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Of course, the perennial question is, how do these businesses achieve such stellar gains? While there's no single path or infallible formula for growing a business this quickly, there is at least one thing that can be said: Growth like this is no accident. For every company on this list we dig into, we find a focus on growth and a smart plan to achieve it responsibly.
Groupware Technology won the No. 1 spot for the second year in a row, again with an astronomical growth rate. Despite increasing sales by nearly double the dollar amount compared with last year's Fast Growth calculation, Groupware's growth rate did slow down a bit, from 3,920 percent last year to 3,192 percent this year (see profile).
But an initial large size doesn't condemn a company to slow growth, as some critics of lists such as this like to claim: One company on the Fast Growth 100, Cognizant Technology Solutions, started with more than $586 million in 2004 sales and came in at No. 41, ranked above 59 companies with average 2004 sales of less than $29 million apiece. Granted, such large leaps are usually achieved at least partly through acquisition. Cognizant acquired AimNet Solutions and Fathom Solutions in the 2005-to-2006 time frame, for example. But holding the resources to grow through mergers is an advantage large solution providers have over smaller ones.
The benefits of being a larger company are, in fact, what drive many of these solution providers forward in their quest to grow. Those benefits include the ability to cover a larger territory without outsourcing too much work to partners, getting better terms from vendors and distributors, having more influence (or any influence at all) over a vendor's products and programs, getting more qualified leads from vendors (thus acquiring new customers at a lower cost) and being able to acquire other solution providers to quickly grow into new geographies or practice areas.
For some, however, a hot growth rate carries a short-term goal: that of being an attractive acquisition target. Northwest Computer Support (No. 64, see profile), began its return to prominence by growing sales in order to find a buyer, for example.
A big distinguishing factor of the top third of companies on this year's Fast Growth list—which as a group had an average of 496 percent additional sales in 2006 vs. 2004, while the Fast Growth 100 overall had 223 percent—is that they get a greater percentage of revenue, 53 percent, from services than from products. The revenue split between products and services reverses when comparing these two groups; the list overall averages 53 percent of revenue from products.
The top third also serve large businesses and government more on average, small and midsize businesses less. But it is possible to bring in a lot of revenue from small businesses. One company reports making more than $86 million from businesses with fewer than 100 employees in 2006. The average annual revenue among the Fast Growth 100 from these small businesses is $4.2 million.
One thing that doesn't change when you compare the top third to the 100 overall is the percentage of revenue from existing vs. new customers. No matter how you slice it, two-thirds of 2006 revenue came from customers gained before 2006. It's common knowledge that making additional sales to existing customers is far less costly than gaining new customers, but many of the Fast Growth 100 deliberately set up business practices that capitalize on this axiom. If you read the profile of Groupware, you'll see that much of its phenomenal rate of growth came from mining existing customers for more business.
Microsoft is the OEM that Fast Growth 100 companies cite most often among the top five most strategic vendors. It was cited by 37 of the companies. The runners up were Cisco, with 29 mentions, and Hewlett-Packard, with 27. Iteration2, (No. 5, see profile), in fact, built its business from the ground up on the Microsoft Dynamics line of products. And Northwest Computer Support, purchased in 2005 by a former Microsoft SQL Server division employee, credits some of its growth with expanding into midmarket application development on Microsoft platforms such as SQL Server.
Looking at the growth rates of Fast Growth companies serving different markets, the largest contrast we see is in the area of VoIP integration services. The average growth rate of Fast Growth companies in the VoIP integration business is 217 points higher than that of Fast Growth companies not in it. Forrester Research shows that VoIP adoption is increasing rapidly. Of IT or telecom decision makers at North American and European companies, 42 percent reported to Forrester this year that moving at least some of their voice traffic to an IP network was either a priority or a critical priority.
Other solution provider businesses that seem to carry a growth advantage are storage services and solutions, security services and solutions, end-to-end IT solutions, application integration and database solutions, and general business consulting. (See the chart, "Tech Services Fueling Growth," next page.)
Judging by this year's group, the best growth industries to sell into these past two years have been engineering and science, government, manufacturing and financial services. Solution providers in these fields should continue to do well: Forrester reports that finance and insurance, manufacturing and the public sector will increase their 2007 IT spending by an even greater degree than they did in 2006.
All other variables aside, the Fast Growth 100 as a rule recognize that their strength comes primarily from the quality of their employees, and they put their money where their mouths are. The average amount spent on training per technical employee per year by the Fast Growth 100 is $5,500, split on average 75/25 between the solution provider business and vendor partners. Furthermore, 73 percent of the Fast Growth 100 award bonuses to technical employees based on company performance while even more, 77 percent, of the top third do.