THEY ARE, IN MANY WAYS, A MICROCOSM OF THE American economy -- a reflection of its variety, testimony to its volatility, the symbol of its vibrancy and strength. Few are well known, but nearly all have interesting, even dramatic stories to tell about where they've been and where they are headed. If you could somehow gather them under a single tent, it would be one hell of a party.

Meet the 1987 INC. 500. Although we can calculate all sorts of averages about this group of 500 businesses, it is probably more truthful to admit that none is typical. In size they range widely, from 3 employees to 1,660. In annual sales they run the gamut from $734,000 to $300 million. In age, they encompass everything from entrepreneurial bloom (5) to comfortable middle age (44). Many of these companies have made their owners wealthy, but more than a few remain doggedly unprofitable. The details about all 500 companies begin on page 75.

What the members of the INC. 500 have in common is that they are growing, and growing fast. Here is an elite business club whose members must have seen sales climb at least 526% over the last half-decade. At the top of the list, the pace of growth proceeds at such a fevered pitch -- 52,000% in the case of #1 American Photo Group -- that to calculate percentages is virtually meaningless. Curtis Hartman takes the measure of American Photo Group in other ways, beginning on page 68.

Over the past months we've spoken to the chief executive officers of just about all the INC. 500, and we can report that there is no magic formula for business growth -- if there were, we'd have long since patented and bottled it. What there is, however, is a common experience. Running any business is a challenge, but running businesses that, on average, are growing at the rate of 90% each year, year after year, is something else again. It is the special difficulties of managing such rapid growth that ties together the individual histories of these 500 companies, and that is the subject of our INC. 500 coverage this year.

In the pages that follow, we explore four common challenges that INC. 500 firms have faced and overcome.

* Building a management team. Bringing new managers on board is hard enough. Figuring out what to do with the old ones can be the hardest thing a CEO ever has to do. Often it is a trusted colleague who becomes the problem, or a friend who helped start the business a few years ago. Now, the business has taken off, and some members of the original team have reached their level of incompetence. What is the right thing to do as a manager? As a human being? Tom Richman talked with two CEOs who confronted this dilemma. Their stories begin on page 53.

* Building a dependable work force. Teleconnect Co. (#84) grew from 75 employees in 1982 to 1,174 last year -- adding, in other words, an average of 5 employees every week, week in and week out, for four straight years. An extreme case? Yes. But even the average INC. 500 company increased its work force more than fivefold in the same period. When your business's future depends on so many green recruits, you have to find ways of training them -- fast, and in ways that reflect your company's particular goals and values. Joshua Hyatt profiles a few companies that have learned to do it right, beginning on page 54.

* Finding working capital. A fast-growing company needs cash the way a teenager needs food: right now, please, and plenty of it. You'd think the banks would jump at the chance to provide such capital -- if sales are growing, these companies must be doing something right. But bankers don't always see it that way, and Bruce G. Posner spoke with several companies that learned to work around them -- or without them. His report begins on page 56.

* Coming up with a second act. Markets have a disconcerting way of maturing: some get saturated, others attract competition. Either way, a growing company can't rely forever on one product or one narrow set of customers. The problem is that success in round one by no means ensures success in round two. Paul B. Brown describes the fine art of learning from failure, beginning on page 60.

By focusing on these issues, we don't mean to imply that growing a company is simply an endless succession of headaches. It is the rare INC. 500 CEO who doesn't revel in the emotional high of managing a company on the move. Rarer still are the managers who can sustain that high over long periods of time. This year we salute six new companies that have made the INC. 500 for five years running. The 1987 entries to our Honor Roll begin on page 136.

Published on: Dec 1, 1987