Playboy's onetime art director dan Estes and his wife, Peggy Nordeen, were fixtures on the Inc. 500 during the 1980s when their company, Starmark International, was tearing up the pea patch as an integrated marketer for multinational corporations. In 1987, Chicago-based Starmark joined the second class of Inc. 500 Hall of Famers: companies that have made the list five times. In 1994, the couple sold their then $50 million business and took early retirement in Margaritaville. "We moved to Florida and bought a three-story house on the water," says Estes. "I had a 50-foot boat tied up to the dock behind it. We were going to drink frosty drinks and watch the sunset.
"We were down there just a few months when I realized it was the wrong thing to do," says Estes. "I was bored silly." Estes and Nordeen knew just one sure cure for their malaise: start another company. So the minute their noncompete expired in 1998 they de-mothballed the name "Starmark International"--which they had hung on to after the sale--and launched version 2.0 in a tiny Fort Lauderdale storefront. This year marks the first that the new Starmark is eligible for the Inc. 500 and--big surprise--there it is, at No. 43 with $10.6 million in revenue and five-year growth of almost 2,929%.
This accomplishment is notable for two reasons. First, Starmark was absent from the list for 16 years--the longest lapse in Inc. 500 history--before making its triumphal return. (Strictly speaking, of course, it's a different company, but not in name, mission, strategy, principals, or spirit.) Second, Estes and Nordeen themselves are such archetypical Inc. 500'ers. They seize opportunities (already the couple has spun off a software company to leverage some fancy code developed in-house). They view improving employees' lives as a core part of their jobs (in addition to excellent salary and benefits, workers enjoy use of the company boat and meals prepared by the former chef of the Atlanta Olympics). They are ambitious (Estes is hungrily eyeing international clients expanding into American markets). And they can't imagine not being entrepreneurs. "After this company I think I'll do something in real estate," muses Estes, 57. "My philosophy now is never retiring."
There are numerous Inc. 500 honorees who share Estes's unalloyed joy in the act of company-building. They are the lucky ones. The sour economy of the last few years has eroded some traditional rewards of entrepreneurship, including the thrill of landing accounts (31% of respondents to our survey said winning new business has grown signiWcantly harder), enriching employees (22% reported layoffs and/or reductions in pay and benefits), and seizing opportunities (35% lamented that sluggish markets had prevented them from being all that they could be).
On the whole, though, the 500 have proved a notably hardy lot, with 38% observing no deceleration in growth whatsoever. What's more, 47% project substantial sales growth in 2003 while only 5% expect a modest dip. (There were only two takers for the "substantial decline" option.) And the next 12 months look rife with possibility: 32% are contemplating new markets, 29% imagine launching products and services, and 20% say they are at least thinking about going public.
The sustained vigor of the 500--many of which were born or came of age in the heavy-breathing '90s--may be the result of the textbook tactics with which they meet economic challenges. Many are redoubling their basic sales efforts--what Vance Patterson, president of Patterson Ventilation (page 101) in Blythewood, S.C., calls "putting feet on the street." Others have chosen to diversify--particularly into the government sector, especially military contracts. Still others, such as Intrasphere Technologies (page 81), an enterprise software company in New York, tweaked their offerings for a differently circumstanced client base. "Once we realized the economy was not going to grow as quickly as we'd like, we shifted from building systems oriented toward growth--sales, marketing--to systems that would better manage costs," says CEO Bill Karl.
Five years ago, conversations with 500 CEOs were brimming with tales of risk-taking and bravado. Today's honorees, by contrast, wear their conservatism as a badge of honor. Rarely have so many bragged so much about spending so little. Bill Oesterle, the CEO of Indianapolis-based Angie's List (page 135), which rates local service companies, waxes eloquent about his business's Salvation Army-chic furnishings and staff competitions to see who can Wnd the diviest dive for Friday lunch.
Even companies with significant funds in pocket don't feel a hole burning there. In the late '90s Unica (page 26), a maker of enterprise software in Waltham, Mass., raised $12 million in venture capital that CEO Yuchun Lee viewed as a war chest, in case his company needed it to seize opportunities. "I am happy to say all that money is still in the bank," says Lee. Meanwhile, outside investment--once a consummation devoutly to be wished--is now described by CEOs as a hazard that they mercifully avoided. These entrepreneurs say they survived where others perished because they were never lured into profligate ways by inflated bank accounts. HomeRoute CEO Steve Nickerson sounds like many of his peers when he recounts a brush with venture capital in the '90s: "I sat with VCs," he says. "I looked at term sheets. People wanted to give me seven figures. All I could see myself doing with that money was blowing it on marketing and technology that would be obsolete in a few years."
And, encouragingly, there are still plenty of businesses reporting major new accounts, industry-defying sales, and all manner of corporate milestones. Starmark, for example, isn't the only company to chalk up an Inc. 500 record this year. Linksys (page 32), a maker of network hardware based in Irvine, Calif., and Monitronics International (page 114), a Dallas-based company that markets and monitors security systems, became the first businesses ever to make the list seven times in a row.
The bigger news is that Linksys recently was sold to onetime rival Cisco in a stock transaction valued at $500 million. In terms of its satisfying outcome, Linksys may not be representative of all Inc. 500 companies. But it is representative of their potential. Leigh Buchanan
How the 2003 Inc. 500 were selected
This year's Inc. 500 list is the 22nd annual ranking of the 500 fastest-growing private companies in the United States. We approached more than 20,000 likely candidates in choosing this year's roster of 500, and, as always, openly invited any other company that believed it might be qualified to apply. To be eligible for the list a company had to:
- Be an independent, privately held corporation, proprietorship, or partnership. Regulated banks and most holding companies were excluded, as were franchises;
- Have had sales of at least $200,000 in 1998 and at least six months of operations;
- Have had an increase in 2002 sales over 2001 sales.
We always reserve the right to reject applicants for subjective reasons. The ranking is based on a company's percentage increase in sales from 1998 through 2002. In cases where companies operated for less than a year in 1998, we annualized reported revenue, dividing it by the number of months from onset of sales and multiplying by 12. Adjusted growth is denoted by an asterisk (*). Sales figures were verified from tax returns and/or financial statements (audits or reviews prepared by an outside accountant or auditor). Revenue has been adjusted to exclude income from interest and nonrecurring sources. Employment numbers refer to full-time employees in 2002.
Last Year's Top 10
Seven of 2002's biggest gainers returned to the 2003 list. Here's a snapshot of how they've all fared since then.
Last year's Top 10 proved remarkably resilient: Only three didn't make the list again. To catch up with the repeaters, check out the Outsource Group (page 72), Integrity Staffing Solutions (page 76), Prometheus Laboratories (page 64), Blue Pumpkin Software (page 73), Tastefully Simple (page 60), Sterling Financial Group (page 52), and Orange Glo International (page 38). As for what happened to the others in the past year, here's an update:
SOLD: No. 4, Turner Professional Services, Baton Rouge, La. Former CEO Stephen Toups sold the business in January 2003--renamed W2Payroll--to a local insurance company with which it had an alliance. Most employees stayed on, but Toups joined Harmony, an established industrial contractor, as VP of administration. "It's been very different," he says, "going from a small, high-growth company to an established 50-year-old company."
CAPITAL CRUNCH: No. 6, Larkin Enterprises, Bangor, Maine. Larkin Enterprises was not insulated from the economic downturn, says CEO Richard Larkin, who notes lenders were reluctant to provide the capital necessary for growth. "While our numbers remain flat, we're optimistic that our ability to get the job done and our reputation for putting safety first will allow us to grow in the future."
MANAGED GROWTH: No. 9, Greenwich Technology Partners, White Plains, N.Y. In early 2003, after six years as CEO, Joseph Beninati passed the reins to Tom Stanford, former EVP of sales. Despite flat or decreased IT spending in the financial services sector, GTP's sales continue to rise. Management is seeking to move from "opportunistic" business development to a more "managed" approach. Beninati, meanwhile, returned to the successful investment and real estate firm Antares, which he co-founded seven years ago; that firm made the seed investment that launched GTP in 1997. Cara Cannella