Construction in the Fast Mode
Imagine your company’s revenues growing at an average rate of 197 percent each year for five years. Even if you started off with sales of only $250,000 in the first year, you’d be running a $19.5 million enterprise by the end of year five – not to mention the corollary rise in company assets and equity value.
That scenario represents the real-world trajectory of RCG Construction, the top firm on the 2001 HISPANIC BUSINESS Fastest-Growing 100 directory. On average, these 100 companies increased their revenues 46 percent per year between 1996 and 2000. Total revenues jumped from $995.8 million to $4.6 billion in the same time frame.
These companies prove the value of growth momentum, even during a general economic slowdown. From 1996 to 1998, with the economy at full steam, total revenue for the 100 grew by 118.3 percent. During the 1998–2000 interval, particularly when the economy quickly cooled in 2000, the rate fell only slightly to 111.7 percent.
Resilience during a downturn reflects both internal and external factors of the Fastest-Growing 100. Hector Orci, CEO of Los Angeles–based advertising agency La Agencia de Orci, believes that even in the current economy, Hispanic consumers continue to increase their income and spending. This increase stems from the Hispanic population’s higher-than-average work-force participation, flexibility in taking available jobs to remain employed, and a concentration of Hispanics in the services that tend to weather economic storms best. These same criteria apply to much of the Fastest-Growing 100, with 45 of the companies in the service sector.
Certainly CEOs of these companies see the current economic slowdown in relative terms – a momentary hesitation in their gung-ho growth. “At the first of the year, there was not an abundance of work to bid on,” admits Rolando Hernandez, CEO of the number 1 company, RGC Construction in Las Vegas. “It dropped off in February and March. Once [Federal Reserve Chairman Alan] Greenspan dropped the rates a few times, people had more money and it has picked up. This might not be a banner year, but it will be a growth year.”
“This year I won’t do 50 percent [revenue growth], but maybe 30 percent,” says Carlo M. Pinto, CEO of Pinnacle Energy in Newark, Delaware. “In a sense, the downturn has affected us in a positive way. Our volume has increased every month compared to last year.” Pinnacle grew an average of 56.5 percent per year between 1996 and 2000.
Both RCG and Pinnacle illustrate the dominance of the construction industry in this year’s Fastest-Growing 100 directory. In all, 32 companies on the list work directly in the building trades. Another seven sell support services or peripheral products to construction.
“The growth is tremendous in Las Vegas – we get between 4,000 and 5,000 new permanent residents every month,” says Mr. Hernandez, who specializes in warehouse and retail construction. “Our projects are $4 million to $5 million jobs, so you don’t need too many to double your [revenue] volume.”
The late 1990s provided near-perfect conditions for fast-growing construction firms. According to the National Association of Home Builders (NAHB), the number of residential construction permits increased during this period to a peak of 1.66 million in 1999. By the following year, the number had fallen to 1.57 million, a level the NAHB expects will be maintained for the next few years.
Consolidation has affected all segments of small businesses, but it has delivered unexpected benefits for construction firms. Design-build, a system in which contractors also serve as real estate developers, allows construction firms to expand their revenues even as it demands new levels of capitalization. Mary Guerrero-McDonald, whose company, Guerrero-McDonald Construction, ranks number 58 on the Fastest-Growing 100, cites design-build as one growth opportunity still hampered by traditional interests.
“The power is the bankers,” she says. Of the six bankers she talked to about a mixed-use development in downtown Austin, only one showed interest. She says the banker felt she needed “a competent contractor to do the project,” turning a blind eye to Guerrero-McDonald Construction’s successful track record as a builder.
“Have they ever seen a Mexican-American woman from the [Rio Grande] Valley asking for $23 million? I doubt it,” says Ms. Guerrero-MacDonald. “The attitude is still there. … [Mixed-use] is the local trend, except the local trend is usually done by white males, not Hispanic women.”
The importance of environmental concerns in the industry extends far beyond Austin – witness the success of Chicago-based Del Mar Inc., one of several remediation firms on the Fastest-Growing 100. “We do better in a recession, because when the building industry is in a growth market, environmental [issues] are the last concern,” says Del Mar CEO Peter Romero. “They’ll build a home on a nuclear site.”
In a business sector that grows about 3 percent to 5 percent per year, according to Mr. Romero’s estimates, his company has posted increases of 82.2 percent. But he warns that in the construction industry, growth has a dark side few CEOs wish to acknowledge. “If you have a plan to grow 100 percent and you grow 200 percent, something’s wrong. It’s just as bad as if you blew it by 50 percent under your goal,” he explains. “We reach a point where we don’t take any more work, even though we have an opportunity to exceed our numbers. If you can’t handle the payroll, if you can’t get the bonding, you can’t take the work. We’ve missed opportunities to grow, because again and again I’ve seen companies go bankrupt.”
Financial mismanagement looms as the biggest danger for contractors. Survivors pay as much attention to cash flow as to workflow. As a general contractor, Mr. Hernandez of RCG passes most of the labor costs on to his subcontractors. Since government work accounts for 70 percent of Mr. Romero’s business, he walks the fine line of trying to be low bidder while protecting his company through strategic invoicing and contract management. Pooling the costs of transportation, material, equipment, and labor in the early disbursements in the contract gives him a cushion for the duration of the project. “You get front-end cash and lower costs [disbursements] on the back end,” he says. “But as long as your overall cost is low, you’ll get the job.”
He also notes that “a lot of people think if they send a bill, they will get paid.” Del Mar sends very detailed invoices. For one client, “we submit an 85-page invoice every 15 days,” says Mr. Romero. “And every 15 days, I get a check from them.”
Besides construction, high-tech and health-care companies are the largest contingents on the Fastest-Growing 100. The service and construction sectors account for three-quarters of the directory. MasTec, the largest company on the 2001 HISPANIC BUSINESS 500, enjoyed the largest revenue growth in terms of dollars. Between 1996 and 2000, MasTec’s revenues grew by more than $1 billion. Three of the top five companies in dollar growth operate hospitals or health clinics.
A solid majority of the Fastest-Growing 100 – 83 companies – have Web sites. Even among construction firms, the Internet has caught on as a way to maintain a market presence. Only 28 companies on the directory derive revenue from their Web investments, indicating that most see the Internet as a virtual marketing tool for their non-virtual products and services.
Among hotbeds of fast growth, California, with 22 companies on the list, narrowly beat out Texas. The Lone Star State has 21 names on the directory. Florida ranks third (16 companies), followed by Virginia (eight) and New Jersey (four). On a regional basis, the Southwest, with a total of 41 companies, leads the Southeast and Northeast.
Florida fast-growers put their state on top for job creation, adding 8,308 jobs since 1996. MasTec expanded its payroll by nearly 6,000 in five years. Overall, the Fastest-Growing 100 increased their work force 165.7 percent. Productivity increased from $108,070 in revenue per employee to $186,674 in 2000.
The Fastest-Growing 100 companies receive about $1.26 billion, or 27.5 percent of their total revenues, from government sources. Of that total, $488.5 million comes from local municipalities and $648.4 million from state coffers. Only $128.2 million originates from the federal government. Fifty-four of the 100 companies qualify as government suppliers. This public-private relationship is a natural consequence of the 100’s sector concentration, given that both construction and information technology traditionally have figured heavily in minority contracting. Mr. Hernandez, Mr. Romero, and Ms. Guerrero-McDonald say municipal, state, and federal agencies account for 8 percent to 80 percent of their sales.
For the future, the fastest-growth companies face myriad challenges. According to “Vision: 2020, ” a report from the Construction Industry Institute at the University of Texas in Austin, they can expect the emergence of information technology as the main differentiation between competitors, global procurement schemes, and projects that “align multiple partners with diverse cultures and interests.” With their cultural skills and forward momentum, CEOs of the Fastest-Growing 100 are comfortably in the driver’s seat.
Written by Senior Editor Joel Russell. The 2001 HISPANIC BUSINESS Fastest-Growing 100 directory research by Research Supervisor Tabin Cosio and Research Associate Cynthia Marquez.
To purchase a copy of the current issue of HISPANIC BUSINESS magazine, which includes the The 2001 HISPANIC BUSINESS Fastest-Growing 100 directory, visit our store at http://www.hispanicbusiness.com/store/publications.asp.
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