DOWNSHIFTING—Service Firms Pace Market as Growth Rate Drops Steeply

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The pace of L.A.’s fastest growing private companies is slowing quickly. The No. 1-ranked company on this year’s Business Journal list, Santa Monica real estate firm MJW Investments, outdistanced the competition with a 540 percent revenue growth rate in the 1998-2000 period. Last year, it would have needed 1,335 percent to be ranked No. 1. The year before, it would have needed 13,900 percent.

That overall pace continued to slow through the first three quarters of this year.

“The company that is achieving positive growth in 2001 is truly a diamond in the rough,” said Greg Range, managing director of investment banking firm Duff & Phelps LLC.

Business services had the most businesses among L.A.’s 100 fastest growers. But those 23 companies, and others in the sector, face a tough environment this year.

Last week, the National Association of Purchasing Management reported that its non-manufacturing business activity index fell in October to its lowest level in the survey’s four-year history. And with much of L.A.’s economy oriented to business services, the national trend is sure to be felt locally. No. 13-ranked Alert Staffing, which had $206.6 million in revenues last year, eked out just $10 million in the first three quarters of this year. While the company always generates the lion’s share of its revenue in the fourth quarter, 2001 most likely will be a down year.

“A lot of the firms we have relationships with, like those in the telecom sector, are having trouble,” said Roy Gardner, Alert’s executive vice president of operations. “So we’re retooling internally.”

The company is seeking marketing and business development specialists to drum up new clients. “We’ll ride through the storm with everybody else,” said Chief Executive Victoria Lowe.

Companies on the list are ranked by rate of revenue growth from 1998 to 2000. They must be privately owned, autonomous, for-profit entities based in Los Angeles County and in business since January 1998. Ad agencies, law firms and banks are excluded because they don’t report revenues in a conventional manner.

Among the hardest-hit firms on the list are those in tourism-related endeavors, many of which have been battered since the Sept. 11 terrorist attacks. No. 78-ranked Pleasant Holidays LLC, which generated $450 million in revenues last year, pulled in just $200 million in the first nine months of 2001. No. 81-ranked Montrose Travel, with $112 million in 2000 revenues, posted just $44 million in the first nine months of the year.

Technology still has its share of fast-growers, although it fell from being the No. 1 industry in recent years to No. 2, behind business services.

The fastest-growers remain mostly concentrated in Westside, South Bay and San Fernando Valley communities. But the number of such companies in the San Gabriel Valley and Mid-Cities areas has increased.

While the geographic and industry mixes of L.A.’s fast-growers shift only slightly from year to year, the companies themselves come and go quickly. Generally, fewer than half the companies on any given year’s list end up reappearing on the next year’s list. And that is the case this year, with 49 repeaters among the 100. Only two of this year’s top 10 were on last year’s list: No. 8-ranked NewMark Merrill Cos. and No. 10-ranked Trans Telecom Co. Inc.

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