Trends

Not All Doom and Gloom

June 1, 2009

Faced with a difficult decision, IB decided it would be irresponsible to publish such a list if the end result was not comprehensive. Instead, we called upon the expertise of some area bankers and CPA firms looking for suggestions of companies faring well in this economic climate.

We're happy to report that they're still out there. Perhaps in reduced numbers, but there, nonetheless. So, in a particularly tough year, we're foregoing our usual list, choosing instead to focus on a handful of fast-growing businesses. How have they achieved year-to-year growth, and just as importantly, how are they approaching 2009?

The reality is that there are no magic bullets; but though reality can't always be pretty, this report shows it can be hopeful.

An Expert's Take
So should we, or should we not participate in this recession? Steven S. Little, author, speaker, and consultant on business growth, has a counter-intuitive strategy. In an economic downturn unlike anything most of us have ever experienced, Little said everyone should participate. "By not participating," he said, "you keep the status quo, which is the opposite of grow."

Little advises business owners nervous about their company's future to rely on facts as well as inside and outside information, then to develop a plan of action unique to their business. "If you've made it this far, trust in yourself, and lean toward logic."

Don't panic, he advises. "We tend to overcompensate if we're scared. There is going to be recovery and opportunity" in the future, he said, "so understand where your best opportunities will be." Little said the best predictor that your company will grow is the existence of a plan. "Even if it's ugly at first, it's better than nothing."

Here's a look at a few area companies. Are they participating in the recession? Read on!

Sustainable Engineering Group LLC
2007 Revenue: $533,000
2008 Revenue: $995,000
Growth: 86.6%

Svein Morner, from Norway, and Manus McDevitt from Ireland, met in Madison years ago and became triathlon training buddies before deciding to start this energy engineering firm in 2004. Since then, the company has grown from three to 10 employees with a phenomenal year-to-year growth rate. The company works nationwide with contractors, designing energy-saving remedies on very large commercial buildings, such as those at universities and hospitals.

Between 2007 and 2008, Sustainable Engineering worked on 185 projects, 40 of which were located in Dane County. This month, the company will be honored with a Dane County Small Business Award.

Key to Growth: The owners credit timing related to the "rising tide of the green movement in the building design and construction industry," as key to their success. Sustainable Engineering also is a contractor for Focus on Energy, and has a relationship with the U.S. Bureau of Indian Affairs, which keeps it busy working on reservations, making schools, hospitals, and administration buildings more energy efficient.

2009 Outlook: "It's business as usual," said Svein. "There's not a whole lot of new construction sites, so we're more cautious about hiring, though we are still hiring," he said. One additional full-time person will be added for sure, and a second may follow.

Beyond Hello
2007 Revenue: $2.6 million
2008 Revenue: $3.6 million
Growth: 38.5%

Co-founders Gary Godding and Christopher Warzynski started this international mystery shopper business in Stoughton in 1991 when a family member in the retail sector was seeking a way to more completely measure a store's success. The company also conducts client and employee satisfaction surveys, and on-site audits. Initially, they worked with retail outlet stores during their boon in the early 1990s, but expanded to other large retailers about 10 years ago. Outlets now comprise just 50% of the company's focus.

Almost all of Beyond Hello's business is conducted online. The Madison office employs 10 with an additional 25 who work from home. The company has a network of over 200,000 registered mystery shoppers nationwide, and each shopper is an independent contractor. According to Warzynski, clients run the gamut between Wendy's and high-end Dolce & Gabbana. Still, the company hasn't escaped the economy. RFPs dropped significantly in first quarter, Warzynski said, but April and May has seen a resurgence. "For us, it's kind of the light at the end of the tunnel," he said.

Key to Growth: Long-term relationships with several retail partners, who are focusing more on their existing customers rather than attracting new customers. "Retailers will only keep the strongest stores now," Warzynski said, so they're looking at conducting evaluations that help separate the wheat from the chaff. With Beyond Hello's major expenses being shoppers' fees, he said last year, when gas prices topped $4 per gallon, the company responded by bundling a shopping assignments within close proximity to each other, saving on travel expenses. Current gas prices have relieved that stress ... somewhat.

2009 Outlook: "We're looking to be more efficient internally," Warzynski said. "Other than that, we're not planning any major changes."

Pro Metal Works
2007 Revenue: $4.6 million
2008 Revenue: $6 million
Growth: 30.4%

Tom Carroll, president of this DeForest custom sheet-metal fabrication shop, started the business with other family members in 1998. For the first few years, the four owners kept their full-time jobs, then worked on establishing the new business well into the early morning hours. In year three, Carroll recalled closing on a half-million dollar laser project, even though the company did not own a laser machine at the time. He took a second mortgage out on his home for a down payment on the $667,000 machine, and has never looked back.

Carroll took another risk last year when he took advantage of some federal tax incentives to purchase a $1.5 million automated combination laser and tool machine that can load, process, and stack 26,000 pounds of product. "No one in the entire Midwest has this," he said. "It was the best thing I ever did." But now that the company has increased its production capacity, job requests have fallen dramatically.

"We had our best year ever in 2008," he said. "Normally, we have to write off November and December each year, but not last year." That changed in January, he added, when "the faucet turned off." Still, prospects continue. "We're quoting like crazy," he said, "so something's got to break."

Key to Growth: Carroll feels the company is faring better than others in his field for several reasons: First, they have a diversified client base, so when one is going through a down period, others make up the slack. "That keeps us balanced," he said.

Also, Carroll said automation is key to success in his industry, and the company not only keeps current on technology, but it runs a very clean shop. "[My employees] love working here, and on the machines," he said, noting the technology also helps attract and maintain employees.

"We've always had a plan and looked to the future and sought out the machines that would put us ahead of the game," he said. "We're a young company. This is the American Dream."

2009 Outlook: "2009 looks shaky," Carroll admitted. "With what we've quoted, if we get 10% of the business, we'll be busy again." He said the company wisely planned ahead last year when business was hopping, paying off debt owed on four machines and banking a lot of cash for backup funds. "We've also cut back our first and second shifts to 32 hours," he said. "The guys understand."

Epic Systems
2007 Revenue: $503 million
2008 Revenue: $602 million
Growth: 19.7%

Since its inception in 1979, the growth and success of Epic in Verona, Wis. cannot be ignored. The employee-owned software company's growth (now at 3,300 employees) has even changed the Verona landscape by attracting other businesses and spurring housing developments.

But the company's sales staff is small, non-commissioned and has no quotas, says President and CEO Judy Faulkner. The company focuses on a core of about 180 large clients who receive 100% of the company's attention. Call it the 20% rule, as Epic's clients generate very big sales.

Faulkner said the $19 billion in stimulus money earmarked for electronic medical records will go to Epic's customers and other smaller medical groups.

But there is no doubt her company will hugely benefit as a result of the directive.

Key to Growth: Faulkner says the company's involvement in both the health care and IT fields these days is not only lucky, but a huge plus. "It's a very good place to be from a business point of view," she admits. Also, with health care being a top-of-mind issue in the country right now, "our product is discussed on the news and in presidential debates."

Other keys to Epic's success: Consistently achieving high industry rankings, and the fact that the best hospitals in the country use Epic software. The company has also expanded overseas, in Dubai and the Netherlands.

"We have software that can speak Dutch!" she noted.

2009 Outlook: To gear up for the national windfall, Faulkner says the company will be hiring more programmers. But that's not an easy task, she said, estimating that there are 139,000 new job openings and only 40,000 entering the job market to fill those roles. "It's a tough area for us," she summarized.

Capitol Bank
2007 Revenue: $179.3 million
2008 Revenue: $213.4 million
Growth: 19%

Ken Thompson, president and CEO of Capitol Bank, admits that his bank's success may very well be indicative of several community banks in the area. "There's just a renewed interest in dealing with a local bank," he said. Last year, when the banking industry became stressed, Thompson said community banks were seen as a safe place to bank, and deposits increased. In fact, Capitol Bank has enjoyed 10% to 20% growth every year for the past five, and Thompson believes a conservative approach to lending has been their strength. "We just didn't go crazy," he said, saying Capitol didn't do much speculative lending. "If you grow too fast, you have to raise capital," which is something Capitol Bank has never had to do.

Thompson says the bank's return on equity, particularly in the first quarter of 2009, has been very strong. He also believes its experienced staff and conservative approach helps foster predictability. "In this environment, [surprises] have been tough on the customer. We're trying not to be that way." In fact, the bank's Board of Directors is still the original board of directors, he said. Capitol Bank, which now employs 41 workers, also added a Verona branch in 2006.

2009 Outlook: "There are a lot of red flags," said Thompson. "We're very concerned. We think it will be a challenging year, and expect our loan loss to increase." On a somewhat positive note, Thompson believes Madison's economy can be more resilient, but thinks consumer spending needs to come around. "I think the economy is going to be changed for a long time. Everyone will have to have more equity in their business dealings. Highly leveraged transactions have gone by the wayside," he said. "That's good in the long run, but will slow down recovery."

TASC
2007 Revenue: $27.3 million
2008 Revenue: $32 million
Growth: 17.2%

Dan Rashke, CEO of Total Administrative Services Corp., a third party administrator of employee benefit plans, credits his company's success to three facets. Being tied to health care and human resource outsourcing brings stability to the company, Rashke says. Operationally, they've made large investments in technology, freeing them from a dependency on raw resources such as paper, postage, banking costs, and telecommunications. Finally, the company has a lot of cash in the bank.

That's not to say TASC hasn't felt the economic downturn. "Some of our small employers are going bankrupt," said Rashke, meaning the flex plans those companies had with TASC can result in a negative balance. "If you have too many of those, you could have a problem in the future." For now, though, he says he's not overly concerned.

Key to Growth: TASC has been busy acquiring other businesses nationwide. "In a down market, we're willing to jump in and invest," Rashke said. It's a good time to buy, he said, because acquisitions cost less. "We did three acquisitions over the last 16 months. These aren't huge, they're not big gambles. So even if I 'oops' one, I get my own mini-portfolio." The company's client base has also grown, now including names like Sara Lee, major school districts and municipalities. "We're still deep in the small-employer market," he said, "but we're capable of jumping into big ones as well."

2009 Outlook: Rashke noted, "We will continue to be aggressive and risk tolerable and look to grow our business through traditional sales and acquisition" (about 50% to 50% presently). Rashke recently secured several key management positions, which takes care of any managerial limits the company may have had: "So if I can manage my financial position, we're in good shape."

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