Great Timing

So it's not hard to understand how some of those 1999 companies made this year's list. But then there are the others, the ones that grew in markets that can only be described as wastelands, that really make you wonder how they pulled it off. Remember when e-commerce was the hottest market of them all? Back in those heady days, Steve Simonson was running a flooring store in Bellevue, Wash., near Seattle, but he was a "tech guy from way back" and he really wanted to join the party. He racked his brain for something to sell online, until finally it hit him: "After tripping over flooring samples for the umpteenth time, I finally said, 'Why don't I just try to sell floors?'" He managed to find a few programmers even in Seattle's zipped-tight labor market. He got a building ("basically a teardown") and fixed it up. And, yes, the customers were there. "How cool is it to come in on Monday and see orders that were placed without human interaction?" he says. "Very fun!"

Prime Interest Rate

• 1999: 7.75%
• 2004: 4.25%

The birth story isn't much different for Noreen Kenny. She was working for a Silicon Valley semiconductor company and couldn't find a supplier to do precision mechanical work. A business niche, she surmised -- why not start a company? She too had the people problem: She had to persuade several workers from her old employer to join her, then get them to talk friends and family into applying for jobs. Space was tough to come by as well. The only facility she could find in the Valley was going for $3.50 a square foot, unheard of for a plain-vanilla manufacturing facility. But, boy, was she right about that niche. "We got the work as fast as we could take it," she says now. "I think it ramped up 700% in the first year."

And then there were the telecoms. Remember that industry's irrational exuberance? WorldCom and Global Crossing were growing like there was no tomorrow. The Baby Bells and others were pouring money into fiberoptic lines. The Telecommunications Act of 1996 -- "the first major overhaul of telecommunications law in 62 years," according to the FCC -- was designed "to let anyone enter any communications business." The word was that new entrants could snatch as much as 25% of the market from the Bells and other established firms.

For entrepreneurs, the pull was irresistible. "We were part of that initial euphoria," acknowledges Dan Moffat, of New Edge Networks (No. 28) in Vancouver, Wash. "I had top-tier venture capitalists calling me at home, 11 o'clock at night, saying, 'Take our money!'" Moffat dove in with a plan to take broadband capabilities to nonmetropolitan areas -- "broadband for the rest of us." Paul Chapman jumped in too, though his own niche was different. A GTE veteran, Chapman set up a little company called Pathwayz Communications (No. 121) in Amarillo, Texas, to provide local and long-distance service to towns in West Texas. "It was this crazy time," he remembers. "There were lots of start-ups."

It wasn't long before that fiery enthusiasm all but evaporated. Big firms downsized, start-ups vanished, e-commerce and telecom ventures were suddenly reclassified as likely losers. Silicon Valley seemed particularly toxic. It was a terrible time -- except, of course, for our exemplars, who not only lived but thrived.

Common lessons emerge from these survival tales, even though the companies come from very different industries. Call them the Lessons of Keeping Your Head Even When People Around You Are Losing Theirs.

Lesson No. 1 might be titled Don't Take the Money. One thing that distinguished Smooth Corp. and other e-commerce survivors such as shoe seller Zappos (No. 15) is that they didn't go after venture bucks during the boom and so didn't find themselves overextended later on. "Because we didn't raise $20 million, we didn't spend $19 million on marketing," says Smooth Corp.'s Simonson. "We didn't build an infrastructure bigger than the business would serve." Same with Pathwayz. "We didn't think we needed the kind of dollar amount that group tends to want to invest," recalls Chapman, "and we had concerns over what they wanted."

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