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Gateway 2000 continues the spectacular growth we've been charting since it burst onto the list, in second place, in 1990. It won the top spot in 1991, and hit number two again in 1992, with sales of more than half a billion dollars. This year it smashed that record, becoming a billion-dollar company with more than 9,000% growth. Gateway is the runaway winner in sheer sales volume and in absolute dollar growth -- $1.1 billion -- over the past five years.
Top 10 Companies by Absolute Dollar Growth
1988-1992 (in thousands)
Gateway 2000 $1,095,289
Kingston Technology 240,761
Staff Leasing 208,233
Ward Petroleum 154,587
Ma Laboratories 151,969
J.D. Edwards & Co. 145,644
U.S. Computer 139,497
DCT Systems Group 122,132
In 1989 Elite Computers & Software, a Macintosh remarketing company, unknowingly purchased $65,000 worth of stolen video boards and started selling them nationally. The boards were confiscated, and the original seller went to jail. Elite now does a nationwide serial-number check on all purchases. "We have a very close relationship with the FBI and the local law-enforcement agencies," says CEO Thomas Armes.
The Crux of Business
Fiber Spar & Tube's CEO, Peter Quigley, blames the stock-market crash in 1987 for his inability to get financing. That forced the sailboard, sporting-goods, and tubing manufacturer to get creative. Quigley, 24, and his two partners negotiated an agreement with a company in Hong Kong, which persuaded a bank to give them a loan to purchase manufacturing equipment. Quigley says, "It was important because it developed the discipline that you're in business to sell a product, not a business plan."
Learning the Ropes
Only 64 Inc. 500 CEOs have M.B.A.'s; 354 cut their teeth at other companies -- 109 at Fortune 500 companies. Eight put in time at GE. Henry Nash, CEO of General Scientific, was a systems engineer at GE for five years. "I learned to screw my plan down and deliver within financial boundaries." And he got paid.
Safe, Not Sorry
Dario Marquez, CEO of MVM, which provides security services, says former president Ronald Reagan created MVM's market niche. "He called for all-out war against the Evil Empire, which stretched the limits of what government security could do," says Marquez. MVM won jobs guarding embassies and military bases that were farmed out to the private sector. And thanks to the Persian Gulf War and terrorist acts like the bombing of Manhattan's World Trade Center, business is booming.
Top Five Companies in Job Creation
Gateway 2000 1,807
Sunrise Terrace 950
J.D. Edwards & Co. 843
Still at It
The average age of a 1993 Inc. 500 CEO is 42. When Robert Deutsch was 42, he founded General Physics. In 1988, when he took that company public, Deutsch could have sold his 25% share and retired. Instead, he started RWD Technologies. At age 69, Deutsch, a Ph.D. in nuclear physics, says, "I have no desire to retire. The idea of retiring indicates you'd like something better. I like what I'm doing now."
In 1986 CEO Jim Dodson of Dodson Group plunked down $1,000 to buy a computer. He and three friends worked on his idea to give small companies "national-account discounts" on office products and services by bidding as a group. Thirty-five Indianapolis companies signed up, including an ad agency that designed a logo for free and a law firm that drew up incorporation papers at no charge.
Profit-and-loss statements are available to employees at 140 of the Inc. 500 companies. And although some open-book companies institutionalize the process with financial education and regular meetings, many are less formal. CEO Peter Young, for example, opens Apex Environmental's books to employees on request. "We're not on the leading edge of breaking out every single cost and explaining it," he says. "We don't post financials, but people can get them." Understandably, the 15 Apex employees who own stock are the most interested. Apex hasn't posted a loss yet, which Young says makes employees feel secure. "But if we did, I'd want them to know that, also -- let's tighten our belts, and here's why." Why not post statements and teach employees what they mean? "It's a matter of time and priorities," says Young, "and the formula we have now seems to be working. Why mess with it?"
Only 25 CEOs reported receiving venture-capital funding, but the average investment was $2.6 million. Personal savings was the source most CEOs relied on, with 337 emptying a savings account with an average size of $81,000. Ross Youngs relied on both sources and more to fund Univenture, his compact-disc-packaging-manufacturing company. Digging for gold wherever he could, he wrangled a $20,000 personal loan from his banker and combined it with his own $20,000 worth of savings and office equipment. After nine months in business, he was introduced by his accountant to an angel, who invested $30,000. Impressed by venture capital's possibilities, Youngs made a presentation to a local VC group, which netted him $122,000 during the next 10 months. Venture capital can fund growth, Youngs admits, but beware of the trade-offs. "In the beginning they were saying they could find me the money if I gave up 50% of the stock," he says. "But I didn't want to give up control that early in the game." He still holds 75% -- ahead of the Inc. 500 average of 63.6% ownership.
Former San Francisco 49er and Norwegian National Bodybuilding Champion Odd Haugen returns to the list for the third year in a row, as do 49 other companies on this year's Inc. 500. Haugen, president of Gym Masters, recently opened his sixth club, on Waikiki Beach.
Asked who their heroes were, this year's CEOs gave answers ranging from Mahatma Gandhi to Genghis Khan. Clete Brewer, co-owner of Brewer Personnel Services, in Fayetteville, Ark., chose his co-owner dad. Jerry Brewer chose Sam Walton, whom the family used to see cruising around in his pickup. Clete says, "My dad chose Walton because he's a successful entrepreneur, and I chose my dad for the same reason."
Share the Wealth
Every employee at Digidesign, a maker of computer-based digital sound-recording systems, has stock options from a qualified stock-option program totaling 23% of the company's equity. (Although only 7% of the companies on this year's list have employee stock ownership plans, roughly one-third offer some form of employee ownership.) Digidesign's program has a four-year vesting period, which CEO Peter Gotcher hopes will reduce turnover. The plan, Gotcher says, "makes employees feel more attuned to what the mission is and to the potential rewards."
Sound of the Times
Karaoke's popularity has propelled Sound Choice Accompaniment Tracks to its first appearance on the list. "We've been selling background music since 1985," says CEO Kurt Slep, "but we'd been calling it sing-along music." In 1990 Japanese recording companies introduced sing-along music to U.S. bars, renaming it karaoke. "It makes our marketing easier," says Slep. "Their advertising dollars paved our way, and we're scooping up the results."
As large airlines stall under heavy operating costs, smaller carriers are maneuvering to take up the slack. Former Airborne Express pilot Wil Davis bought Direct Air in 1989 to service small airports from Chicago's Midway field. When Midway Airlines folded, in 1991, Davis picked up some of its routes and added three more planes to his fleet of two. He expects Direct Air to be profitable this year.
Inc. 500 Profitability
Profit margin* % of companies
16% or more 12%
11% to 15% 11
6% to 10% 23
1% to 5% 43
How does a company become profitable at a rate of more than 16% after only one year? Enter a market with huge margins, undercut the competition's prices, and hire talented people who need less management, as Beechwood Data Systems did, says CEO Donald Rankin.
I Think I Can
What do Inc. 500 CEOs read?
Sixty listed the Bible, 31 named various Tom Peters books, and 16 chose Napoleon Hill's Think & Grow Rich. William Fitzgerald of Information Management Alternatives was one of the 3 who chose The Little Engine That Could. "My parents used to read it to me, and I read it to my son," he says.
"Once I get a product on the market, I lose interest," says Bob Reiss, start-up junkie and CEO of R&R Recreation Products. He estimates he's started 12 companies, many of them R&R subsidiaries. Among his fellow CEOs on the list, 212 have also started other companies. Reiss says his forte is whipping a company together to get trendy products to market quickly. Then, when a product's shelf life expires, he folds the business and moves on. But his latest project is more long-term: growing a watch-distribution subsidiary with an eye toward selling it. "A few years ago I couldn't have done it," says the perpetual entrepreneur. "I wouldn't have had the patience."
We asked Robert King, president of Ident-a-Kid Services of America, if he thought the success of his company, which produces child-identification products and services to help find missing kids, was a disturbing sign of the times. "A lot of these things have been going on for a long, long time," King says, "but the overall publicity over the last few years has made people even more aware." He welcomes the free advertising provided by his major competitors, like Kmart, because it improves overall awareness.
Like Father, Like Son
Entrepreneurship seems to run in the Coffey family. In the 1980s David Coffey made the Inc. 500 list twice, with Nucleus in 1983 and again in 1987, when he was with CMC Construction. This year son Steven Coffey makes his fourth appearance with his investment-brokerage service, Securities Service Network. Steven credits his entrepreneurial success to his dad. "He was always pointing out opportunities and possible niches."
In and Out of Service
As has been true in previous years, service companies dominate the Inc. 500 list. Jo Ann Vaughn founded her company, Action Temporary Services, at age 50, seven years ago. Now she has stepped back from daily operations, having sold 50% of the company's stock to her hand-picked successor, 25-year-old Kim Devine.
Inc. 500 by Sector
A Comedy of Errors
Millions of dollars in sales later, Miles Busby, president of Source Technologies, can laugh about his first call on GE. First he accidentally jammed an automatic door, closing down shipping operations for the entire day. Then, when his demo printer failed, GE lost three days' worth of production orders and had to hire a data-entry person to enter them. Undaunted, Busby returned but still couldn't get the equipment to work. He says, "After that, I was too embarrassed to go back."
The average Inc. 500 CEO spends 5 hours a week on self-education. Founder Martin Shain of WinterBrook Beverage Group dedicates 20 hours a week to reading books and trade journals to check out trends and new markets. He subscribes to every demographic, food, beverage, marketing, construction, fashion, retail, business, and sports newsletter he can find, because he believes growing businesses shouldn't limit their focus to their specific industry. Early on, Shain's voracity for the written word paid off. While reading an apparel-trade magazine, he discovered that the apparel and footwear industries were using large membership-warehouse clubs to distribute their products. He took the information and applied it to his industry. "Now warehouse clubs are significant in the beverage industry," Shain says. "We were one of the first brands to gain distribution in that channel, and we have built upon those early successes."
Most Inc. 500 companies offer traditional benefits like health and life insurance, paid vacation, and unpaid leave. A good many -- 24% -- also offer paid parental leave. Wild Oats Markets CEO Michael Gilliland asks employees what benefits they'd like. The company has a $200 wellness benefit, which employees use for acupuncture, massage, or insurance deductibles. And a few workers bought mountain bikes for commuting.
Cash for Starters
To start ACS Dataline, David Winsman borrowed $4,000 against his partner's Jeep and lured a $2,000 loan from a friend. The partners paid themselves with their personal credit cards, floating the company for about six months. By then they needed some real money. So they offered 40% of the company's stock to some investors in return for cosigning a $60,000 loan. A year later Winsman bought the 40% back for $10,000 and turned over 50% ownership to another investor for $205,000.