Inside the Mind of the Entrepreneur
Imagine the U.S. economy as a somber, gray landscape. Now scan it with a thermal imaging device. See those vibrant green lights indicating heat? That's the Inc. 500.
At a time when growth in the United States and Europe has largely stalled, the Inc. 500 companies are surging. Our annual ranking of America's fastest-growing private companies proves that even without tailwinds from the overall economy, some companies can achieve impressive acceleration. This year, the 500 racked up a median growth rate of 1,828 percent--up from 1,739 percent last year. Collectively, these companies have created just over 46,000 jobs.
We talk about the Inc. 500 as a collection of elite companies, but what this ranking really honors is a collection of elite entrepreneurs. More than 90 percent of Inc. 500 CEOs are also their companies' founders. They are leaders with outstanding resumes. Seventy-two percent are serial entrepreneurs, and 21 percent founded their first business before age 20. These people are, by their own proud declarations, "unemployable." But not in the sense that other companies don't want them. Only in the sense that other companies can't contain them.
And yet, oddly--perhaps disingenuously?--roughly three-quarters of the Inc. 500 CEOs attribute much of their companies' success to luck.
We're not buying it. And we haven't bought it in the decades we've been writing and learning about these folks. We've always assumed the leaders of America's fastest-growing companies were not merely in the right place at the right time with the right resume. Rather, we've believed them to be disproportionately gifted with the talents needed to build businesses.
This year, for the first time, we can prove it.
When Mike Feldman first saw an iPhone, he did not think, I should build an app for that! Instead, he thought, This technology is great, but it isolates people. I should come up with something that would bring people together. Feldman's company, T1Visions (No. 456), creates large-format touchscreens that let people in stores, classrooms, and offices share photos, play games, and collaborate. How did he test the product? By starting his own restaurant and embedding giant touchscreens in the tables and walls. His newest installation can be found at the Cowfish restaurant at Universal Orlando's CityWalk.
Feldman is a "creative thinker," one of the key entrepreneurial strengths identified by significant new research into entrepreneurship. Over five years, Gallup, the global research and consulting firm, studied more than 4,000 founders to understand the talents that foster business creation and growth, and determined the 10 most significant. The organization then created an online assessment tool to measure those talents in individuals. The tool is the latest iteration of Gallup's very popular StrengthsFinder methodology, introduced by Marcus Buckingham and Donald O. Clifton in their 2001 best-selling book, Now, Discover Your Strengths.
We invited our 2014 Inc. 500 leaders to complete the Entrepreneurial StrengthsFinder assessment. One hundred fifty-five did so. Gallup then compared the results with those from a national sample of close to 2,700 entrepreneurs. In every dimension, the Inc. 500 leaders scored higher. In some cases, Everest-versus-Rushmore higher.
Gallup found that Inc. 500 founders were more than twice as likely as the national sample to score "high" on all 10 entrepreneurial strengths. Inc. 500 founders also proved themselves multi-trick ponies, on average scoring high on six of the 10 strengths. The national sample scored high on just two. Sixteen percent of Inc. 500 CEOs earned scores high enough to be classified as "exceptional" by Gallup, compared with 2 percent in the national sample.
Gallup's chairman and CEO, Jim Clifton, contends that the United States invests too much attention and too many resources in innovation, and not enough in "the real source of economic energy, which is the unusually talented entrepreneur who is able to create a customer." He thinks the assessment can help identify people with entrepreneurial strengths so they can be encouraged and developed. That the assessment clocked the country's highest-performing entrepreneurs as the country's most talented entrepreneurs suggests he may be right. (Clifton's book Entrepreneurial StrengthsFinder, co-authored by Sangeeta Badal, Gallup's lead researcher in entrepreneurship, comes out at the end of September.)
The Inc. 500 entrepreneurs excel in every area identified by Gallup. But they absolutely dominate in three strengths--risk-taking, business focus, and determination--compared with the national sample. Those strengths are, not coincidentally, the ones most universally associated with business starts, survival, and scaling.
The group's top-ranked talent is risk-taking--which will surprise nobody. After all, without risk there is no business. To launch their companies, these entrepreneurs were willing to sacrifice everything, from parents' retirement funds to cushy executive perches. The Inc. 500 is packed with risk-takers walking away from six-figure salaries and taking on debt--often with young families in tow to sharpen the edge.
Gallup says those with a talent for risk-taking possess a highly optimistic perception of risk but are also rational decision makers who have an extraordinary ability to mitigate that risk. The assessment shows that Inc. 500 founders are more likely than other entrepreneurs to take more and bigger risks. But they are also more likely to optimize their chances for good outcomes and, consequently, rapid growth.
As a company grows, so do the risks. More is at stake--a business with a beating heart. That was certainly the case for Clayton Mobley. For the first four years that Mobley ran Spartan Value Investors (No. 246), in Birmingham, Alabama, the company bought and resold foreclosed homes to consumers, with annual growth of 80 percent to 150 percent. Then, Mobley figured the company could quadruple revenue and profits by selling rental properties to investors and managing those properties for the new owners. Switching markets would require retraining 75 percent of staff, increasing monthly marketing expenses from nothing to $20,000, developing new services such as property management, and investing 60 percent of capital. Failure to execute would likely close Spartan's doors.
Mobley spent nine months studying the new industry. He was away so often doing research that vendors thought he had left the company. At last, he pulled the trigger. This year, Spartan is on track to grow 800 percent. "You do everything you can to stay objective and make the right decision," says Mobley. "But at the end of the day, you have to make a bet on yourself."
Without risk, a company can't be born. Without business focus and determination, the Inc. 500 CEOs' second- and third-ranked strengths, a company can't survive and scale.
Gallup defines business focus as an emphasis on profit, goals, and metrics; basically, viewing decisions through a will-this-make-us-money lens. According to Gallup, the most talented Inc. 500 leaders were about 54 percent more likely to exceed their profit goals than the most talented leaders in the national sample.
So while a typical company leader might hold weekly or monthly executive team meetings to discuss metrics, many business-focused Inc. 500 leaders report meeting daily to dissect every data point and adjust accordingly. At Touchsuite (No. 259), a seller of point-of-sale technology, in Boca Raton, Florida, every lunch hour is devoted to the numbers. New goals are set monthly, and quarterly goals are chosen on the basis of a thorough analysis of maximum tangible impact. The team reevaluates three-to-five-year goals annually.
Those practices speak to focus and discipline. But the best business minds are also clever. Touchsuite's CEO and founder, Sam Zietz, once sent a potential business partner who didn't return calls and emails $100 for five minutes of his time. When that potential partner was slow to sign a contract, Zietz filled out the forms for him and FedExed them with a new Montblanc pen, kicking off a lucrative relationship. "Total cost to acquire," says Zietz, "about $200."
Gallup describes determination, the third-ranked talent, in terms of work ethic and the drive to achieve. The 500 are an unusually driven bunch. Ninety-seven percent of high-scoring Inc. 500 entrepreneurs said they intend to grow significantly.
Gallup also associates determination with a high "adversity quotient." Highly determined entrepreneurs have the ability to overcome obstacles and persevere despite failure. That rings true. We have rarely interviewed an Inc. 500 founder who hasn't experienced a "dark night of the soul."
Bernadette Coleman endured a very dark night in 2011, starting with the news that her son, Michael, was in a coma following a car crash. At the time, Advice Interactive Group (No. 328), Coleman's Internet marketing company, based in McKinney, Texas, was just getting past its wobbly-fawn stage. For months, Coleman and her husband, Tom, the company's CFO, ran Advice Interactive from Michael's bedside and the stairwells of a Florida hospital. When performance lapses in the leaderless office threatened accounts, the couple redoubled their efforts. When half the staff quit--several to launch a competing business--the couple took turns flying back to Texas to hire replacements and run the company. "We were fighting for our son's life and for the company," says Coleman. "We had no choice but to prevail at both." This is Advice Interactive's third consecutive year on the Inc. 500, with revenue up more than 1,400 percent since the family's annus horribilis.
With all that grit and focus, you would expect the Inc. 500 CEOs to be virtually invulnerable. And yet….
In 2011, the Kauffman Foundation, the world's largest organization devoted to entrepreneurship, investigated the fates of 1,300 companies that appeared on the Inc. 500 from 2000 to 2006. Kauffman found that in 2010, 40 percent to 50 percent of those businesses had generated less revenue than in the year they made the list. Five percent were on the slab. The economic downturn obviously contributed to those outcomes. But Kauffman's findings suggest that, over time, the things entrepreneurs do to propel their companies onto the 500 may not prevent their decline.
A different slice of the Gallup data presents a possible explanation. Gallup has defined three entrepreneurial "styles," drawing on the assessment's strengths. An entrepreneur's style represents the way he or she prefers to operate. Activation entrepreneurs are forceful: They make things happen. Strategic entrepreneurs are big-picture thinkers: They are creative and take the long view. Relational entrepreneurs are highly self-aware: They expand their businesses by building strong relationships.
All of the Inc. 500 leaders' powers are great, but it seems their superpowers are largely concentrated in one area--forty-five percent have an activation style (compared with 29 percent in the national sample). That makes sense. After all, this list tracks growth rates. The more force you apply to something, the faster it accelerates. These are also relatively young companies (the average age is six years), which require momentum to achieve very aggressive goals.
By comparison, the Inc. 500 CEOs are much softer on the soft skills. Only 16 percent have a relational style, compared with 40 percent for the national sample. And relationship-building turned up more often in the national sample's top three strengths than in the Inc. 500's top three strengths. In fact, relationship-building is the one strength in which Inc. 500 founders scored below--though not far below--the 75th percentile.
Gallup describes relationship builders as having high social awareness, building mutually beneficial relationships, and getting to know customers and employees outside of work. Of all the strengths, relationship-building takes the most time and patience, and the payoff is rarely immediate. That may explain why the action- and achievement-oriented Inc. 500 leaders lag behind in this area.
Clifton has an alternative take. "I've known a lot of pretty famous entrepreneurs," Gallup's chairman says. "A lot of these people aren't very likable."
Perhaps they can learn from Marie Forleo, one of the few Inc. 500 entrepreneurs to count relationship-building as one of her top two strengths. Forleo is the founder of New York City-based Marie Forleo International (No. 472), which offers entrepreneurship and personal-development programs online. She has found not only jobs but also clients and employees while working in some of the most people-person jobs imaginable: bartender, fitness instructor, and life coach. She is forever introducing people to others who might help them, and being introduced in turn. Her relationships have won her invitations to appear on Oprah Winfrey's and Tony Robbins's programs, and her philanthropic work garnered her an invitation to travel to South Africa with Richard Branson.
"Every relationship that has helped me is the result of a from-the-heart, honest connection with someone I know and like," says Forleo. "That's where all the good things in life come from."
Numerous books and studies have demonstrated that collaborative leadership is ascendant, which makes expanding and deepening relationships a critical skill. It's especially important because relational is the dominant style evinced by the national sample of entrepreneurs. Over the long run, some of our entrepreneurial bullet trains may lose ground to the Little Engines That Could.
Relationship-building and other contributors to the relational style are feminine traits, leadership studies show. That could be a problem for the 500. The number of women-led companies on the list is growing. It hit a high this year of 13 percent, compared with the previous high of 11.8 percent, in 2010. But it is still low. Meanwhile, the Inc. 500's large population of alphas can modify their styles only to a limited extent. Gallup's Badal says talents are "based on one's brain circuitry and personality, which is established very early on in life and has very minor changes."
The lesson for the entrepreneurs of the Inc. 500, then, is to keep doing what they're doing. But hire and develop women and men who are makers of friends and influencers of people. By using those softer strengths to enrich the action-oriented talents they already possess, the Inc. 500 leaders can continue to rack up the extraordinary gains and successes you will read about in the rest of this issue.
How the 2014 Inc. 500 Companies Were Selected:
This year's list measures revenue growth from 2010 to 2013. To qualify, companies must have been founded and generating revenue by March 31, 2010. Additionally, they had to be U.S.-based, privately held, for profit, and independent--not subsidiaries or divisions of other companies--as of December 31, 2013. The minimum required 2010 revenue is $100,000; the minimum for 2013 is $2 million. Revenue listed in the company profiles is for calendar year 2013. Employee counts are as of December 31, 2013. Full-time and part-time employees are included in the employee counts; independent contractors are not. Inc. reserves the right to reject applicants for subjective reasons. The companies of the Inc. 500 represent the top tier of the Inc. 5000, which can be found in its entirety on Inc.com.