We just got back from the 15th Annual Inc. 500 Conference and Award Ceremony held in Philadelphia. Zweig White & Associates made it onto Inc. magazine’s list of 500 fastest-growing privately held firms for the second year in a row, so this was our second time at this gala event. Here are some of my observations:The entrepreneurs in attendance were not whining. Contrary to what your experiences might be at the typical A/E or environmental consulting firm professional association meeting, at the Inc. 500 conference, I didn’t hear one complaint about the economy, overhead caps, or government regulations. These entrepreneurs don’t care about stuff that’s out of their control. They feel their success depends on what they do. Inc. obviously knows its audience and the group’s tendency toward self-determination; they didn’t put one economist or futurist in front of us, or a single politician promising a business-related tax cut. Far and away the biggest problem (or “challenge” as one woman CEO of a $12 million firm said) facing this group is finding people. This topic came up in each of the three roundtables I attended, even though we were supposed to be talking about other stuff. It seems that everyone is working hard to hire people. The Internet is becoming a more popular recruiting tool. Another challenge is finding capital for mid-sized, “second stage” firms. Growing companies need capital to fuel that growth, but it’s not always easy to find, especially if you haven’t been in business a hundred years and amassed a significant balance sheet. It’s particularly tough for firms that need $2 million to $10 million. You can’t go public, you aren’t attractive to most venture capitalists, and the bank doesn’t want to lend anything that’s not secured by assets. One of the presenters in a panel discussion talked about “subordinated debt financing.” Guess what this means? It means paying 20%-plus interest rates with a fairly quick payback schedule. The good news is that you don’t give up equity. The bad news is that not too many firms can afford these interest rates! At one of the roundtable discussions I was at, several of the participants talked about raising money from clients. One said he got one-year, advance-payment agreements from clients, which allowed him to raise a significant amount of cash. Another attendee suggested to a CEO who was interested in raising $2-$3 million to go directly to their 200-300 clients and ask each to invest $10,000. The most controversial speaker was “Mr. Fields” (Randall K. Fields), the husband of “Mrs. Fields” of cookie fame. He spoke about using technology to improve business operations, and how it could allow a manager to replicate him- or herself in 500 locations at once. In his case, he claimed to have done this with his wife. One of the attendees, Bob Juniper, of Three C Autobody (a guy who has been in Inc. and The Zweig Letter on several occasions), commented to me that replicating himself isn’t want he wants to do. He said that would replicate his weaknesses 500 times over, and that what he tries to do is get other people for what he isn’t good at. In any event, Fields did pose an interesting way to characterize the customers of any business— he says they are either “relationship buyers” or “transactional buyers.” Relationship buyers want consistency every time. They buy brand names. They’ll pay a premium. Transactional buyers make their purchase decision based on price or convenience, only. He said the problem with market research is that it fails to recognize that any business is probably serving both types of buyers, and that transactional buyers have no loyalty.Hal Rosenbluth, a fellow who grew a $20 million travel company into a $2.5 billion business in less than a decade, lectured us in a low-key roundtable he led to organize our companies “like the family farm.” What I got out of his message is that on the farm, everyone pitches in to help do whatever job needs to be done at the time. He talked about one of his neighbors in North Dakota, a farmer who he offered to take to an Eagles game. Rosenbluth asked him what he was going to do about his farm, since it was calving season. The guy said his neighbor would help him out and that he wouldn’t have to pay him to do it! We talked about business value, and with this group of attendees, there was a widespread recognition of how revenue growth impacts the value of the business. One of the frequent contributors to Inc. who was at a roundtable tried to suggest that profit is all that’s really important to the owners of the business. But that opinion was quickly refuted by several different business-builders who explained their philosophy that they get more out of having a decent profit, but a high growth rate. They said that this condition makes their business value grow faster than that of an extremely profitable, slow-growth company, and that this is how they leverage their investment in their firms. As usual, there was a wide-ranging cast of characters. That’s part of what makes this show so interesting. This year’s winners and conference attendees came from all walks of life— high tech firms, printers, temporary help firms, recruitment companies, long distance resellers, dairies, and even a guy who owned a company that only sold hemp products (hats and T-shirts). They ran the gambit from what I would consider sleazy, get-rich-quick, vacuum cleaner sales-types, to the aristocratic, born with a silver spoon in the mouth, ivy-leaguers with affected accents. There were only two people that we ran into there from our business— Judith Nitsch and Lisa Brothers of Judith Nitsch Engineering (Boston, MA), #172 on the 1996 Inc. 500 List, and consulting clients of ours from right here in Boston. I left the conference with mixed feelings. On one hand, I felt pretty good that we are not only doing something worthwhile, but that we’ll be able to sustain it because we’ve planned for growth and our success is not situation dependent (such as reselling long distance services for a few cents less than AT&T, or selling hemp hats to the Teamster’s Union because you have the only unionized hat factory in New Jersey). On the other hand, when I talked to a 29-year-old who has a new 750il BMW for daily transportation and a Ferrari Mondial Cabriolet for the weekends, or a 32-year-old who sold a small percentage of his six year-old business for $10 million, it’s easy to get a little impatient for faster success!To summarize, the best part about the Inc. 500 Conference, as it is with just about any of these events, is the people. It’s always a great learning experience to meet and mingle with other owners of companies that you have something in common with. And thanks to Inc. and sponsors such as John Hancock and Compaq, it didn’t cost us anything, either!Originally published 5/26/1997
About Zweig Group
Zweig Group, three times on the Inc. 500/5000 list, is the industry leader and premiere authority in AEC firm management and marketing, the go-to source for data and research, and the leading provider of customized learning and training. Zweig Group exists to help AEC firms succeed in a complicated and challenging marketplace through services that include: Mergers & Acquisitions, Strategic Planning, Valuation, Executive Search, Board of Director Services, Ownership Transition, Marketing & Branding, and Business Development Training. The firm has offices in Dallas and Fayetteville, Arkansas.
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