The Inner City 100

Armed with a new M.B.A., A. J. Wasserstein figured he knew everything he needed to know to launch a business in the inner city--until he got there

He could have settled his start-up anywhere--just so long as it was near his parents' house in New Preston, Conn., a small rural town in the northwestern corner of the state. After graduating from the Stern School of Business at New York University, in 1991, A. J. Wasserstein, then 24, returned home to conserve cash and identify the perfect spot for Archives Management (#33), his newly hatched file-storage company.

A more conventional M.B.A.-turned-entrepreneur might have steered straight for the suburbs. Wasserstein chose a path less traveled. He cobbled together $70,000 from family and friends to purchase a dilapidated brick building in the heart of Waterbury, Conn., a blue-collar former mill town of 100,000 citizens. "Waterbury wasn't exactly a popular destination for my classmates," he admits. "Most of them headed to Wall Street or plush office parks."

If the choice seems odd, then look at the results: since 1991, Archives Management has ballooned into a $2.6-million business with 25 employees and a 23% profit margin.

Wasserstein didn't make his decision to locate in Waterbury lightly. For six months he traipsed around Connecticut, eyeing properties in nearby towns like Danbury, New Milford, and Bridgeport. But only Waterbury met his most critical criteria: low cost and central location. The small city happened to lie at the intersection of Interstate 84, which runs east and west, and Route 8, which heads north and south. With Waterbury as his home base, Wasserstein reckoned he'd be within two hours of any location he wanted to reach.

Waterbury was also awash in neglected brick warehouses, empty monuments to a time when the city was a thriving manufacturing hub. Even after borrowing an additional $100,000 to refurbish his first building, Wasserstein calculates that purchasing and renovating the 50,000-square-foot structure cost $1,800 a month. He believes that the purchase price might have been as much as 30% higher if he had planted his business in Danbury, a more affluent town that's closer to Manhattan.

What Wasserstein didn't foresee was that his dollar would stretch far beyond the boundaries of his spreadsheet calculations. The first indication came in 1992, when he placed a help-wanted ad for a customer representative in the Waterbury Republican. The following day he received responses from more than 25 eager applicants. While Wasserstein dispels the notion that urban labor comes cheap--he pays rank and file $7 to $12 an hour--he wonders if he would have discovered such an ample labor pool in other areas. "This is not glamorous or sexy work," he says. "But this city had a willing and able labor force to tap into."

It also had a community of businesses that welcomed his fledgling operation. The Waterbury Republican, for example, responded to Wasserstein's early press releases with a string of articles chronicling the company's business dealings, which in turn attracted local customers, such as Waterbury Hospital and General DataComm. "We have a mandate to use local vendors when possible," says Erik Wexler, vice-president for business development and community relations for Waterbury Hospital. "But Wasserstein also offered us a better price."

Wasserstein's choice of an unorthodox location caught the eye of investors, too. In April 1998, Housatonic Partners, a $45-million venture fund in Boston, purchased a 20% stake in the company for $500,000. While most venture capitalists rarely troll the inner city for hot prospects, Tom Bird, a partner at Housatonic, sees it as undiscovered territory. "The urban environment is good precisely because a lot of other venture capitalists shy away from it," he says. "We aren't looking for the next Netscape. We want steady, solid businesses that others are likely to miss."

Joshua Macht is an associate editor at Inc.