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Sunday, May 22, 2022

Technology and Outsource Sectors Make Biggest Splashes

Technology and outsourcing services posted the most spectacular results on this year’s list of fastest-growing private companies.

Three years after the tech bubble burst, even dot-coms are showing that with a cogent business plan they can build revenues. The Business Journal survey, which was based on revenue growth from 2001 to 2003, included 23 technology companies the most of any industry compared with 16 on last year’s list.

The emergent trend of companies handing off non-core duties to outside contractors, whether local or overseas, took hold as four of the top 10 firms were involved in some form of outsourcing including the first three on the list: CaseStack Inc., Outsource Partners International Inc. and Soltre Technology Inc., along with call center operator eTelecare Phase 2.

“It’s less expensive,” said Soltre Chief Operating Officer Vivian Chow. “We charge a fixed monthly fee, so there are no surprises. Cost containment is a big selling point.”

While outsourcing became a hot-button issue in this year’s Presidential election and much has been made of the negative impact on U.S. companies of outsourcing jobs overseas, it is a boon to Los Angeles companies that provide outsourced services.

Further, the technology comeback this year prompted a series of initial public offerings.

PeopleSupport Inc., an outsourced customer care, sales and technical support company in Los Angeles filed for an IPO in June. The company was number 32 on last year’s fastest-growing companies list.

Last month, wireless game maker Jamdat Mobile Inc. went public with a $102 million offering, and fingerprint identification firm Cogent Inc. in South Pasadena raised $248 million in a September IPO. But perhaps the most talked-about IPO this year was Google, whose $1.7 billion IPO in August caused many local Internet firms to consider such a move.

To qualify for this year’s list, companies were required to have at least $5 million in 2003 revenues. The Business Journal survey is dependent on information provided by the companies themselves, since privately held businesses are not required to release results. Advertising agencies, law firms and banks were not included since they do not report revenue in a conventional manner.

Overall, companies on the list posted two-year revenue growth of 44 percent, a similar rate to those on last year’s list. However, the total size of the 100 companies grew to $17.3 billion from $15.1 billion a year ago. This year’s list included 29 companies with revenues of $100 million or more, and 38 over $50 million. On last year’s list, only 29 companies had revenues of $50 million or more.

The largest company on the list, technology buyout firm Platinum Equity LLC, had 2003 revenues of $4.5 billion among its portfolio.

Despite a banner year for Southern California real estate in 2003, the number of companies in the industry, which could include builders, brokers or developers, fell to 15 from 21 a year ago.

Older, slower

Traditionally, younger companies have had an easier time generating rapid growth, since they start from a lower base of revenues. So it’s no surprise that the 10 businesses posting the fastest growth have been operating for an average of 7.3 years, while the 10 slowest-growing are at an average age of 31.3.

As in years past, many have had a hard time sustaining growth. Forty-nine companies fell off the list this year, while 35 were ranked lower than they were last year.

Ace Fence Co., which is number 99, dropped 89 spots this year and Innovative Solutions Insurance Services LLC fell 79 spots to number 97.

“Because our line of business depends on bidding, you see this up-and-down scenario,” said Ace Fence Co. Chief Executive America Tang. While the number of employees has fluctuated with business activity, the core group remains consistent.

“Because you also have the flexibility of adjusting your staff for the needs of ongoing contracts, we’re almost consistently above 50 (employees),” she said. “In heavy times like we had last year, when our sales were up to almost $8 million, we hired temporary workers from the union.”

Of the companies that were among the top 10 last year, three failed to make the list altogether: Ironclad Performance Wear Corp., Insyght Interactive Inc. and Platinum Capital. Each declined to submit information this year.

Eight companies moved into the top 10, including Soltre, commercial real estate brokerage Madison Partners, Internet service provider DSL Extreme, and Monrovia-based eTelecare Phase 2. Computer vendor Intelli-Tech, which jumped 60 spots this year, coffee house franchiser It’s A Grind and clothing maker American Apparel Inc. also entered the top 10.

The biggest jump was made by the Santa Monica Mercedes-Benz and Saab dealership W.I. Simonson Inc., which moved up 71 spots to number 23.

Keeping up the pace

Indeed, staying power is a rare quality in the fastest-growing survey. Of the 100 companies on the list two years ago, only 22 remain. One company, Belkin Corp., a manufacturer of networking and mobility devices, power protection and desktop connectivity products, has been on every year since 1995. The Compton-based company posted a 52.8 percent increase in revenues from 2001 to 2003, to $550 million.

“We believe that the single most critical component when it comes to being able to achieve enduring growth comes from not being at all focused on growing the business from year to year but instead being intensely focused on making sure you’re in a growth market,” said Belkin President and Chief Executive Chet Pipkin.

Beyond that, Pipkin notes that different factors are fueling growth now than in years past. For instance, iPod accessories are driving growth in the United States, while an international expansion of product lines that were selling rapidly in the U.S. two or three years ago is also boosting revenues. The company is cashing in on a shift from analog to digital technologies in the computer and consumer electronics sectors, with lots of products for satellite radio users.

So what’s in store for next year?

Of the 100 companies providing data for 2003, 70 gave projections that, on average, call for revenue increases of 53.9 percent. As of June 30, 2004, four companies had already met or surpassed their 2003 revenues, including Platinum Equity, eTelecare Phase 2, NewMark Merrill Cos. and Overbreak LLC.

Which makes those three, along with other fast growers such as It’s a Grind and Outsource Partners, contenders for the next year’s top slots.

Is there a reliable way to plug into the growth prospects that some of these companies have tapped? Economist Donald Straszheim, president of Straszheim Global Advisers Inc. in Santa Monica said: “Anybody that has to do with Asia and China,” he said. “China’s changing the world and California’s right in the front of that.”

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