Of­fice Pol­i­tics

Yet with agility and re­silience, the Inc. 500 are thread­ing through the chaos

Inc. (USA) - - CONTENTS - By Leigh Buchanan

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.”

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