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Where the Growth Is:America's Fastest-Growing Private Companies

If there had been an Inc. 500 back in 1810 -- maybe in those simpler days it would have been an Inc. 50 -- Eli Terry's company would surely have made the list. The Connecticut clock maker had started his business only a few years earlier, but by 1810 he was cranking out an unheard-of 3,000 clocks a year.

Worth an article, no doubt. Sent to investigate this fast-growth company, an Inc. reporter of the day would have come back astonished. This guy Terry doesn't build clocks to order, like everyone else; he makes them first, then he sells them. His 12 workmen use high-tech, water-powered machinery to turn out big batches of parts. And -- get this -- his clocks are sold to customers by a huge network of Yankee peddlers, as far south as Richmond and as far west as Buffalo. Some of the peddlers don't even ask for money until their next visit.

In 1989 we tend to be jaded about such things. But in 1810 factory-style production and nationwide, buy-now-pay-later marketing were harbingers of a business revolution. From such seeds came the mass-production economy of the late nineteenth century.

Which makes you wonder: who are the Eli Terrys of today? Where are they located, and what businesses are they in? What can the companies they run tell us about tomorrow's business landscape?

Welcome to this year's list of the 500 fastest-growing privately held companies in America. It has become a truism to say that the business marketplace is undergoing convulsive change. Yet here are 500 enterprises that -- far from being swamped by economic upheavals -- have somehow managed to take advantage of them, to get out in front, to grow at stunning speed despite ever-more-intense competition. Just perusing the list, as we'll see below, tells us much about how the U.S. economy is evolving. And as for running a company -- well, like Terry, the chief executives of the Inc. 500 have learned to manage for the marketplace of the future rather than that of the past. We'd be poor students if we couldn't take home a few pointers from their experience.

So choose your curriculum. The profiles ["Growth Strategies," [Article link]] showcase the strategies that got some of this year's winners where they are today. The story of this year's #1 company -- Cogentrix Inc. -- is told in "Full Steam Ahead" [ [Article link]]. The list itself appears in "The 500" [ [Article link]], and an index ["The 500 Index," [Article link]] also is available.

First, though, consider everything these 500 companies tell us about our new economy -- and about where Eli Terrylike growth is taking place in modern America.

Where the Growth Is: By Region
Point one: this is a big country, with booming growth appearing all over the map. Divide the United States into its four main sections -- Northeast, Midwest, South, and West -- and you'll find something approximating one-quarter of the list in each one. The South is the regional winner, with 145 companies. It's followed by the Northeast (124), the West (120), and the Midwest (111).

Over the past five years, however, both the South and the West have lost ground relative to the other two regions -- which leads to some surprising conclusions about the geography of growth.

* The hot coast these days is the Atlantic, not the Pacific. California is -- as always -- the single-state leader, with 83 companies, down 3 since our 1984 list. But New England, the Middle Atlantic states, and the South Atlantic states rack up 217, a gain of 12 over five years ago. New England alone gained 13 winners since 1984, while Pacific Coast states as a group lost 13. After California, the two leading states are New York, with 34 companies, and Massachusetts, with 29.

* Adjusting for population, the tilt toward the East becomes even more pronounced. Seven of the top 10 states are on the East Coast, while California drops to #9. Staid New England has half again as many winners per million residents as the Pacific Coast states. Going back to those four main regions, the Northeast is now the hands-down winner, with the South bringing up the rear.

* Something remarkable is happening in what used to be called the Rust Belt. Ohio, Indiana, Illinois, Michigan, and Wisconsin have 89 companies among them, up from 75 in 1984. Michigan alone added 18 listees in five years, including 6 since last year. "We're seeing a lot of spin-off activity from large corporations, both in manufacturing and services," says John E. Jackson, a professor at the University of Michigan who's an expert on the state's economy. "And the state government has been instrumental in supporting that kind of entrepreneurship."

Only a few states -- Alaska, Mississippi, Montana, and Nevada -- didn't make the list at all. Sparsely populated Wyoming made it for the first time in a few years, thanks to Moose's Welding & Construction (#368). Gardener's Supply (#310) and New England Builder (#463) put tiny Vermont on the list, also for the first time in a while. Maine has three Inc. 500 companies this year; from 1983 through 1987 it had none at all.

Where the Growth Is: By Sector
The economic story of the past decade -- you can read about it in half a dozen books, not to mention magazines and newspapers -- has been the decline of U.S. manufacturing and the rise of the service economy. Today fewer than one-fifth of workers in the United States are in the industrial sector.

Which doesn't exactly explain why 33% -- one-third -- of this year's Inc. 500 companies are manufacturers, up from 26% a year ago and 24% two years ago. Run your eye over the list and you'll spot companies making auto accessories, data-communications equipment, model racing cars, composite panels, electronic motion controls, hazardous-waste containers, and dozens of other products, handcrafted and high tech, industrial and consumer.

What's going on here? In fact, the story of what is and is not made in America is more complex than it appears. For one thing, fast-growing companies are still pioneering in numerous technology-based fields. Venture Lighting International (#63) makes state-of-the-art metal-halide arc-discharge lamps. Modular Instruments (#143) makes sophisticated signal-processing recorders for medical research. Other microelectronics companies on the list turn out products as diverse as flight simulators and CAD/CAM systems as well as "ordinary" products such as computer peripherals and software.

Then too, aggressive U.S. entrepreneurs are learning to compete internationally. Quad Systems (#160) makes automated machinery for the manufacture of surface-mount printed circuit boards -- and competes head-to-head with the big Japanese companies that first commercialized this new technology. Quad last year did more than one-third of its business overseas, mostly in Asia. In women's and children's clothing, an industry devastated by imports, David Alon Enterprises (#217) thrives by offering turnaround times foreign producers can't match.

On the face of it, there's not much news in the list's other sector divisions. Distribution and services are down a percentage point or two from last year, elbowed aside by the growth in manufacturing, while retailing is holding steady at 10% and construction at 8%. Even so, we sometimes wonder how much we have to bend reality to come up with any statistics at all.

Take Phil Pachulski's Prime Technology (#329), in Grand Rapids. Prime is a dealer in machine tools, so it's counted under distribution. But Pachulski -- who lets little grass grow under his feet -- also manufactures specialty cutting tools and provides engineering services to clients needing help in systems design. Distribution? Manufacturing? Service? You tell us.

Where the Growth Is: By Industry
Think "fast growth" and your mind runs to glitzy technology companies, the Digital Equipments and Sun Microsystems of tomorrow. Indeed, nearly a quarter of our list this year is in the computer-related category -- up from one-sixth five years ago -- and there are plenty of high-tech businesses sprinkled through the list's other classifications. But the vast majority of Inc. 500 companies don't depend on leading-edge science and engineering; they teach a different kind of lesson about where fast growth is to be found.

Big social changes bring big opportunities for growth. Take health care, which must be a candidate for fastest-changing industry in America. It has been a slippery slope for many businesses, including some of the nation's largest hospital chains and insurance companies. But one company's slip is another's toehold: Inc. 500 companies run health-care centers, provide diagnostic testing, sell data services to physicians, provide contract nursing, rent specialty medical equipment, manufacture electrocardiography instruments -- the list goes on and on.

Or take the 29 environmental-protection companies on the list, which have been broken out into a separate category for the first time this year. While some businesses complain about all the new environmental regulations and requirements, others are, well, cleaning up. Inc. 500 companies do everything from removing asbestos to monitoring agricultural pesticide residues.

More and more, ours is an economy of niches. Roadshow Services (#198) provides trucks and drivers for performers. Information America (#93) puts court records on-line so that lawyers can consult them instantly. Backroads Bicycle Touring (#331) markets van-supported bike tours. In the past, companies grew by offering standardized products to ever-wider markets. Today they grow by carving out smaller, more specialized niches -- and filling them better than anyone else. The diversity is dazzling. If you could somehow shop at an Inc. 500 mall, you could pick up Australian wines, model racing cars, archery equipment, and handcrafted embroidery. You could buy trendy hair-care products, watch a parent-education video, and nibble on some Italian fast food. (Frivolities? Maybe. So were clocks in Eli Terry's day. The farmers who bought from Terry's peddlers didn't need to know what time to milk the cows or when to turn on Cosby.)

There's "churning" even in the most mature of industries. Would you expect to find a distributor of tobacco and confectionery products on the Inc. 500? What about a dealer in recreational vehicles? Yet there they are: printers and photographers, public-relations agencies and photocopying centers, all of them in run-of-the-mill businesses and all of them somehow growing much faster than their competitors.

If we compiled a list of all the companies that went broke last year, we'd find many such businesses on that list as well. Moral: growth is often where you make it, not just where you find it. Plenty of companies were selling toys before Toys 'R' Us came along. And metropolitan Cleveland had plenty of travel agencies before Cynthia Bender's Meridian Travel (#175) was born. Even so, Meridian grew from $625,000 to more than $10 million in five years.

Where the Growth Is: Companies
Five years ago, the typical company on this year's list was the modern equivalent of Eli Terry's clockworks: 20 employees, less than $1 million in sales. A majority were at least modestly profitable even then, but more than one-third reported break-even or loss. Then the growth began.

Today the typical company registers more than $15 million in sales. That figures out to an average increase of 1,407% since 1984, or a 97% compound annual growth rate. It has 135 employees and sales per employee of more than $111,000. Profitability? Nearly 90% of this year's winners are making money, with almost 20% reporting profits of more than 11% of sales.

So much for averages. As with everything else relating to the Inc. 500, the real interest is in the diversity. Despite the constraints of the list -- $100,000 minimum sales five years ago, $25 million maximum -- the differences are dramatic.

The fastest grower -- #1 -- is Cogentrix, an owner and operator of energy cogeneration facilities, up from 1984 sales of $134,000 to 1988 sales of nearly $130 million. Growth rate: 96,716% (see "Full Steam Ahead," [Article link]). Down at the bottom, Infotec Development grew a paltry 573% -- 61% a year, faster than most businesses ever grow -- hitting more than $46 million in 1988 sales.

The revenue leader: American Central Gas (#12), last year's #1, with close to $325 million in sales. Seven other companies on the list registered more than $100 million in sales, taking them well beyond the realm where most people would consider them small. At the other extreme, tiny Tom Walz (#449) chalked up revenues of only $754,000. Yet Walz, which makes saw tips and does related metallurgical and medical research out of Tacoma, Wash., still hit a 654% growth rate.

This year's Most Employees award -- if there were one -- would go to Landmark Hotel (#330), in Topeka, which owns or leases and operates 23 hotels and six restaurants with 3,500 employees. Landmark is also the list's acquisition leader, with 29 -- which is 29 more than most Inc. 500 companies recorded. (More than 400 companies made the list without a single acquisition.) The Fewest Employees award? Corporate Book Resources (#275) and Pauli's Discount Optics (#452), with one each. Corporate Book's Richard Weigen runs his business-oriented book-ordering service by subcontracting order fulfillment and other work. Frederick Pauli Jr. sells telescopes and other optical equipment with some volunteer help from his retired parents. "Hiring a second person is the death of entrepreneurial companies," says the cautious Pauli, "because the hired person can never be as committed as the founder is."

On average, the Inc. 500 companies this year are 8.4 years old -- not surprising, since they must be at least 5 years old to qualify, and those that are still small in the base year have a built-in advantage when growth rates are calculated. But if your company is older than that, don't give up. Draughon Training Institute (#388) was founded 98 years ago. CEO Terry Shultz's father bought the career school in 1972, and she took it over 10 years ago. The secret to Draughon's recent growth: "Relocation to a better area of town and an aggressive marketing campaign," says Shultz.

As 1989 comes to a close, the United States is winding up the seventh consecutive year of a growing economy; for most businesses in most parts of the country, times are still pretty good. But the story told by the Inc. 500 isn't just of growth, it's of change. New technologies, new markets, new niches, and -- as you'll see on the pages that follow -- new ideas about how to run a company. You can grow along with the economy just by doing things the ordinary way. You make the 500 by doing something extraordinary.

Which, of course, is what clock maker Eli Terry did. You might even say he was ahead of his time.


It's hard enough to make the Inc. 500 once, but some companies just keep coming back

Think of it as a game of musical chairs, with the tempo getting faster the longer you play. Say your company makes the Inc. 500 one year. To make it the next year, you also have to grow at breakneck speed -- but from a new, higher starting point. That's why roughly two-thirds of any year's winners don't appear on the next year's list. Granted, many companies don't qualify for other reasons, such as a decline in sales. But plenty keep on growing at a good clip, just not quite fast enough.

That built-in obstacle makes it all the more amazing that some companies turn up on the Inc. 500 year after year after year. On the 1989 list: 37 three-time repeaters and 15 four-time repeaters plus -- yes, you're reading this right -- 2 six-time winners. Who are these virtuosos of growth? Encore Marketing International (#312) markets the Encore travel card to consumers and businesses; the company's chart goes straight upward, from $123,000 in sales and 6 employees in 1979 (when it was called American Leisure Industries) to nearly $70 million and 900 employees last year. The ERM Group (#411), an environmental-services consulting firm, is up from $318,000 and 8 employees in 1978 to $117 million and 910 employees last year. ERM fell off the list once, in 1986; even then, though, it was still growing.

Anyway, here's a two-word secret to winning that game of musical chairs: forget growth. "Our objective isn't to obtain high growth but to be the best in the business and have a good time doing it," says ERM chief executive Paul Woodruff. "Growth is the result, not the goal."

Whatever Happened to the Class of 1989?
1989 Inc. 500 34%

Growth below #500 27

Went public or were acquired 3

Did not qualify 36

1989 INC. 500 DATA


(Companies per million residents)

1. Massachusetts 4.92

2. New Hampshire 4.61

3. Virginia 4.32

4. Rhode Island 4.03

5. Vermont 3.59

6. Maryland 3.46

7. Delaware 3.03

8. Michigan 3.03

9. California 2.93

10. New Mexico 2.65

(Companies per region)

New England 50

Middle Atlantic 74

East North Central 89

West North Central 22

South Atlantic 93

East South Central 15

West South Central 37

Mountain 24

Pacific Coast 96

California has the most Inc. 500 companies, with New York next. But growth isn't found only on the coasts; it also appears in each of America's four main regions (Northeast, South, Midwest, West, further broken down into nine subregions in the table above).

Alabama 4

Alaska 0

Arizona 7

Arkansas 1

California 83

Colorado 7

Connecticut 7

Delaware 2

District of Columbia 1

Florida 20

Georgia 14

Hawaii 1

Idaho 1

Illinois 22

Indiana 5

Iowa 2

Kansas 4

Kentucky 3

Louisiana 3

Maine 3

Maryland 16

Massachusetts 29

Michigan 28

Minnesota 5

Mississippi 0

Missouri 6

Montana 0

Nebraska 3

Nevada 0

New Hampshire 5

New Jersey 17

New Mexico 4

New York 34

North Carolina 11

North Dakota 1

Ohio 23

Oklahoma 6

Oregon 3

Pennsylvania 23

Rhode Island 4

South Carolina 2

South Dakota 1

Tennessee 8

Texas 27

Utah 4

Vermont 2

Virginia 26

Washington 9

West Virginia 1

Wisconsin 11

Wyoming 1

Service 41%

Manufacturing 33

Retail 10

Construction 8

Distribution 8

Computer-related 23%

Business services 19

Consumer goods 19

Industrial equipment 9

Construction & engineering 8

Medical & pharmaceutical 7

Environmental 6

Publishing & media 2

Telecommunications 2

Other 5

Sales growth 1,407%

Sales (1988) $15,013,456

Sales (1984) $996,436

Employees (1988) 135

Employees (1984) 20

Productivity* (1988) $111,211

Productivity* (1984) $49,822


(Aftertax income Base Current

as a percentage year year

of sales) 1984 1988

16% or more 11% 10%

11% to 15% 6 9

6% to 10% 16 23

1% to 5% 29 46

Break-even 6 4

Loss 32 8


Business Computer Consumer Medical/ Environmental

Service Related Goods Pharmaceutical

Sales growth 1,066% 1,586% 1,147% 1,826% 2,774%

Sales (1988) $10.3 million $20.4 million $11.3 million $14.6 million $34.7 million

Sales (1984) $878,876 $1.2 million $908,417 759,879 $1,207,482

Employees (1988) 108 111 197 251 143

Employees (1984) 13 16 33 45 15

Productivity* (1988) $94,911 $183,429 $57,523 $58,318 $242,642

Productivity* (1984) $67,606 $75,476 $27,528 $16,886 $80,499 n

* Sales/employee