News Column

Quick Rise to the Middle Market

July/August 2003, HISPANIC BUSINESS Magazine
Johnnie Flores of Sphinx Consultants and Associates (SC&A) is enjoying his company's quick growth.
Johnnie Flores of Sphinx Consultants and Associates (SC&A) is enjoying his company's quick growth.

VIEW the 2003 Hispanic Business Fastest Growing 100 Companies

Five years ago, Johnnie Flores was winding down his military career and tinkering with a part-time business he started on the side. The company's first-year revenues came to only $6,000. But by 2002, his company, Sphinx Consultants and Associates (SC&A), reported revenues of $7 million, giving it an incredible five-year growth rate of 116,566 percent.

Light-speed growth has placed San Antonio–based Sphinx Consultants at the top of the 2003 Hispanic Business Fastest-Growing 100® directory. It also makes Sphinx a newly minted member of the middle market. For economic development experts, the middle market, composed of companies with annual revenues between $5 million and $50 million, merits special attention as a crucial measure of maturity for both the individual company and the overall economy.

To reach the middle market quickly, Sphinx broke a few of the stereotypes associated with start-up business growth. First, the company kept its payroll to a minimum; aside from Mr. Flores, it has only four employees. Second, it functions as a virtual company, using the Internet to bid for work and communicate with a network of 35 subcontractors who perform it. Sphinx handles information-processing contracts for the Army, Air Force, and a few commercial customers. Federal contracts account for 90 percent of its revenues.

"It's hard for new people coming in, because they don't know how to work with the government and how to go after contracts," says Mr. Flores, who specialized in contracting during his 40-plus years in the military. "But once you know the system, it doesn't take a lot of people to get the work."

Irma Tuder

Most companies on the Fastest-Growing 100 follow a more traditional growth trajectory, although many bear similarities to the Sphinx story. Analytical Services Inc., number 56 on the directory, also works as a Defense Department contractor. CEO Irma Tuder (pictured left) says she began in 1993 with first-year revenues of $50,000; after two years, she had enough cash flow to hire two people. Now, with revenues of $18 million and a work force of about 270 people, Alabama-based Analytical Services is a rising middle-market company.

For Ms. Tuder, the switch from a small business to a middle-market company came in step with staff growth. "That is a major transition when you go from doing everything yourself to hiring specialized employees rather than generalists," she says. "When you go for that [start-up] model, you get dependent on individuals. Last year, we went to the next level, trying to institutionalize and systematize rather than being people-dependent. It's hard to go from a personalized company to having the [corporate] infrastructure in place."

One characteristic of the middle market is that as companies approach the $5 million mark, they typically cross the line between an individual- or family-controlled shop and a formal corporate structure. Lena Rodriguez, assistant professor in the College of Business at San Diego State University in California, points out that since the vast majority of small businesses are family businesses, the family plays a major role in this transition, especially for Hispanic entrepreneurs.

"It's the drain of a family business – the entrepreneur feels this obligation to share the wealth with the family. You don't re-invest in your company because you feel this obligation," says Ms. Rodriguez, whose family owned four car dealerships. "Often there are differences in family members' contribution and what they receive [as compensation]. That makes it difficult when approaching and sustaining the company in the middle market."

Besides the financial drag, family dynamics can inhibit growth on the operational side, according to Ms. Rodriguez. "Employees see family members are there for their birthright. That can really throw off the company," she says. "Employees need to see it as a legitimate business. If they don't see a role for growth for themselves, they don't buy into it. And that's where your sense of momentum comes from in an organization."

Dave Saenz, CEO of Comscape Communications, number 58 on the Fastest-Growing 100, runs a company approaching the middle market. Last year, his revenues totaled $4.5 million. In contrast to Analytical Services and Sphinx, Comscape deals with the consumer market rather than federal agencies. However, like Mr. Flores at Sphinx, Mr. Saenz has used subcontractors to fuel his growth.

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