Where did the founders get their seed capital? Who are their heroes? Which are the hot industries? And more

When it comes to entrepreneurial drive, Max Fuller sure doesn't have it. He never had any great desire to start a company -- or even to buy one, for that matter. It was only outside circumstances that pushed him into starting his Inc. 500 company, U.S. Xpress (#445), located in Tunnel Hill, Ga. What Fuller thinks accounts most for his company's growth is not his niche, strategy, or hell-bent desire to succeed, but his talented managers and strong profit-sharing program. What's more, Fuller's partner and cofounder, Patrick Quinn, agrees entirely.

What's going on here? Profit sharing? Partnerships? A full-fledged management team? Is that any way to start a fast-growing company? What ever happened to the entrepreneur as Lone Ranger, the guy (and it almost always was a guy) who made things happen in his garage, thanks to an unshakable belief in a big-picture plan no critic in the world could touch?

We're not sure, but he seems to be a dying breed. In our survey of the 1992 Inc. 500, our annual list of the fastest-growing privately held companies in America, the theme can be summed up in one word: teamwork. The form of the team varies, but contrary to all the myths about going it alone, building a fast-growing company in the 1990s is clearly a group effort. Fifty-eight percent of 1992 Inc. 500 chief executives began with at least one partner. Three out of 10 work with a spouse. Thirty-five percent have an informal advisory board, and 33% have a formal board of directors. Less than a third of the CEOs still own all the stock in their companies, and 46% don't even have majority control. And, yes, almost half share profits and financial information (49% and 41%, respectively) with their employees.

Welcome to the 1992 Inc. 500. This is our 11th year of compiling the 500, and the qualification standards are daunting: the slowest-growing company on this year's list saw sales increase 606% over the past five years. Together the 500 accounted for $8.4 billion in revenues and 72,308 jobs in 1991 -- up from $530 million in sales and 8,221 in employees in 1987.

In effect, the Inc. 500 screens the nation's newest batch of growth companies -- and highlights the ones off to the best start. Experience suggests that some of each year's crop will go on to build national reputations, while some will stagnate or die. Most, however, will grow into the successful private companies that are a mainstay of our economy.

In the following pages you'll find the shape of things to come. What industries are growing explosively? What management styles are producing dramatic results? What strategies? If you want to know what the company of the '90s and the early 21st century will look like, take a look at the 500.

Our survey results emphasize again and again that these are not traditional small businesses. Just ask Quinn and Fuller. They got their start working together in an old-fashioned entrepreneurial business -- one run by Fuller's father. What did they learn there? That -- despite their great respect for the senior Fuller's accomplishments -- they wanted to do things differently. "When I worked for my dad, he was the dictator," Fuller says. In contrast, Quinn and Fuller divide the company's management areas between them and rely heavily on their management team, which approves all major policy changes. The two founders see their management style and profit sharing as crucial in a world that has grown far too complicated for one businessperson alone to master. "I don't know how one person can remotely begin to be an expert in every business area," Quinn says.

Instead, by harnessing the power of its people, U.S. Xpress has grown to a profitable $142 million in sales in just seven years, and the company, which does long-haul trucking, is one of the top job generators on the Inc. 500. And in a fitting sign of the times, Fuller and Quinn have acquired Fuller's father's company. You could call it an entrepreneurial changing of the guard.

The Start-Up Machine
Some people like to grow businesses. Then there are people like Gregory Squillante -- who'd much rather just start them. Last time they counted, Squillante and his wife, Jo Ann, reported starting 16 businesses in southeastern Massachusetts and Rhode Island, of which he says 13 are still in business. The two big casualties -- a computer demographics company and a fast-food restaurant -- were both companies in which Squillante had invested a lot of money and high hopes. "I am very good at running small businesses. I am not very good at running big businesses," he admits.

Many small-business people would probably say the same, but what do you do if a business grows of its own accord? That's easy, according to Squillante: when a company reaches about 50 employees, he begins to look for a way to spin off some part of it and create a new company. All told, he estimates his 13 companies have about $10 million in revenues. In the process, Squillante has made the Inc. 500 not once but twice, with Diagnostic Testing, a medical laboratory, in 1987, and this year with S&S Management & Consulting (#372), based in Somerset, Mass. What is S&S's line of work? It provides management-consulting services to small-business owners. Somehow we're not surprised.

The Oldest Company
Like many fledgling entrepreneurs, Mary-Clare and Michael Molony were sure they had a great new concept to bring to their market. Then, while shopping for a location in 1985, they came across a local business already using their hot idea. Worse yet, the business was 99 years old. Still worse, it was going out of business.

Michael Molony readily admits the whole thing made him just a little nervous: if the Molonys' idea -- stores that sell nothing but pet foods and supplies -- was so great, why was this other company, P. T. Moran Co., closing? On closer examination the couple learned the owners actually had devoted most of their space to garden supplies and wanted to get out for personal reasons. So instead of starting from scratch, the Molonys bought the P. T. Moran name along with some of its assets in 1986. With six stores operating under the P. T. Moran name, Pet Ventures (#220), based in Arlington, Va., sold $5.8 million in pet food and supplies in 1991 and is the oldest company on this year's Inc. 500. Says Michael Molony, "An old company that has a person's name on it tends to give people a warm, fuzzy feeling."

The Longest-Running Hit
Back in 1988 many of this year's Inc. 500 CEOs were still getting started, building up those first big sales and hiring key staff. Not Gary Gale. His company -- then known as Weathashade, now known as the Gale Group -- was already #408 on the Inc. 500, with a five-year sales growth of 773%.

This year one-third of the companies made last year's list as well, but the $58.1-million Gale Group (#427), based in Winter Park, Fla., is the only one to make it for the fifth year in a row. After all, it's not easy to keep maintaining a five-year growth rate of more than 600%.

So how did Gale do it? No doubt by entering one of those exploding markets, like computer networking or environmental cleanup, right? Wrong. His company designs and makes gardening products such as garden covers and flowerpots -- even Gale admits it's a "pretty sleepy industry." His approach: intense in-store merchandising and a commitment to new products. He says most of the company's new products were created abroad by someone else who needed help entering the U.S. market. That's an area in which Gale is a natural: he's a transplanted Australian who started his company as a way of bringing his family's business to the United States.

The World Is Their Market
At first glance, Russ Teubner may not seem typical of much of anything. After all, his Inc. 500 company, Teubner & Associates (#364), is a fast-growing high-tech business based in Stillwater, Okla. "A lot of the technology companies cluster in certain areas," Teubner admits gamely. "One of them is not Stillwater."

Nevertheless, Teubner & Associates exemplifies an interesting trend in this year's list. Like 51% of the companies on the list, Teubner & Associates makes more than half of its sales in a national and international marketplace. In that respect, these growth companies are dramatically different from ordinary small businesses. In general, when it comes to small businesses, "the vast majority are predominantly local," says Bruce Phillips, who directs the U.S. Small Business Administration's database on small companies. Growth companies apparently sense early on that the world is their marketplace: 74% of this year's Inc. 500 have some national sales, and 45% sell internationally. What's more, they are not just occasional exporters: half of the companies that report international sales say those sales account for at least 10% of their revenues.

How does a company with no track record gain the trust of national and international customers? Many CEOs rely on their contacts from previous jobs, but Teubner's only previous employer was Oklahoma State University. And in his case, the problem was exacerbated by his location and his potential marketplace -- only very large organizations have the type of mainframes that can use Teubner's flagship software product.

So Teubner initially concentrated on what he calls "the desperate few" -- those companies that would have such a strong need for his product that they would be willing to risk doing business with him. As quickly as he could, however, Teubner got distributors to sell his product across the country; today 83% of the company's sales are national and the rest are international. "It's rather foolish to think you're going to take the Fortune 1,000 by storm from Stillwater," he says. The company's entry into the global marketplace was uneventful, according to Teubner. "Someone called up from Switzerland and said, 'Will you sell us your product?' "

Who Needs Seed Capital?
It sounds like the title of a sleazy get-rich-quick book: How to Start a Growth Company with No Money Down. But that's exactly what Bruce Barkelew and Thomas Smith did. They started Datastorm Technologies (#376), in Columbia, Mo., with, they say, absolutely no seed capital.

Unfortunately, what Smith and Barkelew did can't be replicated in most industries. The two, computer-science graduates who'd designed a software product in their spare time, decided to distribute their product through "shareware." That means they placed their software on a number of electronic bulletin boards and encouraged users to try it out. Each time people used the product, a note would flash on their screens, reminding them to send a check to Datastorm.

That's not exactly a strong-arm collection technique -- Smith guesses that somewhere from 3% to 8% of regular users eventually bought the software. Still, shareware has enabled Smith and Barkelew (who were later joined by Stephen Monaco) to build a $17.8-million company, which now has retail distribution as well.

The duo are not alone. Seed-capital requirements for the Inc. 500 vary widely, but an astonishing 26% of this year's companies were started with $5,000 or less. And they represent a wide range of industries -- from mail-order catalogs to computer-peripherals manufacturing to sandal making to pizza. While some companies did require much, much more -- the highest initial capital reported was $31 million -- the median Inc. 500 company raised $30,000.

That suggests starting a growth company is not financially beyond the means of most people. U.S. government data bear that out; according to the Census Bureau's 1987 survey of business owners, more than half of all small businesses are started with less than $5,000; however, many of those remain one-person operations. It's far more surprising that so many companies grow so rapidly from such humble beginnings. There's no better example than Jim Allsup, sole owner of Allsup Inc. (#363), a $6-million company in Belleville, Ill., that provides health-care-claims services. Allsup started his company in 1984 with a few hundred dollars -- from his unemployment checks.

Sign of the Times
The last five years haven't been the best of times for the banking industry -- or most financial services. But don't tell that to Ric Tomlinson. From 1987 to 1991, his company, Univest Financial Group (#450), grew from $2.1 million to $16.5 million in sales, even though the Marietta, Ga., company's business is analyzing mortgages -- both residential and commercial. What's the secret?

Timing. Ric Tomlinson and his partners developed a sophisticated database designed to value loans in the portfolios of savings-and-loan institutions. What he didn't count on was the S&L crisis, which suddenly gave the federal government a great need to value huge numbers of loans from failed institutions. "We created a product prior to one of the greatest financial crises in the history of our country," he says. "A lot of this has to do with timing and luck."

Just for the record: Tomlinson didn't always think his timing and luck were so good. Early on, Univest took on some work valuing loans for an S&L that was, well, a little iffy. When Univest was almost finished with the project, the federal regulators seized the S&L, leaving Tomlinson with a sunken investment, no prepayment, and no customer. But because Univest had already valued most of the portfolio, Tomlinson had the evidence and motivation to convince the regulator that Univest could sell the portfolio for more than the government thought it was worth. From that starting point, Tomlinson reports, today 65% of Univest's sales are to the federal government. That's a pretty good return on a bad debt!



Very few long-term trends can be seen by comparing this year's map with those of previous years. About the most notable change is that a particular state or region will be depressed for a few years and then bounce back to normal. One example: In 1982 Texas and Oklahoma had 39 and 7 companies on the list, respectively. During the mid-1980s, when things got truly bad in both states, their 1987 totals dropped to a low of just 27 companies in Texas and one in Oklahoma. But by now things appear back to normal; the 1992 list has 41 Texas businesses and 7 Oklahoma companies. That should be encouraging to several New England and Rustbelt states (Massachusetts, New Hampshire, Rhode Island, Michigan, Illinois, Ohio, and Pennsylvania) that are currently at low points.

Alabama 4

Alaska 0

Arizona 15

Arkansas 0

California 78

Colorado 16

Connecticut 8

Delaware 2

District of Columbia 1

Florida 30

Georgia 19

Hawaii 0

Idaho 5

Illinois 13

Indiana 12

Iowa 2

Kansas 4

Kentucky 4

Louisiana 3

Maine 1

Maryland 12

Massachusetts 21

Michigan 11

Minnesota 9

Mississippi 2

Missouri 8

Montana 0

Nebraska 4

Nevada 1

New Hampshire 3

New Jersey 14

New Mexico 5

New York 26

North Carolina 7

North Dakota 0

Ohio 13

Oklahoma 7

Oregon 6

Pennsylvania 14

Puerto Rico 2

Rhode Island 1

South Carolina 2

South Dakota 1

Tennessee 8

Texas 41

Utah 8

Vermont 2

Virginia 30

Washington 11

West Virginia 2

Wisconsin 11

Wyoming 1

1992 Inc. 500 Companies Started With --

$1,000 or less 13.0%

$1,001-$5,000 12.6

$5,001-$10,000 8.3

$10,001-$25,000 13.3

$25,001-$50,000 12.0

$50,001-$100,000 15.6

$100,001-$500,000 17.8

$500,001-$1 million 2.8

$1,000,001-$2 million 2.2

$2,000,001-$5 million 1.3

More than $5 million 1.1

Number of respondents: 460


Median number of employees 47.5

Average number of employees 144.6

Median 1991 sales $6.7 million

Average 1991 sales $16.8 million

-- BY 1991 SALES

% of companies

Less than $2 million 10.4%

$2 million-$2.9 million 14.8

$3 million-$4.9 million 14.8

$5 million-$9.9 million 23.6

$10 million-$19.9 million 19.2

$20 million-$29.9 million 6.4

$30 million-$49.9 million 4.4

$50 million-$74.9 million 2.2

$75 million-$99.9 million 1.2

$100 million-$149.9 million 1.6

$150 million-$199.9 million 0.8

$200 million or more 0.6


Profit margin* % of companies

16% or more 13.0%

11%-15% 12.2

6%-10% 19.8

1%-5% 44.0

Break-even 2.8

Loss 8.2

*Net income as a percentage of sales; S corporations use pretax figures.

We admit we're baffled. The economy was in a shambles last year, but never before have so many Inc. 500 companies been so profitable. Fully 25.2% report 1991 profit margins of 11% or more -- the decade's average is 18.2%.

We really don't have a solid explanation for this, but here's a theory. The only time we came close to seeing this kind of profitability was on the 1983 list, when we reported on profitability for 1982, also a difficult recession year. That suggests recessions somehow pay off for well-managed companies. Perhaps only the highly profitable can afford to grow in times when outside financing dries up; they may benefit even more when competitors with shakier finances can't effectively seize opportunities.


Service 55.0%

Manufacturing 29.2

Distribution 8.2

Retail 7.6


Computers 23.0%

Consumer goods and 14.4services

Business products and 12.4services

Health care 8.6

Real estate and construction 6.4

Environmental products and 6.4services

Industrial equipment 4.4

Telecommunications 2.8

Media 1.8

Transportation 1.8

Other 18.0

Either these are not heroic times, or the Inc. 500 are just not a group inclined to look to others for inspiration -- 120 are heroless. We did feel a little sad when one CEO told us he had "none left." When the CEOs did choose heroes outside their immediate families, they tended to look to successful entrepreneurs, people who could be role models for their business lives.

My father 13.8%

H. Ross Perot 5.7

Sam Walton 3.9

Lee Iacocca 3.4

Bill Gates 3.0

Winston Churchill 2.8

Abraham Lincoln 2.3

Jesus 2.1

My grandfather 1.6

John Wayne 1.4

Number of respondents: 435

Personal savings 78.5%

Bank loans 14.3

Family members 12.9

Employees/partners 12.4

Friends 9.0

Venture capital 6.3

Mortgaged property 4.0

Government-guaranteed loans 1.1

Other 3.4


* Women may be starting more businesses than ever, but by and large, they are not starting the high-growth companies that make the Inc. 500. The number of Inc. 500 companies with women as CEOs has been increasing gradually, but even so, only 8% of the companies on the list have female chief executives. Almost one-third of the companies, however, involve husband-and-wife teams.

* Only 14.6% of the Inc. 500 report any acquisitions; the rest have generated all their growth internally.

* Forty-five percent of the Inc. 500 CEOs describe their companies as high-tech businesses, and 58.6% say their use of technology gives them a competitive advantage.

* One out of every five Inc. 500 companies has at least one employee who works primarily at home, using the computer and the telephone to stay in touch.

* Public accounting firms aren't just for public companies anymore. While most Inc. 500 companies use small, local accounting firms, about one-fourth use one of the Big Six.

* Inc. 500 Companies are almost twice as likely to have employee stock ownership plans as to have unions (6.5% have ESOPs while only 3.8% have unions).

* Half of the list's CEOs had started at least one other business before founding their Inc. 500 company.

* The majority of Inc. 500 companies still choose the traditional C-corporation status, but a large minority (43.8%) prefer the tax advantages of S corporations.

* The average Inc. 500 CEO is 50 years old and works 63 hours a week. Seventy percent have worked for large companies, and 60% for other small companies.

* Although the Inc. 500 companies are on average only 8 years old, 22% of the CEOs say they run family businesses.

* One out of three Inc. 500 companies has a strategic alliance with a large company. High-tech companies are more likely than others to have partners, and the three most common partners were, in order, IBM, Apple and Digital.

* Despite the growth of their companies, many Inc. 500 CEOs are still enmeshed in their original role as chief salesperson. When asked to describe a typical workweek, the average Inc. 500 CEO reported spending 27% of the week on sales and marketing -- far more than on any other management area. Tracking the competition, for example, gets only 5% of the average Inc. 500 CEO's time.


For all the praise we shower on the Inc. 500, these folks are just as fallible as the rest of us. So this year we made a point of asking about their worst or most humbling business experience. Many were what you'd expect: the wrong partner, the wrong hire, the failed product, the bad bank, and the nonpaying customer. But here are a few of the more candid and unusual admissions, with the names omitted to protect the innocent. Or the guilty, depending on how you look at it.

* I was in a briefing at the Pentagon -- a very formal environment. When I got through with the briefing, one of the military people came up and told me to zip my fly up.

* I hired my ex-husband.

* When I started, I had a business plan that was meaningless eyewash. We floundered for five years before starting all over.

* We thought we were recession-proof.

* We faxed information about a business deal to the wrong potential partner in Italy.

* Twenty percent of our customers went bankrupt last year.

* On my first big sale, I lost the check -- for $100,000. I was embarrassed to go back to the customer. I finally found it a week later in a book that I was reading.

* The CEO we're most worried about? The one who said his worst mistake was "getting into business." And the prize for the most honesty has to go to the entrepreneur who replied simply, "We make mistakes on an hourly basis."