Every growth-oriented CEO will eventually encounter the problem faced by Fred Flores. During the last five years, the CEO of Diverse Staffing Solutions in Fullerton, Calif., has enjoyed a tremendous growth spurt.
His core staff has expanded from four to 50. The number of contingent employees – those the company provides to clients on a temporary basis – has climbed in the same period from 150 to around 3,000. Revenues have grown from $1 million in 2000 to $44 million in 2004. Thanks to that performance, Diverse Staffing ranks third on this year's directory of the Hispanic Business Fastest-Growing 100® companies.
The problem? Mr. Flores attributes 40 percent of his growth to the acquisition of competing companies, and financing that expansion has involved a long, hard search for capital. Diverse Staffing has solved the problem by persistently networking and lobbying banks and other financial institutions. The company now has significant levels of revolving credit to support the company's continued growth.
Mr. Flores plans to expand geographically into the Sacramento region of California as well as markets in Arizona, Kentucky, Texas, and Canada. He projects 2005 revenues between $52 million and $55 million (the company scored a recent coup when American Honda entered into a contract for its services), and the company expects to reach the $100 million mark in three to five years.
Aggressive acquisition worked for Mr. Flores, but the experience of the 100 Fastest-Growing Companies shows more than one way to achieve astronomical growth. LatiNode, the top company on the list for two years in a row, reports five-year revenue growth of 124,782 percent. Its core service of Internet-based telephony between the United States and Latin America combines strong market demand with money-saving technology (see story, "No Slowing for Repeat Champion").
Other CEOs among the 100 attribute their growth to the Small Business Administration's 8(a) Program. Scott Mandel, CEO of Asset Protection & Security Services in Corpus Christi, Texas, says the 8(a) program is largely responsible for the company's five-year revenue increase of 2,461.7 percent. A single major federal contract sent annual company revenues from around $800,000 to $10 million from one year to the next, he says, and employment jumped from around 60 workers to more than four times that many today.
In 2004, the company reported revenues of $20.8 million to rank number 9 on the Fastest-Growing 100. Mr. Mandel says the company is competing for one contract that would raise its annual revenues to between $58 million and $60 million.
Lack of funding nearly killed this growth almost before it started. According to Mr. Mandel, one of the company's biggest obstacles in its early days was access to capital. Banks refused to lend money despite a $10-million annual contract with the federal government. Meanwhile, the company needed a $1 million to $2 million line of credit to meet payroll for a year or so until government payments began to roll in. "No one would touch it and we were coming down to the wire," he says.
He finally found a factoring company in Dallas that would advance money based on receivables. Although more expensive than a bank loan, the factoring firm would advance 85 percent of the amount that Asset Protection invoiced the government. The factoring firm collected once the government paid in full. "Without the opportunity that they allowed us, we probably would have never been able to start that contract," says Mr. Mandel.
Wendel Torres, CEO of Alliance General Contractors in Colorado Springs, Colo., says the 8(a) program allowed his company to gain experience working on large projects and build relationships in the construction industry.
Revenues from the larger federal contracts allowed the company to purchase equipment and increase its bonding capacity, the key financial measure agencies look for in a construction firm. With higher bonding capacity, the company's revenues have grown from little more than $2 million in 2000 to $52 million in 2004, an increase of nearly 2,500 percent. The company, which began in 1987 with Mr. Torres as the sole employee, now has a staff of 85, including five project managers and 16 superintendents. "As our growth started, it allowed us to gear up our staff to perform larger projects," Mr. Torres explains.
While money presents a problem for many CEOs, it's the main product of several service firms on the Fastest-Growing 100 directory. Florida-based Town Center Group has grown its revenues 2,879.9 percent since 2000 by providing a comprehensive approach to financing and buying real estate.
CEO Carlos Valentin credits Town Center Group's growth to foreseeing the boon in refinancing that hit the mortgage industry a few years ago. The company geared up that portion of the company and aggressively offered lower interest rates.
But to grow his business, Mr. Valentin doesn't borrow money – he pays cash. Town Center Group recently doubled its office space and has plans to open branches in Fort Lauderdale and Coral Gables this year. During the next two years, Mr. Valentin plans to have 10 more offices throughout the state, all without borrowing a dollar.
Like other CEOs of the Fastest-Growing 100, Mr. Valentin feels that good employees account for most of his success. "The most powerful part of this business is the people I recruited two years ago," he says. As an investment, "hiring the key players has paid off handsomely."
When interviewing potential employees, he seeks someone who shares the company's philosophy and the core value of catering to the client's every need. "As we hire new people, the first thing we do is sit down with them and make a presentation of the company and tell them, 'This is what we stand for, this is how we do business, this is how we treat clients,' " he says. "It's kind of a challenge, because not everyone works in that kind of environment on a daily basis."
As a group, the 100 Fastest-Growing companies report five-year revenue growth of 298.7 percent, a strong figure given the uneven performance of the U.S. economy. Looking forward, CEOs interviewed by Hispanic Business rate their local economy as steady to growing. Mr. Mandel speaks highly of the South Texas economy and Mr. Valentin describes the Miami market as "better than ever." He says the continued migration from the Northeast to Florida almost makes the state immune to the economic downturns that affect the rest of the country.
"That influx of money and people coming in makes this economy different, and even though it's tied to the economy of the United States, it almost stands by itself," Mr. Valentin says. "I forecast the state is going to be one of the richest states in the United States in the next 10 years because of that particular situation."
But to continue to grow, companies must change with the times. Mr. Flores of Diverse Staffing plans to obtain capital for future growth by selling franchises. He also believes in extending his networking and lobbying efforts to bankers.
Although acquisitions delivered 40 percent of Diverse Staffing's growth, the other 60 percent came from organic growth. For the foreseeable future, Mr. Flores expects to continue the grind of finding new customers. He says that in the cutthroat staffing industry, "our competitors are always looking to replace us" – unless he buys them first.
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