They’re fast growers, but with a more subdued approach to growth. Which might not be such a bad idea these days.
The top five companies on the Business Journal’s list of 100 fastest growing private companies have managed to carefully pick and choose their spots whether by sticking to their core businesses or feasting off the leftovers of their larger competitors, or focusing on current, not future, cash flow.
Of course, even companies that carefully manage growth are likely to take a hit in 2001, and since the Business Journal rankings are based on growth between 1998 and 2000, don’t be surprised if the numbers are down sharply next year.
The fastest growing company on this year’s list was MJW Investments, a real estate developer and investor. Positions two through five go to technology-related concerns Sonic Desktop Software Inc., Adexa Inc., Imagistic and Line 6 Inc.
1. MJW Investments
Location: Santa Monica
Business: Real estate investments/management
Revenues: (2000): $32 million
1998-2000 Percent Growth: 540
The investment and development company headed by Mark Weinstein has powered recent growth by buying up properties with positive cash flow, in turn making it the fastest growing private company.
Over the past two years MJW has bought $150 million worth of apartments, and commercial, industrial and self-storage buildings. Weinstein also has refinanced almost all properties in his portfolio.
Active in the Mid-Wilshire apartment market, MJW has bought and sold more than 1,000 units in recent years. The company sill owns almost 800,000 square feet of retail and office space in downtown Los Angeles. “It’s been the right time to buy on existing fundamentals,” said Weinstein.
A key to continued revenue growth, he said, is in buying properties with positive present cash flow, not basing decisions on projections.
“People get into trouble when they buy on what they think might happen in the future,” he said. “(For MJW) if things go well in the future it’s gravy.”
Revenues at the end of 2000 were $32 million, up from $5 million in 1998. The company also has more than tripled its employment, to 70 last year from 20 in 1998.
Weinstein said that, on a percentage basis, he doesn’t expect MJW to grow at the same pace as in the past. But that doesn’t mean he doesn’t see still see opportunity in the market.
“Sellers are slowly adjusting to the realities of the marketplace,” he said. “The smart buyers are waiting for that to happen.”
If nothing else, Weinstein said he will continue to operate within the fundamental rules he’s set for himself. “I have a wait and see attitude,” he said. “We have a housing crisis in Los Angeles. When you have a limited supply of something you’re generally in a stronger position.”
2. Sonic Desktop Inc.
Location: Northridge
Business: Developer and marketer of audio software products
Revenue (2000): $1.9 million
1998-2000 Percent growth: 375
“Think of it as a film composer in a box,” said Kevin Klingler, chief executive of Sonic Desktop Inc.
Founded in 1995 with a “modest” venture capital investment, the company has been producing its “SmartSound” software that enables producers to score videos and video games. In the process, it has built a business that posted nearly $2 million in revenues in 2000.
The company’s main customer is the mid- to low-level professional video editor and visual creator, Klingler said, “people looking to score videos that they’re making for clients.”
Sonic Desktop’s software gives these content producers the ability to score their own videos with soundtracks to fit the visuals.
In 1998 Sonic Desktop was a five-person operation with revenues of $400,000. By the end of 2000, employment had more than doubled to 11 and revenues hit $1.9 million. This year, a slowing economy has had an impact revenues were only $1 million in the first three quarters of the year.
Klingler said Sonic Desktop kept growing during the dot-com frenzy despite being overshadowed by the superstars of the time.
“We saw a growing need for personal creativity products in the audio category,” Klinger said. “So we focused on what our product was about and who we created it for we didn’t try to shoehorn (the idea) into an Internet venture.
“We quietly built our market, selling to people who wanted (the product), while many other companies tried to convert viable businesses into Internet ventures,” he said.
Klingler still believes the company is, for the most part, safe from economic bad times. “I see the growth and demand for this continue in the future,” he said. “The more the economy goes down the more likely people are to turn to our products. We represent an alternative that saves people money.”
3. Adexa Inc.
Location: Los Angeles
Business: Software
Revenues (2000): $52 million
1998-2000 Percent Growth: 372.7
Though he concedes it’s a clich & #233;, Adexa Chief Executive K. Cyrus Hadavi attributes his company’s success to “satisfied customers.”
Since its founding in 1994, the provider of inventory management software has collected a diverse roster of major clients, including Lucent Technologies, Hitachi, General Motors and Milliken.
“Companies hate keeping inventory,” Hadavi said. “Our product helps them reduce inventory and improve customer service. It’s something that (people) can look at.”
Hadavi, a Tehran-born engineer with two masters degrees and a Ph.D., started Adexa after leaving his post as director of implementations at Dallas-based i2 Technologies, Adexa’s chief competitor.
Revenues have jumped from $11 million in 1998 to $52 million in 2000. Even this year is looking to be strong Adexa says it has generated $51 million in just the first three quarters of 2001.
“We are a relatively small company,” said Hadavi. “So it’s easier to achieve larger growth.” He said he expects Adexa to grow by 60 percent over last year.
There has been some fallout as of late especially in the amount of spending from its customers. “Over the past two years our average sale price has been anywhere from $800,000 to $1.2 million,” said Hadavi. “Now we’re seeing some downward pressure on that. People still need our product but because of tighter budgets they’re making less of a commitment.”
Even so, employment has more than doubled since 1998, to 337, and the company has beefed up its management by bringing J. Timothy Romer (son of LAUSD Superintendent Roy Romer) from Merrill Lynch to be chief financial officer. Romer joins Hadavi and Chief Technology Officer Udo Dengler on the three-person executive team.
Last year was supposed to be Adexa’s last as a private entity, but the weak IPO market put a stop to that. “We’re waiting until the economy comes back,” said Hadavi.
4. Imagistic Inc.
Location: Venice
Business: Web technology and design
Revenues (2000): $2.1 million
1998-2000 Percent Growth: 337.5
Here’s a web outfit that has outlived some of its larger competitors by feeding on their leftovers. Just ask Michael Weiss, Imagistic’s chief executive. Years ago Weiss cut a five percent referral deal with several of the larger, now defunct Web design houses.
“In 1999 they were turning down any gig under a half million dollars,” said Weiss. “We didn’t get all the jobs, but a steady stream of business came through.”
Today Imagistic boasts a roster of clients that includes California Pizza Kitchen, Paramount Pictures, Bank of America, and UCLA. “(The Web) is still there,” said Weiss. “Just as it will always be.”
But unlike the assorted dot-com flameouts, Imagistic is focused on slow growth that avoids the syndrome of going too far, too fast. And with the ongoing tech shakeout, Imagistic has been able to grab some of the larger and more lucrative business. Since 1998, revenues have jumped from $500,000 to $2.1 million.
Founders Weiss, Kevin Goldberg and Marcelo Ziperovich started Imagistic in 1997 with $9,000 “to pay some legal fees and get a letterhead.” To this day that $9,000 remains the company’s only capital infusion.
Even so, Imagistic hasn’t been immune to the recent crunch. “I’ll be honest, it’s not a banner year,” Weiss said of 2001. “But we’ve gotten some great clients and it’s been solid in the sense that our pipeline has remained full.”
5. Line 6 Inc.
Location: Agoura Hills
Business: Digital modeling technology for the music industry
Revenues: (2000): $39.8 million
1998-2000 Percent Growth: 337.4
“It’s all about the tone,” said Line 6 chief executive Michael Muench. For Line 6, a venture-backed company that produces digital modeling amplifiers and guitar equipment, it better be about the tone.
Muench conceded that before Line 6 was incorporated in 1996 there were products creating sounds from several different amplifiers and then put into one device. But Muench said it’s the company’s superior sound quality and range of tones that has generated so many customers.
Line 6 also has a line of recording products. Its Pod product, about the size of a mouse pad three inches thick, allows users to record tracks with a variety of guitar tones and effects without the need of an amplifier.
“You used to need (several) amps, a good studio and a microphone, not to mention the technical know-how (to produce a good recording),” said Muench.
Line 6 sells to everyone from amateur musicians to big name touring acts. The company has signed artists ranging from Country superstar Clint Black to Motley Crue bassist Nikki Sixx.
“The products are big for budding musicians,” said Muench. “You can take this device, at home, and go from really clean jazz tones to over-the-top heavy metal with the flip of a button.”
Backed by Redpoint and Sutter Hill Ventures, Line 6 grew from $9.1 million in revenues in 1998 to $39.8 million in 2000. Line 6 has 224 employees, compared with 52 in 1998.
Heading toward 2002 Muench is confident but he’s also mindful of the times. “We’re not the major share player in any of our markets, so there’s a lot of room for growth,” he said.
As for a public offering some day, Muench said Line 6 “will continue to look into all of our options for access to capital.”
