LESSONS FROM AMERICA'S FASTEST-GROWING COMPANIES Prepare to be inspired: These entrepreneurial winners show business people anywhere how to make ever-whirling change the driver of supergrowth.
(FORTUNE Magazine) – How could anyone risk leaving a venerable, big-league corporation to help run a startup? How could anyone risk staying? "Nowadays, working for a large company is a roll of the dice," says Kyle Craig, who recently flew the coop from PepsiCo to become chief concept officer at Boston Chicken (No. 27). "Besides, at my new job I'm really doing what I want to do." Chalk up one more victory for America's esprit d'entreprise, the cornerstone of the nation's commercial progress. After all, no one braved the North Atlantic (or Pacific) to become a Dickensian wage slave. Immigrants came to farm their own land, keep their own shops, control their own destinies. That entrepreneurial legacy lives on in America's fastest-growing companies. Someday soon you will buy from, sell to, own stock in, or work for one of them -- if you don't already. Not surprisingly, the CEOs of these companies are cutting-edge practitioners of the management techniques that will work best in our changing economy. They're fashioning new model organizations and finding novel means of growing and motivating employees. They're learning how to gain strength from failure, and the importance of forging relationships and alliances, while also discovering new ways to unleash creativity. A few of these new-economy pioneers are immigrants, and an increasing number are women. All share a passion for self-reliance and accomplishment. Now is a great time to start a new venture. The evidence suggests we've entered a particularly fertile era for entrepreneurism. With America's biggest companies shedding jobs as fast as they can print up pink slips, the relative risk of going out on your own is declining. More significantly, the rush to downsizing signals the dawn of an age in which nimble and often smaller organizations will perform best. In this new environment, entrepreneurs will flourish as in no time since the onset of the industrial age. Look at it this way. Entrepreneurial opportunities are most abundant in sectors of the economy subject to what Edmund Spenser called "the ever- whirling wheele of Change." Or as Peter Drucker writes in Innovation and Entrepreneurship, "It is change that always provides the opportunity for the new and different." That's why high tech is always so chock-full of startups -- it's forever in the throes of transformation. Retail and restaurants are also evergreen sectors, since consumer tastes are constantly heading in new directions. Fifteen years ago the health care field seemed about as dynamic and opportunity-rich as the slide-rule business. Today it's brimming with entrepreneurial activity as America recasts its health care system. Now pull back and stare at the horizon. The entire economy is changing -- no longer based on an industrial core but instead, increasingly, on the transfer of information. That profound shift means entrepreneurial opportunity lies beneath unturned stones in every sector. Listen to Harvard business school associate professor Amar Bhid: "The Industrial Age was about building an ever larger economic scale. We moved from props to turboprops to jets. We built bigger systems to distribute bulk goods. We increased the capacity of our mainframes. Today computer networks, telecommunications, and decentralized management are reducing that scale." Bhidesays this movement to smaller, dynamic business cells increases the potential impact of the entrepreneurial venture on the economy -- and provides the entrepreneur unparalleled opportunity. "Small companies are creating this trend as well as benefiting from it," says Bhid, whose wife has expanded her Indian curry paste business via PC, fax, and modem. The point: Information technology can help level the playing field for the competition between big and small enterprises.
WANT PROOF that entrepreneurial businesses are already powering the new economy? Take a look at the numbers. While total employment among the Fortune 500 has fallen from 12.5 million to 11.5 million since 1989, smaller growth companies have picked up the slack. The well-known work of David Birch, president of the economic research firm Cognetics in Cambridge, Massachusetts, suggests that over the past few years a very specific type of business has accounted for most of the nation's job growth. Birch calls these outfits gazelles, or companies with sales growing 20% or more per year and at least $100,000 in annual revenues. Accounting for only 3% of all businesses, these sleek beasts added over four million net jobs to the sluggish 198993 economy. To see the whole trend in one place, consider Grow Biz International, No. 1 on our list of America's fastest growers, which is putting reengineered managers back to work. It operates four chains of stores that sell different types of new and secondhand goods: sporting equipment, kids' clothes, computers, and musical instruments. Grow Biz has 583 mostly franchised stores and plans to add more than 200 this year. Where is it finding top-quality franchisees? "About 90% of them are coming from corporate middle-management jobs," says Grow Biz CEO Ron Olson. "They're around 40 years old and have a net worth of $300,000. Ninety percent have a college degree." Olson and partner Jeff Dahlberg founded their company in 1986 as a consulting venture to franchisors. The pair changed their game plan, though, after they met Martha Morris, who ran Play It Again Sports. Morris wanted to franchise her used sporting goods store. At first glance, Olson was far from a believer. "I thought, who would be interested in used sports equipment? Her store looked like a garage sale with hours. Then I saw she sold $3,000 of product in three hours." Olson and Dahlberg helped Morris expand her business, bought her out in 1990, and soon began opening other types of stores that sold "usedware." Grow Biz is getting a boost thanks to a one-time $20,000 development fee from each new franchise, but sales of new merchandise and royalties ranging from 3% to 5% of each unit's sales should keep it appropriately named for years. And the company should continue to benefit from two very 1990s trends: value-decade consumers searching for bargains and a steady stream of disenfranchised middle managers ready to run their stores.
BOSTON Chicken is hiring over 20 people every business day. But the management team isn't just recycling employees from big business; they're building an alternative model organization. Besides serving up rotisserie birds and margin-widening side dishes, these executives are constructing a flat, antihierarchical company based on the power of information. CEO Scott Beck and vice chairmen Saad Nadhir and Jeffry Shearer became friendly working together for Wayne Huizenga at Blockbuster Entertainment (see box). Beck persuaded Huizenga to buy Blockbuster in the first place; Huizenga later made him COO. When Beck, Nadhir, and Shearer decided to fly out on their own, they knew they wanted to start a national retailing chain, but they had no idea what they would sell. They did have a picture of what their company would look like. "We wanted to create a business where managers at the operating level had the expertise and knowledge to drive the company forward themselves," says Beck. "We at the corporate level would just be facilitators. Technology would be very important." They began brainstorming in 1991. A few months later Nadhir came across a chain of three chicken outfits in the -- surprise, surprise -- Boston area. "The stores were doing a great business, and we liked their concept of chicken that wasn't fast food," says Nadhir. The group took control and started applying the business strategy they learned at Blockbuster. Which is? Blitzkrieg the market, using cutting-edge marketing and technology. This year they'll open more than one store every business day. "Our 32 regional partners really run our business," says Scott Beck. "People ask us, 'How are you opening 300 stores this year?' and we say, 'We aren't; our partners are.'" Beck is expecting much more of them: He says he wants each one doing $100 million a year around the turn of the century. Wall Street finds the recipe mouthwatering: Boston Chicken's stock offering last fall was more like a feeding frenzy than an IPO. Shares came out at $20 and closed the first day at $48.50. Today the stock is back to about $37, still 62 times 1994 estimated earnings. Boston Chicken doesn't just preach pushing information and power down through its organization; it practices. Using networking software tools such as Lotus Notes and IntelliStore, managers at every level collaborate on team projects like changing menus, solving distribution problems, and planning expansion -- all on-line. They delve into weekly sales figures, cost breakdowns, even complaints. When a customer phones in with -- dare one say -- a beef, an operator immediately types it into the database. Gripes can be sorted by region or type of complaint. A memorable one concerned an employee who told a customer, "Hey, we're trying to save money too, you know!" What happens to that? " First off, all of us see it," says company president Bruce Harreld. "We look for patterns. The messages go back to the regional level and, as of this fall, back to the store itself electronically, so that everyone sees." By the way, don't bother telling executives at Boston Chicken they aren't just hawking chicken. They know that. Their company, they say, is in the " home-cooked-meal replacement business." Chicken is "the protein vehicle of choice." They believe their stores compete more with Kroger than KFC, a belief KFC apparently shares, for now. When asked about Boston Chicken, a Kentucky Fried spokesperson recently said, "We're the Queen Mary, and they're some tugboat buzzing around us." Wake up and smell the barnacles, Colonel: The Queen Mary has been a floating museum since 1967. Of course, Boston Chicken's continuing success makes it a rare bird. Dun & Bradstreet reported that 707,000 businesses were incorporated in 1993 and 86,000 failed, about one failure for every eight companies launched. But that figure may be misleading. Add to it unreported closings and other "temporary" shutterings, and thousands more disappear. Tens of thousands are barely making it.
FAILURE CAN be devastating. Just ask David Pomije (pronounced POM-e-zhay), CEO and founder of Funco (No. 11), a chain of stores that buys and resells used and new Nintendo and Sega videogames -- that value theme again. Several years ago Pomije had the distinct displeasure of watching his computer mail- order company sink into Chapter 11. "I remember thinking I was very comfortable financially, and then the crystal chandelier hit the floor," he says. "I remember having to scrape up $25 to buy a lawnmower at a garage sale. I remember trying to find enough money to buy groceries. You never forget that." Pomije came back wiser. He was feeling heat from fellow managers in 1991 to expand Funco, then a three-store operation. "This time I said, 'Time out! We need to have more than a cigar box and a little bell for a cash register before we go forward.' " Pomije studied his company's financial reporting, management systems, distribution, and marketing. He brought in the former head of MIS from B. Dalton to consult. Only then did he plunge into his expansion. Three years later, Pomije operates 127 stores with sales of $50 million. Legendary money manager Peter Lynch has been touting his stock. To those who study entrepreneurship, Pomije's story, while inspiring, isn't surprising. Not only is failure expected in the entrepreneurial process, it's almost a requisite for success. At least that's what Stanford Business School professor James Collins has concluded. In his forthcoming book, Built to Last: Successful Habits of Visionary Companies, out in September, Collins studied 18 visionary companies from a cross section of industries and compared them with a more myopically focused peer group. "When we looked at the visionary companies at their very earliest stages," he explains, "we kept seeing that these great companies weren't architected from a single great idea. That means entrepreneurs should have a vision for their company first, then experiment, sometimes unsuccessfully, with ideas." Those who sit back hoping a great idea will strike -- Drucker calls it "waiting until the Muse kisses them" -- are destined to fail. Bill Hewlett and Dave Packard were two young engineers when they met to start up a business in 1937. The pair had no clear idea what to make; they only knew they wanted to form a company. Here are ideas for some of their first products: -- A clock drive for a telescope -- A shock machine to help people lose weight -- A bowling foul-line indicator -- A thingamabob to make urinals flush automatically Far more important than this unpromising list was that Messrs. H. and P. built a company remarkable for nurturing creative ideas. Hewlett, Packard, and their minions have traipsed back to the drawing board often enough over 57 years to build a $20 billion company, the nation's second-largest computer maker. Managing the frothy growth of these new companies might seem as impossible as governing a wave, yet these CEOs do it. With sales doubling almost every year, here's a typical planning meeting agenda: (1) Last year's computer system doesn't have enough capacity. (2) Ditto with telecom. (3) High school buddy Irving is way out of his league as head of marketing. (4) We've outgrown our accounting firm. (5) Ditto with law firm. (6) Does anybody know how to set up a human resources department? And so on. The only way out is to hire great people. It's the old, old story: Too often founding CEOs wait too long to bring in additional employees. Before expanding Funco, CEO David Pomije recalled the lessons of Chapter 11 and hired a proven, experienced management team. "That was essential to facilitate a national expansion," he says. The best of these companies hire with extreme care. Jeffry Shearer, vice chairman of Boston Chicken, says, "We take the interview process very seriously. We give interviewees tests to see if they have an effervescence, to see if they have the capacity to grow." And then? Says Olson of Grow Biz: " Once you have the people, delegate and turn them loose."
EASIER SAID than done. There's the small matter of making employees fall in love with your vision. Leadership sage Warren Bennis says that CEOs must exude three characteristics if they are to succeed. They should give a sense of direction; they should inspire trust; and they should convey a sense of optimism and hope. Mark Hansen, president of pet supply retailing category killer Petsmart (No. 65), says the only way to accomplish those goals is to charge across the minefield of growth bearing the standard of company values. "My toughest job is balancing," he says. "As you grow you want to change systems, but you don't want to change what you stand for." Another motivational strategy that works: Listen to employees, and then act on their wisdom. Hansen visits every store each year, which takes 40% of his time, but he considers it critical. "I focus on people -- Petsmart associates and customers -- not systems," he says. Why? A for-instance: Employees told Hansen that consumers didn't want to shop for weekly advertised items. "So we completely revamped our pricing structure and went from a promotional high-low strategy to everyday low pricing, which has been very successful." Promoting the company's values to the outside world shouldn't be ignored, since that enhances the work environment -- and helps business. A local animal welfare group near Petsmart's Phoenix headquarters asked the company to participate in an adopt-a-pet program. "We tested it, and the consumer and employee response was superb,'' Hansen reports. "This year our stores will help animal shelters give away 50,000 dogs and cats that would have been euthanized. It's a win-win-win situation." As in community good will, teary- eyed employees, and 50,000 new customers. "An entrepreneurial company has a wonderful opportunity to establish values. It's a whole lot easier to start from scratch than to reinvent something." Reflecting on and managing internal and external relationships are skills critical to an organization that's long on ambition but perhaps still short on credibility. Andrew "Flip" Filipowski, CEO of Platinum Technology (No. 43), which makes software tools for mainframes, is also an area developer of Boston Chicken. Considering Filipowski's views on business, it's no surprise that he would cook up a deal with Boston Chicken, since creating, studying, and refining relationships is fundamental to his strategy. "Finding compatible partners is critical," he says. "I'm most proud that I can look at the people I work with and say I like them, and they like me. I want that to last decades." Not that he's compromising. He's a guy who can't get Sinatra's "My Way" out of his head. First, he has created a red-hot business writing software for mainframes, which are supposed to be dead. Then there's the look: He's got long hair and a scruffy beard. He prefers baggy shorts and sandals. He's been mistaken for a courier. Now duck, here come some Flipisms: Running Platinum is "a great way to fill time between life and death." A good leader is someone who can get people to follow his strategy, "like drinking Kool-Aid in Guyana." Is he surprised to be running a $67 million company? "No, I'm surprised I'm not the richest man in the United States." He's serious. Filipowski obviously knows the value of a little theater. His idiosyncrasies are symptoms of a highly competitive nature. Platinum goes head to head with BMC Software -- the two share over 80% of the mainframe software tools market. The battle seems to make Flip, well, flip out. "BMC is very good, so I have to wake up every day hating them and preparing for combat. We identify our competitors' 'religious behavior.' That's finding out what's sacred to them, what won't they change -- say, a reliance on telemarketing. We attack by replicating their system or doing something else better. We work like the devil not to be religious. We try to rely on nothing. That way, if anyone picks on us, we change. We survive." To professor Collins of Stanford, Filipowski's behavior is that of a clockmaker as opposed to a timekeeper. Huh? "A timekeeper churns out product without any thought of where he's headed,'' Collins explains. "A clockmaker builds a company to last. He or she isn't wedded to any single product or idea. He or she loves the company above all." So does Filipowski think he's a clockmaker? "We want to be perceived as crazy," he says. Not to worry. What makes a CEO like Filipowski hunger to achieve while others are content to toil away at the post office? One perspective: "I grew up near Cabrini- Green in Chicago, which was working class," he says. "My parents were ( immigrants from Poland. They wanted to Americanize me; they wanted me to succeed, so they sent me to military school. I've wanted to control my own destiny since I was 10." Filipowski's background reinforces the findings of John Sibley Butler, a professor of sociology and management at the University of Texas. Immigrants and their offspring, Butler says, often make particularly good entrepreneurs. "Immigrants see America as a land of vast riches," he says. "They have a vision that sets them apart. And often they are forced to band together for support." And indeed, a quick glance at the roster of successful high-tech CEOs shows a number of immigrants. Safi Qureshey, from Pakistan, runs AST Research. Peter Behrendt, who emigrated from Germany, heads up Exabyte. Philippe Kahn, founder and CEO of Borland, came from France.
Add to that list Efi Arazi, founder and CEO of Electronics for Imaging (No. 7), which produces integrated hardware and software systems for color printing. To Arazi, who grew up in Israel, the U.S. was a technology beacon. "Since a young age, I admired innovators, inventors, and pioneers,'' he says. "When I was 10 I used to read Popular Science standing in a bookshop in Jerusalem because I couldn't afford to buy the magazine. I always associated America with people who used science and technology to push the envelope." He came to study at MIT in 1958, stayed in the U.S. to develop a digital camera for NASA, and then moved back to Israel to found Scitex, today a major player in color publishing. Arazi left Scitex in 1989 after Robert Maxwell, the larger-than-life Bouncing Czech whom Arazi calls "a ruffian and an amazing bully," took over the company. Arazi emigrated to Northern California because he fell in love with a San Franciscan, "but also because I was able to recruit 20 good people from Silicon Valley in one year. Silicon Valley is a very fertile area for someone coming in with a new idea and a little funding."
WOMEN are increasingly unfurling entrepreneurial banners. As of 1991, the most recent year with available data, the Small Business Administration says women head 5.5 million proprietorships in the U.S., 33% of the total. The number of women-owned businesses increased at a compound annual rate of 8.4% between 1979 and 1990, nearly double the 4.5% growth rate of male-owned business. While women have been entering the work force at a rapid pace, assistant professor Patricia Greene of the Rutgers University faculty of management says women are also fleeing large, inflexible, glass-ceilinged corporations. "Women entrepreneurs are more like men entrepreneurs than they are like other women," Greene says. "They have faith in their ability to achieve and are confident enough to try." Most are starting businesses in fields where they have long gained expertise, such as retailing, "which is good because previous work experience and success are highly correlated," says Greene. Case in point: Judy Figge. The CEO of In Home Health (No. 74), which provides in-home health services, was an RN before she decided to buy the company in 1981, when revenues were $300,000. "I always wanted to run my own business, and this was what I knew," she says. "Being an RN made it tough raising money." But she's making it. Today In Home Health is serving 19 markets, and it had 1993 sales of $104 million. These CEOs, male and female, recognize that maximizing creativity is one key to growing a business. How do you do that? Douglas Stickney, CEO of Quantum Health Resources (No. 66), tries to foster a creative work environment by encouraging employees to talk informally. Quantum, which sells drugs and services to patients with rare chronic disorders such as hemophilia, has in several instances benefited from ideas generated at kaffeeklatsch sessions. "It's those Monday mornings or Friday afternoons -- that's when you really need to create an atmosphere where people can say, ' Man, why aren't we thinking about going into thrombosis?' An idea like that might not come out during a formal planning meeting. So I make sure I'm available. It's managing by wandering around." How else do you vacuum the cobwebs out of the right side of your brain? As Kyle Craig, who just made the move to Boston Chicken, says, it's all about doing what you really want to be doing. Teresa Amabile, a professor of psychology at Brandeis University in Waltham, Massachusetts, who has studied creativity, says enhancing creativity requires "making the strange familiar and the familiar strange." Another help, she says, is to focus on your most passionate interests. To realize that mantra, start by imagining yourself in an environment where you are intrinsically, rather than extrinsically, motivated -- which means laboring for love rather than just a paycheck. If you aren't doing what truly motivates you, you won't be creative and you may ultimately fail or feel unfulfilled. Amabile suggests: "Ask yourself, 'What do * I think about? What do I enjoy? What are the common threads in my life?'" If pieces of your job don't appear in any of these meditations, it may be time to heed the lessons of these entrepreneurs and strike out on your own. As the economy continues its long, amazing morph, there's seldom been a better time to answer America's entrepreneurial call.
LESSON: Successful companies aren't wedded to any single product or idea. They keep experimenting.
LESSON: Not only is failure to be expected in the entrepreneurial process, it's almost a requirement.
LESSON: Identify competitors' "religious'' behavior -- what's sacred to them. Then take advantage of it.
LESSON: Women entrepreneurs are more like men entrepreneurs than they are like other women.
LESSON: Would-be entrepreneurs who sit back waiting for a great idea to strike are destined to fail.
BOX: HOW WE CHOSE THEM
To find America's 100 fastest-growing companies, FORTUNE asked William O'Neil & Co., an investment research firm in Los Angeles, to scan its database of public firms with annual sales of at least $50 million. We eliminated those that lost money during the past two quarters or over the past year as a whole. We looked at the most recent four quarters and ranked the companies by rate of annualized sales growth over the past three years or, if available, five. (Financial companies, for which sales figures are a less meaningful measure of growth, were excluded.) Earnings growth figures are also based on three to five years and appear only for companies posting 12 quarters of positive earnings; otherwise there is a dash. An alphabetical index to the 100 companies appears at the end of the article.
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