“We started as a niche company, and we were very successful,” says Susana Navarro-Valenti, CEO of Navarro Research & Engineering, based in Oak Ridge, Tennessee.
“We decided we needed to expand in a logical way, into a related field. We started with nuclear safety, and we have worked very hard to change the perception that we are only that. Now we handle environmental work, insurance, safety and health consulting, and information technology contracts. Still, you can see we’re in technical services.”
“You can be a successful generalist, but we have tried to be the best at one thing,” comments Mr. Garcia of Sterling Financial. “We looked for the niche that no one else was doing. I want my customers to say, ‘Sterling does this better than anyone in the world.’”
Where do the growth-prone niches lie? Almost half of the companies on this year’s Fastest-Growing directory fall in the catch-all service sector (see table, “Composition/Performance by Industry”). Most of them work in business services such as environmental remediation, workforce management, consulting, and information technology. Close to another third of the directory’s companies work in construction. Again, a close look reveals that these firms specialize in a growing niche of the construction market. In terms of money, the largest players among the Fastest-Growing tend toward the telephony, healthcare, and automotive sectors (see table, “Top 10 Companies by Dollar Growth”).
Looking forward, the niches filled by the Fastest-Growing 100 firms still appear good long-term bets, since CEOs expect growth to resume this year after a slight off-pace performance in the 2001 recession. “Next year will be better,” promises Luis Spinola, CEO of Azteca Enterprises, a construction firm whose revenues have grown 695 percent since 1997. With 80 percent of those revenues coming from the government, Mr. Spinola plans to target local school districts for future growth. The company ranks 28 on the Fastest-Growing 100.
“It’s our plan to continue growing,” affirms Ms. Navarro-Valenti, whose company revenues have increased 137 percent per year since 1997. “Our plan is to diversify by targeting the Department of Defense for contracts.”
Asked to cite obstacles to their companies’ progress, CEOs mention the familiar themes of discrimination and lack of access both to money and to markets. Mr. Spinola cites the difficulty of persuading people to believe in his company as his main impediment to expansion. “The stigma that you are a minority company means they think you’re less capable of doing the work. People who work with us know what we can do, but with others it’s hard,” he says.
“With some agencies [in the federal government] there is little accountability,” adds Mr. Ochoa. “That is the major challenge we face. It’s hard to compete with multibillion-dollar companies, or companies that simply want to use your name to comply with certain regulations.”
The National Institutes of Health recently pulled out of a $50 million contract after Mr. Ochoa’s company completed only $15 million of the work. Being a minority firm in the 8(a) program, he has sought help from the Small Business Administration, which oversees 8(a). “If they were dealing with a large company, this wouldn’t have happened,” Mr. Ochoa says. “There are no mechanisms to resolve this kind of situation, and much larger companies then take over the market. … Now other companies – multibillion-dollar enterprises – are building [the project]. The lack of accountability troubles us.”
Mr. Spinola reports good relationships with his bankers, but difficulty in acquiring the bonding necessary for federal or commercial construction. Like insurance providers, bonding issuers quote rates based on perceived risk, which works against small firms trying to grow. After reviewing financial statements, contracts, and managerial resumes, the bonding company issues coverage for a charge that varies from 1 percent to 3 percent of the budget – a wide range for large-scale construction projects. “They give you the bond and they give you a bill before you start the job, Mr. Spinola says. “You need to take care of your bonding company as well as your bank.”
Although Fast-Growing 100 CEOs made strategic payroll cuts during the recession, overall employment for the 100 grew 75 percent during the 1997–2001 period used by Hispanic Business to determine the directory. More tellingly, the productivity for the 100, measured in revenues per employee, nearly tripled in the same time span (see box, “Statistical Composite: Typical Fastest-Growing Company”).
As a human resources manager, Mr. Garcia likens himself to an athletic coach, or even a cheerleader, for his team. “The hardest part of building a business is that you’re only as good as the people on your bench,” he says. “My advice to new entrepreneurs is that rather than focusing on your business plan or strategy, get the right people. If you were a world-class coach, you would find the right players, and the players would shape your plan. You need world-class brain power driving the business.”
Whether or not the U.S. economy picks up steam later this year and into the next, the leaders of the Fastest-Growing 100 companies expect to move ahead on a speedy trajectory. “Our business has been growing around 400 percent per year. I see that slowing down in the next two years, but it will still be 300 percent,” predicts Mr. Garcia of Sterling Financial. Adds Mr. Ochoa: “I believe Cetrom will develop strategic alliances and open new markets. We are positioned to grow, and I feel very optimistic.”
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