| BUSINESSWEEK ONLINE : MAY 31, 1999 ISSUE | ||||||||
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| SPECIAL REPORT
Where Are They Now? Back in 1997, RockShox Inc. RSHX was pedaling to new heights. Founded by bike enthusiasts Stephen W. Simons and Paul Turner, the company, which makes shock absorbers for bicycles, raced to No. 17 on BUSINESS WEEK's Hot Growth list. These days, though, RockShox is in low gear. Like a lot of small companies, it stumbled when consumer tastes changed. The mountain-bike fad faded, losing four points of the total cycling market in the past year alone, down to 48%. That shift left RockShox with a loss of $1.7 million in the fiscal year ending March 30, on sales of $87 million. Total returns have fallen more than 90%. Says CEO George Napier: ''The company just didn't foresee that mountain bikes would stop growing.'' Now, RockShox hopes to reverse its fortunes by making shock absorbers for today's trendier cycles: road-traveling ''comfort'' bikes with wider seats and upright handlebars. It's a cautionary tale--for investors and entrepreneurs alike. Although fast-moving small companies have always had a tough time keeping up the growth as they get bigger, in today's unforgiving market the penalties for slowing down are swifter and sharper than ever. Of the 100 Hot Growth companies ranked in 1997, 48 have been stock market losers, vs. 36 winners. Still, investors in an additional 16 companies hit the jackpot in a different way as they were snapped up by bigger fish in mergers. As a group, the Class of '97 produced a market-weighted total return of 30.3% over the past two years. That was slightly better than the 29.5% returned by the small-cap Russell 2000 index, although both trailed the 67.3% returns of the large-cap Standard & Poor's 500-stock index. All that to say, it's not easy being small. While any company can be buffeted by bad luck, small ones are particularly vulnerable to certain kinds of mishaps. Those riding the crest of a fad can falter when consumers change their habits, like RockShox. Little players, such as West Coast Entertainment Corp. WCEC, faced with massive industry rivals like Blockbuster Entertainment Corp. VIA.B, often can't get the same sweet deals from suppliers. The big players are able to secure a hefty supply of popular videos by agreeing to split rental income with the movie studios. West Coast, with 450 stores, got left out in the cold on big rentals like Titanic and suffered a $27 million loss in the fiscal year ended Jan. 30, on sales of $120 million. LOADED FOR BEAR. And while a large company may have the cash and Wall Street goodwill to ride out a rough patch, tiny highfliers don't get much slack. The biggest loser, Complete Management Inc., sputtered for a number of reasons, not the least of which was getting into the business of running doctors' offices just as the whole medical-services business began to flounder. But the '97 roster also boasts plenty of fast-trackers. Not surprisingly, many are tech companies. Heading the class is Veritas Software Corp. VRTS, profiting from the explosion of E-commerce. At 71, its shares have returned 375%. The company, which returns as No. 30 this year, makes the software that stores data for giants like Amazon.com, America Online, and AT&T. In April, Veritas expanded its reach by acquiring the software division of rival Seagate Technologies Inc. SEB, which makes disk drives. That deal vaults Veritas from No. 5 in storage software to No. 3, behind leader Computer Associates International CA and IBM IBM. Says Mark Griffiths, Veritas' director of product management: ''We can really take on CA and IBM now.'' Also charging ahead is high-tech hardware maker Apex PC Solutions Inc. APEX, which has prospered from surging demand for servers. Apex, whose stock has returned 263% in two years, to around 17, makes switching equipment that allows information from multiple computer servers to be shown on a single screen. With sales of $76 million, Apex is another returning star; this year, it is No. 5 on the Hot Growth list. ''It sounds arrogant,'' says CEO Kevin J. Hafer, ''but in two years, our revenue will triple.'' The challenge, of course is achieving that goal while avoiding the pitfalls that entangle many of its small-company brethren--and those who invest in them. By Larry Light in New York _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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Hot Growth Companies TABLE: Hottest of the Hot Friede Goldman Intl.: A Gusher in a Drought bebe stores inc.: This Is No Fashion Victim Mastech Corp.: The Nabobs of Networking Action Performance Cos.: Hot-Rodding His Way to the Top Salton Inc.: Putting a Gizmo in Every Kitchen Maximus Inc.: Welfare Privatizer Where Are They Now? TABLE: The 1997 Winners...And the Losers TABLE: 1999's 100 Top Hot Growth Companies (.pdf) INTERACT E-Mail to Business Week Online | |||
