd designed a cup holder for use in cars and, thanks to a tip from a local businessman, arranged to have it manufactured in Macao. Five years later Pratt again looked to Asia and, based on a recommendation from another entrepreneur, contracted with a factory in Taiwan that he still uses to manufacture his bags.
23 % of the Inc 500 CEOs surveyed got the original idea for their business by spotting an opportunity in an industry related to one they worked in.
Back in the States, many retailers were skeptical about Pratt's Original Locker Bag. "Who's going to want to carry around a box?" one asked. But Foot Locker agreed to take a batch on consignment; after selling 50 bags in a single weekend, the sporting-goods chain ordered more. Sales soared as Nordstrom and other retailers followed suit. In 1987, Pratt officially launched his company, Ogio International. (The name, pronounced OH-gee-oh, sounds catchy but, Pratt says, means absolutely nothing.) The following year, Pratt recalls, "we had $8.5 million in sales for one bag in three colors."
These days Ogio (#473) employs 75 people at a 90,000-square-foot distribution center about 25 miles south of downtown Salt Lake City, plus an international sales force. The company, which had 2001 revenues of more than $47 million, still makes gym bags but now manufactures backpacks and golf bags as well. Pratt, now 41 and the father of four, still works out and, like many of his employees, sky dives, hang glides, and rides snowmobiles. "We're kind of an extreme company," he says.
From failing and trying something else
In 1996, Mike Robson was working full-time, helping to raise his three kids, and finishing up a bachelor's degree in business while simultaneously starting work on a master's. But Robson, then a chemical engineer, apparently still had a little room on his plate, which he filled after chatting with a fellow M.B.A. student over lunch at a Burger King.
It happened like this: Robson's pal, a sales rep for Diebold Inc., which makes and installs automated teller machines, mentioned that the manufacturer was having trouble obtaining "toppers," metal boxes that hold the ATMs' modems. Before Robson finished lunch, he'd decided something: "I said, 'I'm going to start a business. I'm going to start building toppers."
He launched his company that fall, financing it with a $20,000 home-equity loan. But eight months later he'd spent it all without selling a single box. Then he made a fateful sales call at a local credit union, where a bank official asked Robson whether he knew anybody who could spruce up a dilapidated ATM. Drawing on his chemical background, Robson cleaned, polished, and painted the machine until it looked new. His new business was born. "Suddenly, these people who wouldn't let me in the door before said, 'Come on over," he recalls.
As CEO of ATA Services (#180), in Salt Lake City, Robson still sells a few toppers -- very few. "We've never made back the money we spent to develop them," he says. But with 39 employees, $2.6 million in revenues for 2001, and maintenance contracts with 10% of the nation's financial institutions, he's cleaning up anyway.
From pure fear
Quick -- free association. Think about rural Iowa. Now think about a business need that might come to light there. Chances are, you didn't think of anything to do with boating.
But Jerry Handsaker did. As a kid growing up on an Iowa farm, he had loved boating with his family on the state's scattered lakes. He'd taken a 10-year hiatus from the sport while launching a career as a lawyer, marrying, and raising a family. Then, on the Fourth of July weekend in 1987, Handsaker went boating with friends on the popular Saylorville Reservoir near Des Moines. As darkness fell Handsaker nervously watched dozens of boats zipping around his group's unlit craft. Eventually, his friend left the boat's controls, dug around until he found a light on four-foot-long aluminum light pole, mounted it on the stern, and switched it on. Although the process took only a few minutes, Handsaker found it unnerving. "Not only were we not visible because we didn't have our lights on, we didn't have anyone at the controls," he recalls.
Once he was safely back on shore, Handsaker did a little research and discovered that most state-of-the-art, luxury-level boats had similar bargain-basement lighting. After talking to boaters and traveling to trade shows, he started designing a motorized light that, like a power antenna, could be raised, lowered, and switched on and off from the boat's controls.
Handsaker says that his facility with electrical work, like his love of boating, stems from his childhood. "I grew up on a farm, and we fixed a lot of our own equipment," he explains. So once he had put the idea on paper, he teamed up with an engineer, built a prototype, tested it, and patented the design. After trying unsuccessfully to persuade established manufacturers to license the concept, he decided to make the lights himself and founded Innovative Lighting (#424), in the northern Iowa city of Algona, later moving a couple of hours south to Roland (population 1,342), near where he'd grown up. By 1998, Handsaker had left his law practice to run the company full-time. Recently, he expanded into making lights for truck, trailer, and motorcycle manufacturers, a move that helped boost the 15-person company's 2001 revenues to $1.6 million.
Handsaker, who owns a boat, admits he's so busy that he doesn't hit the water as often as he'd like. But when he does, he sometimes flashes back to his company's genesis during a few scary moments on a big lake at dusk. "If necessity is the mother of invention," he says, "maybe fear is the father."
Anne Stuart is a senior writer at Inc.
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