Growth.

It is something of an American obsession. In many societies, a desire for increased equality or preserving the status quo is deemed at least as important as growth for its own sake. But in the United States, it's pretty rare to hear economic proposals that don't encourage, or depend on, continual growth.

If you have listened to President Trump in recent months, you have heard him crowing about what is "probably the best economy the country's ever had." He backs up this powerful--if exaggerated; growth was higher in the '50s and '60s--claim with the report that the national economy grew at annual pace of more than 4 percent in the second quarter. (The degree of credit Trump deserves for this growth is, of course, hotly debated.)

Inc., too, is obsessed with growth--it is the yardstick by which we measure our annual Inc. 500 and Inc. 5000 lists, an in-depth look at the performance of America's top private companies. And the growth we document and celebrate is nothing short of breathtaking. Trump and many Americans may be excited about 4 percent, but no company on the 2018 Inc. 5000 list has grown by less than 50 percent over the past three years. To make the even more exclusive Inc. 500 list this year, a company had to grow by more than 1,000 percent.

From a macroeconomic point of view, these dynamic firms go a long way toward justifying the American obsession with growth. The American economy in the immediate postwar period was dominated by huge conglomerates. But beginning in the 1980s, and especially in the 10 years since the Great Recession, the country's largest firms have been forced to operate lean, and have shed millions of jobs over the years. At this time, some economists (notably David Birch and James Medoff) began focusing on younger, smaller firms they called "gazelles" as the source of much future job growth.

So think of Inc.'s list as the Gazelles' Greatest Hits: The mostly newish and fast-growing businesses on these lists are the true job creators: Only about 12 percent of American companies achieve one-year revenue growth of 25 percent or more. Yet those are the companies that are responsible for half of all jobs created. 

At Inc., we nonetheless know that this breakneck growth comes with a vast array of challenges. Some of those challenges are fairly obvious to anyone who's tried to run a business. "Growth eats cash," says Alan Moore, co-founder of XY Planning Network, a Bozeman, Montana-based organization of financial advisers that focuses on Generation X and Y clients, and sits at No.168 on this year's list. "You can outgrow your cash flow if you're not careful."

The toughest challenges that fast-growing businesses face, however, go beyond what a good accountant or adviser can solve. Year after year, respondents to Inc.'s CEO Survey say that finding and retaining talented employees is their number one headache--and this is especially acute in today's economy, in which the official unemployment rate is lower than it's been in decades. (Many other surveys of company leaders find similar results.) A business that is doubling or tripling in size every few months usually needs new staff constantly--and that pace of hiring brings risk. "It's easy to rush a hiring decision, but in the long run, it will hinder your scaling efforts by hiring a B-player," says Jeff Knauss, co-founder of the Digital Hyve, a marketing firm in Syracuse, New York, which is No. 52 on this year's list. (In the June issue of Inc. magazine, we offered a variety of oft-overlooked staffing solutions, among them hiring refugees and the latest high-tech approaches for finding and screening job candidates.)

Another predictable result of a tight labor economy is that the most talented employees can afford to be picky about where they work, which means that workplace culture is more important than ever. Our CEO Survey shows that the people running fast-growing businesses keenly understand how important this is, as well as how difficult it is to preserve when the company is bulking up. Consider Debbie Madden of New York City-based tech consultancy Stride--No. 256 on this year's list--whose staff has increased from four to 48 in three years. Asked to name the biggest danger in growing too fast, Madden puts it simply: "Culture. Culture. Culture."

Not surprisingly, the entrepreneurs who've created these powerhouse companies have also found effective ways to motivate their teams. Sometimes they rely on old-fashioned rewards. "We have a monthly bonus pool for those who've been with the company over one year," says Michael Moran, CEO of Private Label Extensions, a hair extension company in Atlanta and No. 278 on this year's list. Others -- particularly in tech and marketing -- ladle on perks. Brock Berry, of Denver-based ad tech firm Adcellerant (No. 83 on this year's list), says, "We offer a fun work environment with games, work parties, beer on tap, dog-friendly office, two annual events, paid maternity and paternity leave, stock options, gym, flexible hours, family friendly, bicycles in the office, Bose noise-canceling headphones for everyone, and food on site at all times." (Appropriately, Adcellerant has twice made Inc.'s annual Best Workplaces list.) Still others seek to knock their employees' socks off with one big gesture: "We go on a company-wide trip every year (last year we went to Tokyo, the year before we went to New Zealand)," says Eden Chen, co-founder of the El Segundo-based tech firm Fishermen Labs (No. 185).

And what do these masters of growth think about Trump and his claims regarding economic growth? Those who responded to the Inc. CEO Survey did not display a lot of love for the president; many lamented a diminished view of the U.S. in the eyes of the world. Several CEOs, asked to name the Trump administration's biggest accomplishment, said "none" or simply "getting elected." Nonetheless, tax cuts were often cited as a big accomplishment, and a significant number of CEOs respect Trump for his attempts to negotiate with North Korea. A few named job growth as an accomplishment, which is reasonable enough. But at Inc., we believe the credit for job growth should go to the leaders who've made this list.

 

How the 2018 Inc. 500 Companies Were Selected

Companies on the 2018 Inc. 500 are ranked according to percentage revenue growth from 2014 to 2017. To qualify, companies must have been founded and generating revenue by March 31, 2014. They must be U.S.-based, privately held, for-profit, and independent--not subsidiaries or divisions of other companies--as of December 31, 2017. (Since then, some on the list have gone public or been acquired.) The minimum revenue required for 2014 is $100,000; the minimum for 2017 is $2 million. As always, Inc. reserves the right to decline applicants for subjective reasons. Note: Growth rates used to determine company rankings were calculated to two decimal places. There were two ties on this year's Inc. 500; the com­panies with more revenue were placed higher.

Published on: Aug 15, 2018