The Inner City 100: True Grit

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Take David Segura, who wins the top slot in this year's Inner City 100 ranking. Segura's technology consulting firm, VisionIT, grew 1,591% over five years as he took advantage of his big-company clients' desire to shed a proliferation of IT contractors in favor of a few, such as his own, that could promise global reach and cost savings. Segura, a former software developer for Ford Motor (F), got his start in 1996 while volunteering to teach inner city youth computer skills. His dedication caught the eye of another inner city entrepreneur, Lydia Gutierrez of Casa Hacienda Foods, a Mexican food supplier. She asked Segura to do consulting work for her company. As Segura recalls: "In the end she said, 'I am not going to pay you, I am going to pay your company, because I know you can build something much more. I want to see you build a business.' " That was Segura's cue to leave Ford and strike out on his own.

The companies that make up the Inner City 100 have a five-year compound annual growth rate of 40%, on average. Now they're banking on the strategies that made them successful in the first place—being conservative with cash, focusing on core customers, and working aggressively to form partnerships and reach out via marketing—to help them get through the recession and catch the updraft from a recovery when it comes.

Segura and other successful inner city CEOs are developing a wealth of experience in surviving a recession and preparing for an economic turnaround. "Small inner city businesses are canaries in the coal mine," says Daniel Monti, a professor of sociology at Boston University who studies inner city businesses and who helped found Boston's InnerCity Entrepreneurs, which helps urban entrepreneurs improve their management skills. "They respond earlier to recessions, and then on the upside they will have a more intensely predictable customer base that responds more quickly and comes back to them more quickly." That's because these companies take the time to develop deeper relationships with their customers than bigger companies typically do, and they profit from those connections.

While many small business owners are hunkering down, "We are chasing after a lot more business, and we feel very confident," says William Gaultier, president and CEO of e-Storm International, a 22-employee interactive marketing company in San Francisco with $3.4 million in annual revenue. E-Storm ranked No. 26 on this year's list, joining several other interactive agencies in making a strong showing for the industry. E-Storm itself had a five-year compound annual growth rate of 49%. "The market has been good for us in this recession," Gaultier says, as customers look to his company for help advertising online and maximizing their Web-based revenues.

BANK-AVERSE

Part of these entrepreneurs' success may lie in their reluctance to take on debt or leverage their companies for growth. That doesn't mean they're naive about raising money: Internet telephone provider Voxitas, based in St. Louis, "never had a business plan relying on bank financing," says Michael Morey, the company's president and CEO.

Still, you'd never know Morey's company is sitting on a $1.5 million cash reserve; Morey stretches his dollars as far as he can. Forget about expensive marketing campaigns. Instead, Morey negotiates to get customers of struggling competitors assigned to Voxitas or to have customers referred to his company as rivals file for bankruptcy. For him, this is simpler and less risky than buying his competitors outright. "In no case did I purchase a company," says Morey. "The companies were not doing very well and might have debts and obligations that were not advantageous." So far in 2009, Voxitas has negotiated two such deals to transfer customers from former competitors, bringing in more than $80,000 a month in new business. And when one competitor needed to return a bunch of routers, servers, and switches it had been leasing, Voxitas promptly approached the vendor.

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