Why were so many Inc. 500 companies founded during the recession? Because a good idea is more powerful than a bad environment.
Floto + Warner
Sunny outlook
Vanguard Energy Partners is among the Inc. 500 companies bold enough to
have opened for business in 2008. The company (No. 212 on the list) is
installing this million-square-foot solar array atop a warehouse in New
Jersey.
Certainly 2008 was no one's idea of the right time to do anything other than hang on to an existing job—by one's teeth if necessary. With seed capital and consumer spending down and the future as predictable as a coin flip, many aspiring entrepreneurs sensibly chose to aspire a while longer. From 2007 to 2010, the U.S.'s start-up rate declined 12 percent, according to the Small Business Administration. In the second quarter of 2008, the share of companies that had started since the previous quarter fell below 3 percent for the first time since the early 1990s.
So here's to the 20 percent of Inc. 500 founders who launched in 2008, the base year for calculating the 2012 list. We salute all our accomplished honorees, but this group deserves its own turn in the spotlight. Yes, starting a business in a recession has advantages: a surfeit of affordable talent, a winnowed field. Still, small-business failures increased 40 percent from 2007 to 2010. Making a risky move in a risky economic climate requires extraordinary confidence and courage.
But to what extent were these founders being heroic and to what extent opportunistic or shrewd? We were curious whether our 2008 entrepreneurs were more than ordinarily concerned with demonstrable demand and airtight business models. Or did they approach their start-ups like Butch Cassidy and Sundance: plunging over a cliff, prepared for annihilation but anticipating—for no good reason—deliverance? To understand how our recession-era founders viewed the decision to launch, we asked them to choose among three explanations for starting their companies:
A. I was laid off or otherwise hurt by the economic downturn and believed self-employment was my best option.
B. I had an idea for a business model that was very likely to do well even in an economic downturn (or one that might flourish because of an economic downturn).
C. I chose to discount the increased risks posed by a teetering economy because I'm an optimist and this was my dream, so I decided to seize it.
We had expected a low response on A. Entrepreneurs-by-necessity are less likely than entrepreneurs-by-choice to create fast-growth businesses. And, in fact, just 4 percent of the founders who responded to our survey cited job loss as a factor. One of them—Dave Decker, founder of Complete Merchant Solutions (No. 19 on this year's Inc. 500)—described finding himself on the street when his employer went out of business. (Adding injury to injury, Decker had taken out a $50,000 loan to help save the company.) "My family of seven were living off of credit card cash advance checks, and it was a very daunting time for me," Decker recalls. Having lost an earlier job under similar circumstances, he started an electronic-payment company because he was "tired of being reactive and at the mercy of the economy."
A far larger 50 percent cited the relative invulnerability of their business models as justification for launching in a downturn. Many entrepreneurs carry a strain of exceptionalism: They consider their ideas too good to fail, no matter how dire the economy. And some make a very good case. Greg Sanders, for example, is a co-founder of Cartagz (No. 10), which allows California drivers to register vehicles and pay fines online. People will never stop driving (in California, anyway), and they will never stop loathing the DMV. Thus, Cartagz credibly sounds like a business for all seasons.
Other 2008 start-ups were in perfect sync with the times. Most of those focused on saving consumers or businesses money, whether through retrofitting lighting to reduce energy costs (Macro Energy, No. 380) or providing outsourced services for health care organizations (Pacific Global, No. 318). CardCash.com (No. 68) is an online marketplace in which consumers can sell gift cards they don't especially want for 80 percent of their value, and other consumers can buy them for 90 percent. Because of the recession, "more people are selling their gift cards in order to pay their rent, mortgage, groceries, and basic necessities," says co-founder and CEO Elliot Bohm.
"Then there's the cockeyed-optimist contingent, the 46 percent who recognized the gamble but couldn't resist."
Then there's the cockeyed-optimist contingent. Many of the 46 percent
who answered C to our survey recognized the gamble but couldn't resist.
The potential payoff was just too good. Alison Provost, CEO and
co-founder of digital-media company Touchstorm (No. 268), already had
her stake thanks to the sale of another business in which she was a 50
percent partner. "When that happens and you're an entrepreneur, you have
two choices," says Provost. "You can take your winnings off the table
and send a nice percentage of them to the government. Or you can roll
some of them back into a new business, creating jobs in a downturn and,
hopefully, creating even more jobs as the business takes off and grows."Others, less well positioned, cheerfully cited circumstances under which normal people wouldn't dream of starting companies. Larry Borden launched Aardvark Event Logistics (No. 165), which provides tour operations for mobile marketing campaigns, two months after Lehman Brothers collapsed and six months before his second child was due. Chris Pershing walked away from a well-paying, stable job to become co-founder of EagleView Technologies (No. 133), a provider of 3-D aerial-measurement services. "As sole provider for my family of five, it was a big, risky move that would have likely left us in a bad place financially if it did not gain much traction within the first 12 to 18 months," says Pershing.
Sugata Biswas was similarly situated—his six-figure salary largely supported a wife and three young daughters. For years, Biswas had yearned to start a business but always shrunk back from the precipice. Then, while on a business trip, he was in a car accident that killed one of his colleagues. He launched Cadence Research & Consulting (No. 182) shortly afterward. "The experience was a reminder of the fact that we don't have any guarantees," says Biswas. "If we keep pushing things off for another day, that day may never come, because we won't be there to experience it."
If optimists and carpe diem types dominate the Cs, there is also the occasional idealist. In 2008, Rich Johnson, a brand-new mortgage hanging heavy around his neck, quit his employer of 10 years because he disagreed with its values. "Though they spent tens of thousands of dollars on corporate retreats, extravagant awards banquets, and company golf tournaments, they gave next to nothing away to charity. I saw the whole thing as hypocritical, and I was contributing to it," he says. Inspired by Patagonia's humane culture and aggressive philanthropy, Johnson launched the Premier Group (No. 120), a business in the construction staffing industry, no less ("a suicide mission by all counts," as Johnson puts it). The company started donating to charity with the first dollar it earned and last year gave $231,000 to childhood cancer research.
This entire Inc. 500 has survived and thrived through some very dark days. The honorees are tough and savvy, and their achievements remind us how good it feels to be moving fast, in the right direction. They embody a lesson that dates back even before Napoleon Hill—all the way to ancient Rome. Fortes fortuna adiuvat. Fortune favors the bold.
How the 2012 Inc. 500 Companies Were Selected
This year's list measures revenue growth from 2008 through 2011. To qualify, companies must have been founded and generating revenue by March 31, 2008. Additionally, they had to be U.S.-based, privately held, for profit, and independent—not subsidiaries or divisions of other companies—as of December 31, 2011. (Since then, a number of companies on the list have gone public or been acquired.) The minimum revenue required for 2008 is $100,000; the minimum for 2011 is $2 million. Revenue figures given in the company profiles are for calendar year 2011. Employee counts are as of December 31, 2011. Full-time and part-time employees are included in the employee counts; independent contractors are not. As always, Inc. reserves the right to reject applicants for subjective reasons. The companies of the Inc. 500 represent the top tier of the Inc. 5000, which can be found on Inc.com.
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