Yet with agility and resilience, the Inc. 500 are threading through the chaos
With agility and resilience, the founders of this year’s Inc. 500 have overcome unprecedented political uncertainty.
That’s the insider nickname for the solar energy industry, which—while surging—remains vulnerable to the whims of policy and trade. Van der Werff is CEO of Ecolibrium Solar (No. 443 on the 2017 Inc. 500), a $27.2 million maker of hardware that connects sunlight-absorbing panels to roofs. In 2015, companies like his, which had packed their production schedules to take advantage of an expiring tax credit, found their timelines completely upended when Congress unexpectedly extended that credit by five years.
Then came President Trump’s swerve from renewables toward coal. Another worry is the new administration’s attitude about the kinds of previously unsuccessful trade cases filed by domestic panel producers against low-cost foreign competitors. Tariffs could make solar a more expensive option. “You are starting to see speculative behavior,” says van der Werff. “People hoard panels [because] maybe the prices are going to go up—which also means that if no tariffs are imposed, you’ll see a glut of panels by the end of this year.”
In other words, even good news can be bad news for a company like Ecolibrium, which, despite the industry tumult, has racked up a three-year growth rate of 988.7 percent. Such “short-term waves created by uncertainty make it really difficult to plan,” as van der Werff says.
A few years ago, we marveled at how the
Inc. 500—our annual ranking of America’s fastestgrowing private companies—sustained momentum during economic adversity. Today, we celebrate their resilience in a political landscape wobbling on tectonic plates. Policy-related uncertainty is higher than it’s been in decades, having intensified after the surprise election of Donald Trump, whose agenda and style of government differ significantly from what came before it, says Steven Davis, a professor of business economics at the University of Chicago’s Booth School of Business. And in interviews with Inc., growth company leaders have been voicing unease about the policy landscape at least since the presidential campaigns began in 2015.
Jan Willem van der Werff is reeling from his queasy ride on the "solar coaster.
Today, almost half of Inc. 500 CEOs responding to our survey say that political instability has complicated their jobs, forcing them to rethink things like strategy, supply chains, and markets. Uncertainty does not necessarily presage disaster: For many industries, new policies may prove to be a boon. And as the business climate in general improves, leaders are becoming more comfortable. But even if the result is beneficial, prolonged periods during which major issues remain unresolved or circumstances change quickly make strategic planning and risk-taking difficult. Many leaders who said they had expected continuity on issues like trade and immigration before the election found themselves rapidly recalculating afterward. The long wait for answers on taxes and health care has also taken a toll.
Despite the turmoil, the Inc. 500 have continued to thrive, achieving an extraordinary median three-year growth rate of 1,714.6 percent and adding 49,022 jobs. They have done so by innovating, diversifying, and mitigating risks. Their bold but calculated strategies— like those forged during the recession—involve finding opportunities rather than holding fire.
For these highest of high-performing entrepreneurs, leadership through uncertainty is the new core competency. “There are times you get numb,” says Gordon J. Vanscoy, whose business, $240.1 million Pantherx Specialty Pharmacy (No. 65, with a 5,318.7 percent three-year growth rate), is riding the Affordable Care Act bronco. Pantherx serves patients with rare diseases, who require very expensive medications, so it’s sensitive to legislation affecting drug reimbursement. Over the past year, Vanscoy has ramped up communication with health care industry players— including those with lobbyists on the frontlines.
“The key is to keep abreast of what’s going on, embrace risk intelligently, and keep your people motivated,” says Vanscoy. “And when you see chaos, take advantage.”
POLITICAL UNCERTAINTY CAN BE ROUGH on all businesses. But it’s especially frustrating for fast-growth companies, for which standing pat can mean stalling out. “A mature business may decide to keep replicating what it’s doing” rather than entering new markets or developing new products, says Davis. But companies like those on the Inc. 500 must “make consequential decisions that often involve consequential investments. So they’re more likely to be sensitive to the harmful consequences of policy uncertainty.”
In a shifting landscape, fast growth may itself be dangerous. “Entrepreneurs can mistake momentum for security,” says Derek Lidow, a professor of entrepreneurship at Princeton and the author of Startup Leadership: How Savvy Entrepreneurs Turn Their Ideas Into Successful Enterprises. Growth companies are comfortable making mistakes, “but those mistakes may go up exponentially in turbulent times,” he says. The best protection against the avalanche of change is creating scalable processes, according to Lidow. But many Inc. 500 companies are just installing that infrastructure now.
Fortunately, the Inc. 500 are often fluid and creative enough to work around uncertainty. For example, $2.4 million NanaMacs Boutique (No. 362; 1,214.9 percent), an online seller of fast fashion that relies on Chinese suppliers, cut back on inventory amid trade, economic, and industry concerns during the election. So founders Susan and Jeremy Shute moved some jewelry sourcing from China to India. The company still gets some of its clothing from China—and in fact doubled its orders after the election. But now it’s benefiting from an expanded supply chain. “We are putting local villages to work,” says Jeremy Shute. “They are shipping together, buying supplies in bulk. Customers love that.”
Wesley Palmisano, president and CEO of the $97.2 million commercial construction company Palmisano (No. 241; 1,779.4 percent), says that the new administration seems good for the fossil fuel industry. But for several years, companies in southern Louisiana, where his business is located, have suffered along with the oil industry, which is affected by changes in global oil supplies and technologies like fracking. “Volatility impacts our industry tremendously, because we are in
16% Decline in applications for H-1B visas this year (for 2018), for foreign specialty workers 40% Current highest tax rate smallbusiness owners can pay. Trump administration proposals could lower this to 15% >95% Portion of U.S. importers that have 250 or fewer employees, and could pay higher taxes under proposed border-adjustment tax 18% Predicted increase in health care premiums in 2018 for the most popular type of health care exchange plan 67% Projected amount of health insurance rate increases that will be due to uncertainty Sources: U.S. Citizenship and Immigration Services, The Atlantic, The Wall Street Journal, Avalere, Oliver Wyman
such a high-risk, low-margin line of work,” says Palmisano.
Construction companies traditionally compete on quality, speed, and cost. Palmisano emphasizes a fourth competency: innovation. His business recently completed a hotel that occupies a full New Orleans block. It was prefabricated from concrete, delivered to the site, and assembled “almost like Legos,” says Palmisano.
“We concentrate on what we can control, not on environmental things we can’t,” he adds.
DIVERSIFICATION IS THE OLD FAITHFUL of risk-mitigation strategies. Inc. 500 companies, many of which are too young and have grown too fast to become entrenched in any one category, are adept at seeking new markets when old ones start to tremble.
VRC Metal Systems (No. 413; 1,059.8 percent) makes high-tech welding and metalworking equipment. Fifty percent of the $4.5 million company’s market is government contracting. “When the budget is in turmoil, all the federal agencies tend to hold back,” says CEO Rob Hrabe. “Your old contracts are winding down and the new ones are not coming on. But you can’t lay off workers, or when the contracts start there is no one to execute.”
To sand down the bumps, Hrabe is parlaying his federal experience into similar jobs for the private sector. For example, he is drawing on his work with the Navy to land contracts in the shipping industry. “We’d like to get down to 10 to 20 percent of overall revenue from the government,” says Hrabe. “We’re placing a big bet on being able to develop those markets in a timely fashion.”
In some entrepreneurs, uncertainty brings out the best. Rather than curse the anxiety that recently beset her market, Nicole Sahin buddied up to it. Sahin is CEO of $40.5 million Globalization Partners (No. 33; 8,187.1 percent), a professional employer organization that hires and employs people for clients operating overseas. For three months after the 2016 election, sales slowed to a crawl as potential clients “took a deep breath and tried to get their feet under them,” says Sahin. She used the lull to address problems born of politics: educating clients with anxious immigrant employees or questions about global expansion post-Brexit.
Sahin also strives to present a face of stability to her work force. “As a leader in uncertain times, I think you have an obligation to be a voice of calm and reason and reassurance and love and kindness,” she says. Now that sales are back up—with her client base up 150 percent since January— Sahin has turned her attention to the social problems underlying political instability. She plans to expand her Boston-based company with offices in other cities, including St. Louis and Dallas.
“We can hire people from the middle of the country and give them an opportunity they might otherwise not have,” says Sahin. “We can do more. We can be part of the solution.”