News Column

Quick Rise to the Middle Market

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Comscape sells cellular phone plans as a licensed distributor for Nextel, Verizon, and other carriers. Mr. Saenz and his two partners, Markk Gonzales and Todd Small -– all veteran Nextel sales managers – started by knocking on doors in Anaheim, California. Today, a network of in-house salespeople and inde-pendent sales reps gives the company national coverage, resulting in revenue growth of 275 percent since 1998.

To spur growth in a slow economy, Mr. Saenz has learned creative marketing. "With the downturn in the economy, the carriers have gotten more aggressive," he says, "so they offer [distributors] co-op advertising dollars. As long as we're selling every month, they're willing to give us more money. That has fueled our ability to market the products." He also notes that technologically, the quality and geographic coverage of cell phones have improved.

In describing their sales strategy, Fast-Growing 100 CEOs mention geographical expansion, diversification of product lines, and price as their tools of choice. Like Mr. Saenz, Mr. Flores at Sphinx has grown beyond his base in San Antonio to handle contracts in Alaska, Kansas, and across Texas. Ms. Tuder has concentrated on expanding her core competencies from software engineering to include systems integration, information processing, and organizational development – what she calls "four capabilities that work very nicely together."

A survey last year by the accounting firm Grant Thornton found that a majority (56 percent) of middle-market CEOs cite competition as their biggest barrier to growth. For Fastest-Growing 100 CEOs, lower prices often beat the competition.

"Sure, there were always competitors," says Mr. Flores, "but I was the lowest bidder." In Mr. Saenz's cell phone sector, prices for hardware and service have trended down. Ms. Tuder says she never refuses a contract, no matter how small, because it could always lead to bigger contracts in the future.

As the U.S. economy grinds through its fourth year of dormancy, price pressure affects both sides of the balance sheet. An American Express survey found that more than two-thirds of middle-market CFOs expect the economy to stay flat, decline, or act erratically throughout 2003. Internally, CFOs see managing indirect costs as a critical challenge this year. "Most senior financial managers polled in our survey will rely on containing costs as much as growing revenue to maintain the financial health of their organizations," says Anré Williams, senior vice-president for the middle market at American Express Corporate Services. "This is a marked departure from the late 1990s when companies placed phenomenal growth and increased revenues over cost containment."

Fastest-Growing 100 companies have contained their payroll costs with improved productivity. Since 1998, the average sales per employee has increased fivefold, from $37,476 to $190,984. While the average payroll among the Fastest-Growing companies has grown 241.5 percent in the last five years, revenues have grown 392.2 percent (see table, "Statistical Composite").

Although the Grant Thornton study identifies financial concerns as the single most important issue facing middle-market companies, Fastest-Growing 100 CEOs have discovered adequate money sources to fund their growth. "We let revenues lead expenses," says Mr. Saenz. "We are self-funded. We've never had to borrow money. Maybe that has smothered growth, but it's good to not have any debt."

"The only bad thing about working for the government is that they pay in 30 to 60 days," says Mr. Flores. "A lot of companies don't work with the government because they take so long to pay, but the good news is that they will pay [eventually]. It's hard trying to establish a line of credit, being a small company and growing so fast. You can overcome [the objections of bankers] when you show them the work is being done." In contrast, Ms. Tuder managed to negotiate her first contract with up-front payment, a decision she credits with providing a financial base during her company's formative years.

Statistical Composite: Typical "Fastest-Growing 100" Company
Five-year sales growth 392.27%
Company age 13.4 years
Number of employees in 1998 77
Number of employees in 2002 263
Revenues in 1998 $10.09 million
Revenues in 2002 $50.28 million
Per-employee productivity in 1998 $37,476
Per-employee productivity in 2002 $190,984
© 2003 Hispanic Business Inc. Reprinting, copying, or transmitting all or part of this information requires written permission.

For companies eager to reach the middle market quickly, Ms. Rodriguez suggests exploring new marketing strategies, such as franchising and exporting, as well as paying attention to the company's culture. "Intrapreneurship," or fostering innovation inside a company, should be rewarded and success recognized. Ironically, the most innovative companies tolerate failure, she says, because it can lead to unexpected innovation if properly managed.

As the senior member of the Sphinx work force, Mr. Flores has innovated by starting a consulting practice focused on identifying and recovering errors in clients' garbage bills. He calls the trash business "one of the biggest revenue industries in the world," and claims recycling programs, bill auditing, and contract renegotiation can save big money.

For Sphinx, it represents another opportunity for growth in a slow, price-conscious time. "The trash industry is always there, 24/7," says Mr. Flores. "Customers love it because when I come in and do an audit, it's free if I don't recover anything." 

Written by Senior Editor Joel Russell. The 2003 Hispanic Business Fastest-Growing 100 directory research by Business Economist Juan Solana, Research Supervisor J. Tabin Cosio, and Research Assistants Cynthia Marquez and Mike Caplinger.


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