"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.
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."
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