The laws of physics describe a relationship between velocity and inertia: The faster something moves, the harder it becomes to change its direction. The laws of business suggest that the more momentum a company achieves, the more strategic options it has. Somewhere between those two laws--and muddled by the vagaries of markets, technology, and human frailty--lies an explanation for the diverse fates of companies that have reached No. 1 on the Inc. 500. Years after that moment of extraordinary momentum, some have stayed on their trajectory to greatness. Some have relaxed into stasis. And some have simply vanished.
There are no general rules to extract from the experiences of these companies, which collectively differ little from the experiences of Inc. 500 companies in general. Of the 23 businesses topping the list since 1982--one company, Cogentrix, topped the list two years in a row--seven are still private, twelve have been acquired, three went public, and one, Equinox International, went the way of other ill-mannered multilevel marketers, closing down in 2000 after an investigation by the Federal Trade Commission. Still, it is instructive for entrepreneurs who have made or who aspire to make the list to see where momentum can take them. The following profiles illustrate some of those possibilities. No company can entirely control whether it ends up as a Kingston Technology or a Drypers--but it is simultaneously sobering and inspiring to recognize that both are possible.
In 1994 Ken Marshall, CEO of that year's No. 1 company, Object Design, in Burlington, Massachusetts, expressed relief that investors weren't pressuring the business to go public yet. Marshall, who had joined the $26 million database-management software company 18 months after launch, wanted time to smooth unpredictability out of the system. But like most everyone else, he saw IPO scrawled all over the company's horizon.
One year later, his views had changed. Marshall believed selling the company would generate a greater return. He left, and the company's founders led Object Design to a successful IPO in 1996. "It was a very lucrative outcome," Marshall says, "but I think it would have been more lucrative if they had sold." Object sailed along for a couple of years, then started a slow decline as behemoths like Oracle and Informix introduced competing products. The business merged with another company and was ultimately purchased by Progress Software in Bedford, Massachusetts, for what Marshall says was "a fraction of the IPO value."
As for Marshall, he says running Object Design "gave me the bug to start something from scratch." In 1997, he launched Extraprise, a Boston-based customer-relationship-management business. "We grew it faster than we grew Object Design--to $50 million in four years," he says.
Poised to go public in 2000, Marshall again preferred not to--and this time he got his way. "We very quickly raised another round of venture money, and then after the bubble burst we pretty dramatically downsized," he says. "That's why we survived, compared with 95 percent of the others in our space."
The richer Kenneth Hendricks gets, the richer his story becomes. Starting, if not from rags, at least from discount-store jeans, this high school dropout turned utility company worker turned entrepreneur took ABC Supply to No. 1 in 1986 with $183 million in sales. That performance followed two years in which the company could do no better than No. 3 (in 1985) and No. 2 (in 1984). Since then, Hendricks has erased some of that shame by taking his building-supply business, based in Beloit, Wisconsin, to $3.1 billion in revenue, 6,000 employees, and 335 stores. "We want to be a $5 billion business in three years," says Hendricks, "and we have to slow down to get there."
The founder's 100 percent ownership stake has earned him a place on another list: Forbes' annual roster of the wealthiest people in America. "It doesn't make any difference to me: I can't spend it," says Hendricks. "I'd have to sell the company, and I'll sell the company over my dead body."
Hendricks is so possessive because, among other things, he gets a big kick out of providing jobs for the folks of Beloit--including his wife, a son-in-law, and five of his seven children. The greater thrill, though, is transforming collars from blue to white. "We had 600 people at our last managers' meeting, and I asked, 'How many people in this room started as a roof loader, a warehouse person, or a truck driver?" says Hendricks. "We counted: 47 percent of them stood up."
Two decades ago, Hendricks told Inc. "there's a saturation point to all this," but that tune has changed. "I'm 64 years old," he says now, "and I'm as engaged as if I were 20."
For most of the 1990s, Sigal Construction quacked like a very global company. Gerald Sigal's baby, which hit No. 1 in 1983 with sales of $47.5 million, constructed two universities in South Korea. It built 5,000 houses in Israel, introducing dry wall to a country that had known only cinder block. And it erected the first prefabricated houses in Siberia. "We made them in Columbia, Maryland, and shipped them to Baltimore, where we put them on a boat to St. Petersburg," says Sigal. "Then we put them on the Trans-Siberian Express."
During that period, Sigal Construction reached $240 million in revenue and opened offices in cities such as New Orleans and Sacramento. "But then I realized I wasn't making any money," says Sigal. "So I decided to become a boutique contractor in Washington, D.C. Now I work south of Baltimore, north of Richmond." Today, Sigal's revenue is around $198 million, the company is profitable again, and its founder limits long-haul plane trips to vacations. He has performed large-scale interior renovation and other work on the departments of State, Justice, and Agriculture.
While Sigal says he's received "incredible" offers from interested buyers, he has never been tempted. The business is too closely entwined with his life. Sigal has known some staff members more than a third of his 63 years; he bestows Rolex watches on employees after two decades of service and so far this year he's distributed eight. Five years ago his son joined the business after serving a parentally mandated stint with Sigal's own former employer, Tishman Realty and Construction of New York. "This is what I've always wanted it to be: a family business," says Sigal. "I couldn't be happier."
David Giuliani built his old and new companies on similar technologies. But the old company, Optiva, appealed to people's desire for oral hygiene, while the new one, Pacific Bioscience Laboratories, appeals to people's desire to look young and hot. Surprisingly, the hygiene product was an easier sell.
That product was the Sonicare toothbrush, a patented device that vibrates teeth clean using sound waves. In 2000, three years after Optiva topped the 500 with nearly $73 million in revenue, Giuliani and his co-founders sold the toothbrush maker to Royal Philips Electronics for an undisclosed amount.
"There are a lot of ladies who were telling me, 'You know, that's really good what you did for oral hygiene, but I'm getting old!" --David Giuliani
After consulting for Philips during the transition, Giuliani, a former Hewlett-Packard engineer, started wondering: If vibrations clean teeth, could they also clean something bigger and more visible--like skin? Vanity, he knew, is a powerful motivator. "There are a lot of ladies in my life who were telling me, You know, that's really good what you did for oral hygiene, but I'm getting old!" the entrepreneur recalls. "And maybe I looked in the mirror and saw the same thing."
Giuliani reunited with some colleagues and investors from his Optiva days to start Pacific Bioscience in Optiva's old hometown of Bellevue, Washington. Its first product, introduced last year, is the Clarisonic Skin Care Brush, which uses technology similar to Sonicare's to make the derma firmer and fresher looking. PBL sells the $195 product through dermatologists, spas, and aestheticians as well as through high-end retailers like Sephora and Nordstrom. Giuliani won't disclose his revenue, but he says the company is growing rapidly and will eventually surpass Optiva's.
Some things at Kingston Technology haven't changed since the company made No. 1 in 1992. Co-founders David Sun and John Tu still occupy cubicles in the sales department. They still know most of their employees by name, at least the ones who work in their U.S. offices. And they are still self-deprecating to a fault. Back then, Tu told an Inc. reporter that Kingston's business--fabricating memory products for computer and electronic equipment--was as simple as "making chocolate chip cookies." When reminded recently of his partner's comment, Sun sounds gleeful. "Yes, it's exactly like that!" he exclaims.
Then there are the differences. Fourteen years ago the Fountain Valley, California, company had $141 million in revenue and 130 employees; last year Kingston topped $3 billion, and its global work force reached 3,000. Its ownership has also changed--twice. In 1996, Sun and Tu sold 80 percent of the business to Softbank and famously distributed $100 million of that in bonuses to employees. "Softbank knocked on our door and kept giving us money after money after money," says Sun, clearly relishing the story. "It goes from $800 million to $1 billion to $1.2 billion to $1.3 billion to $1.5 billion! My partner and I said, Boy, if we don't sell we are probably the dumbest guys in the history of IT."
The founders stayed with the business, and for the next few years, says Sun, he and Tu worked harder than ever--"just to make sure we don't disappoint them." But by 1999 Softbank had eyes only for the Internet. "They ask us, Do you want to buy it back? Give us a price," recalls Sun. "So in one day we strike the deal." The price--$450 million--was less than a third of what Softbank had paid.