So let’s get this straight: 40 percent of the fastest growing private companies are businesses related to the housing and construction and technology industries, sectors that had stellar, if not record growth in 2005. How hard can it have been for these firms to report a great year? The answer, in a nutshell, is that it’s not as easy as it may first appear. While rising tides usually do lift all ships, how high each one rises is another matter entirely. “You have to have a ship that floats,” said Bob Sommers, chairman and co-CEO of Symark Software, developers of security software. “You have to start off with good products that people want and all the stuff that goes along with that.” The executives of some of these fast growing companies point out that merely providing a product or service in an industry or an economy that is growing isn’t enough to surpass the competition, keep customers happy or, perhaps most important, stay afloat once the climate shifts. As many will tell you, luck and the economy favors those who are prepared. That is especially true in the real estate sector where it takes several years to bring properties to market and those may be years where there is little evidence of the coming demand. “It takes sometimes two to three years to bring a property to market,” said Denis Cullumber, president and CEO of Larwin Co., a homebuilder based in Encino. “That’s where the smarts come in. First I have to go out and buy the land and by the time I build it the cycle may be going the wrong way.” Even those companies whose businesses do not depend upon lengthy periods to bring products to market spend a great deal of time thinking about the future and anticipating what can happen. At Key Information Systems Inc., which saw its sales jump by nearly 40 percent last year, President Lief Morin said he has his eye on two trends that could significantly change the business model for the Woodland Hills computer company, and he’s not sitting idly by. The company has been adding products and services, increasing its sales team and exploring other ways to change its business model. “We have to take a look at those trends quite seriously and make sure we are adapting to handle that change,” said Morin. “We have to make sure that we are changing our business model to adapt.” Anticipating demand and change is just one part of the equation. These businesses also have to have the systems in place to meet the increased demand and perform effectively. “There are two ways to fail,” said Lewis H. Stanton, managing partner at Stanton Associates LLC, a Studio City-based firm that works with high-growth companies. “One is slow or negative growth and the other is very rapid growth. Hyper growth can kill you. You can lose control of working capital, your product or your service quality.” Case in point: Back around 2000 when business communications were shifting to the Internet, companies like ISWest that supplied DSL and web hosting services found themselves inundated with business opportunities without breaking a sweat. “We just had to pick up the phone and send a quote,” said Drew Kaplan, CEO and CFO of the Agoura Hills company. “But it was the funniest thing. I would turn around the quote in a day, and I would talk to these people a week later and they’d say, ‘I asked three other companies and I’m still waiting for them.’ ” Particularly where new technologies are concerned, the more critical they become to a business, the more scrutiny suppliers say they face. Events ranging from the 9/11 attacks to Sarbanes-Oxley legislation which holds company CEOs personally responsible for the security of their data, have helped to catapult demand for Symark’s security software, for example. But as privacy and security stakes have gotten higher, Symark is finding that their business has become more difficult. “They have a problem to solve and a time frame to solve it in,” said Sommers. “There’s more competition, but I would say that’s not our big threat. It’s more of finding the right fit and making sure we do the proper selling of the product. They’re looking at the software as strategic to their overall security as opposed to oh my gosh, we need security software.” The other problem that comes with a very healthy environment is that it doesn’t last forever. Cycles shift and change, and these company executives point out that complacency can be their downfall, even in the best of times. “Our biggest problem as a real estate company is not letting the positive environment carry us away,” said Sandy Sigal, CEO and president of NewMark Merrill Cos., which specializes in shopping center management. “On the one hand, the environment has carried us along pretty nicely, and we’ve done better than we probably should have. On the other hand, we’re always looking over our shoulder so if the market does turn we don’t put our business plan at risk.” More than a few company executives say they set their business clocks to their own internal standards, often ignoring outside forces, both positive and negative. “I’m in a heavy growth period in that I’m pushing for growth,” said Kaplan, noting that the DSL portion of the business has matured, making those sales more challenging, and the company is building a second tier offering co-location services for corporate accounts. “I want to get us to a goal, and so I find myself working harder now than I ever worked.”
