Great Timing

If you were starting a company, you couldn't have picked a worse year than 1999. And yet a surprising number of this year's Inc. 500 companies did just that.

By rights, there should be no companies on this year's Inc. 500 that were founded in 1999. None. Zero. Consider the double whammy faced by companies that were start-ups in the last bubble year and are now eligible for the Inc. 500 for the first time.

Whammy No. 1: getting started at the height of the boom. Sure, money was plentiful then. But a start-up needs other things, too, like human beings and a place to put them. "Man, it was tough to find tech people" five years ago, says Steve Simonson, CEO of Smooth Corp. (No. 135), an online supplier of flooring headquartered near Seattle. "Companies around here were giving away BMWs as signing bonuses." Finding space? "A nightmare."

Whammy No. 2: surviving the recession, which hit in March 2001. "The first quarter of 2001 was really good for us -- our best quarter ever," recalls Noreen Kenny, of Evolve Manufacturing Technologies (No. 89). Then her nostalgia vanishes: "In the second quarter, revenue literally went down 90% in two months."

Nor did this turn out to be an ordinary downturn, a break in the action before the GDP resumed its climb. Industry after industry found itself in a turmoil of restructuring. Service companies as well as manufacturers began moving operations overseas. Giants scarfed up smaller fry just because they could get them so cheaply. Internet, high-tech, and telecom businesses, red-hot during the boom, found themselves at the bottom of a well staring upward. In 18 months, nearly 600 "significant" Web-based companies -- those that were publicly traded or had received formal funding -- closed down, costing investors billions of dollars. Not what you'd call a hospitable environment for entrepreneurial endeavor.

Unemployment Rate

• 1999: 4.1%
• 2004: 5.4%

So take a wild guess how many companies actually did start in 1999, survived these grim conditions, and grew fast enough to make the 2004 Inc. 500. A dozen? Two dozen? Somehow, some way, 102 companies -- a fifth of the list -- got off the ground in 1999 despite the overheated marketplace, steered clear of the wreckage, then sailed onward and upward during one of the toughest periods for young companies in recent memory. Their secrets? Some found growing niches, and never mind what might be happening in the rest of the economy. And some uncovered the good blown by all those ill winds, thus capitalizing on the general misfortune. But then there are the others -- the dot-commers, the telecoms, and even a Silicon Valley manufacturer -- that leave you asking, Wait a second -- how did they do that? Clearly, these folks knew some things that everybody else did not.

The thing about economic indicators, those gross measures that we all rely on to gauge the business climate, is that they mislead. Look at the period from the beginning of 1999 to the end of 2002, for example, and you might conclude that everyone was riding the same roller coaster. The Dow peaks at nearly 11,500, then plunges erratically to under 7,600. The Nasdaq hits 4,697, then retreats to 1,172. Unemployment -- probably the best indicator of the economy's overall performance -- falls below 4% in late 2000. Two years and two months later it is two full percentage points higher, which doesn't sound like much but in fact means that roughly half again as many people are out of work. The big picture: unambiguous boom followed by unambiguous bust.

But now, zoom in a little. The U.S. economy isn't one big marketplace, it's a zillion little ones -- and even in downtimes, savvy entrepreneurs have a knack for finding friendly niches. Thanks to rock-bottom interest rates, for example, the mortgage-lending industry pretty much skipped the bust and just kept expanding. So this year's list includes 29 mortgage companies, among them five that were founded as late as 1999.

Consumer Confidence Index

• 1999: 134.2
• 2004: 98.2

Or take health care. "The pressures associated with downturns in the economy aren't quite as greatly felt in health care," says Darryl Hart dryly. Hart should know: Once he quit focusing his supply-chain management company, Commodity Sourcing Group (No. 16), on the automotive industry and refocused it on health care, his firm's prognosis for success was much improved. "We got one contract, which led to another, which led to another," he recalls. "Our revenue went from a couple of hundred thousand dollars to a million to $3 million to $9 million to $23 million. That all happened fairly quickly."

As the cryptic line in the musical Pippin says, "It's smarter to be lucky than it's lucky to be smart." But some companies were both smart and lucky, though luck seems not quite the right word when a business is positioned to grow on the basis of tragedy. Case in point: SecureUSA (No. 242), in Cumming, Ga. After the Oklahoma City bombing in 1995, government agencies and others began placing vehicle barrier systems around their buildings. But most of the new systems weren't correctly installed or properly maintained. Entrepreneur Bevan Clark proposed to do a better job. His company, which forged an alliance with a major manufacturer, launched its website in August 2001. "And then we had 9/11," says Clark. By early 2002, SecureUSA's sales were on a sharp upward path and have continued so to this day.

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