08
May
09

Inc. Magazine Has a Problem

Every year Inc. Magazine publishes its famous ranking of the 5,000 top private companies in America as determined by growth, with certain revenue thresholds, one would assume. The point is there has to be some sort of growth. So what does it mean that I have received upwards of 20 emails inviting me submit my company to this list this year, including this last one from the Deputy Editor himself:

Hi, this is Mike Hofman from Inc. magazine. We’re in the final stages of completing this year’s ranking of the top 5,000 private companies in America. My research team has told me about your company and I wanted to reach out and make sure you are included in the running for the Inc. 500|5000. (The official deadline has passed but, as in previous years, we are still happy to look at qualified submissions.) If you experienced growth between 2005 and 2008, I encourage you to apply if you haven’t already, and remind you that revenue verification documents are due from all honorees by May 15.

First off, do I believe for a second that Mike Hofman has a research team that told him about my company? I suppose if by “research team” he means the database containing the contact information of anyone who has registered somehow with Inc. Magazine and by “told me” he means that information was automatically pulled into a program that sent out emails to all such registered persons with content appearing to have been written by Mike Hofman, then perhaps I can believe that claim.

But what else can we learn from Mr. Hofman’s email? First, that although the deadline has passed to register for the Inc. 5000, they don’t have enough people who have applied. Secondly, given that this email comes after 20 others, we can learn that they really don’t have enough people who have applied. And third, they desperately need people to apply, because they’re having trouble coming up with even 5000 applicants who had growth between 2005-2008, probably with an emphasis on 2008.

Thus, anyone and everyone who owns a business is a target. Did your company have $25K in revenue in 2007 and $30K in revenue in 2008? Fabulous, you might make #3,414 in the Inc. 5000 this year. You’ll receive a plaque, a copy of the magazine, and bragging rights at dinner parties. You might get written up in the local paper.

But what if they don’t make it? I mean seriously, what if they don’t even get 5,000 applicants? Will it be the Inc. 2000 this year? Or maybe they could change the definition of growth to include negative growth. “Hey, you didn’t grow last year, but your sales declined only $2M and your competitor’s revenues declined $10M, so we’ll put you before him on the list.” I mean, why stop the spectrum of “growth” at actual growth?

I suspect the real problem isn’t so much that there aren’t 5,000 companies that experienced growth last year, but rather that business owners just don’t care about being on the Inc. 5,000 enough to go through the application process. We need some sort of incentive beyond the possibility of being on the list. So tell you what Mike, I like you and I think you’re going places, but if you want me to apply you’re going to have to wave a bigger carrot in front of me. I’m thinking the yet-to-be-released Blackberry 9630 might do it. Or a $200 iTunes gift card, and maybe a Lobstergram thrown in for good measure.

  • http://www.platinummango.com Jordan Foutz

    Josh,

    My main beef with the Inc. 500 is this: sales growth year over year seems to be the main consideration, yet profitability is not. If you consider the “web design company” formerly known as Heritage Web Solutions, which has found itself on this list a few times, it begs the question: how legit is the criteria for Inc. 500? Even with the cheapest of cheap overseas labor, it’s simply unsustainable to pump out websites in a machine gun-like fashion as they do over a long period of time.

  • http://www.inc.com Mike Hofman

    Hi Josh,

    Thanks for the feedback on your blog. I really appreciate it.

    So, you’re right: getting to 5,000 this year (and every year) is a bit of chore, and we spend months looking at companies. We have deadlines, and we often continue to recruit companies after our deadlines have passed. Our research team–yes, we do have one!–certainly sifts through the Inc. 5,000 database and others to identify candidates who are likely to make the list. And we send out e-mail notices and reminders, including the one that I wrote to you. While it’s true that the researchers did not come to me and say, “Hey, we really have to tell you about Joshua Steimle,” I did have a conversation with a researcher about the group of companies to which my e-mail solicitation was directed. The number of names on that list was not huge, and I have to say, I didn’t feel particularly desperate when I wrote it. I’m sorry if I came off that way.

    As you probably know by now, we did publish our list of entrepreneurial growth companies. The top firm, which posted 19,812.2% growth, is a start-up Florida insurance company; in 2008, its revenue hit $95 million. Not too shabby. You can view the list here:

    http://inc.com/inc5000/2009/the-full-list.html

    If you look at the methodology, you will see that a company with $25,000 in revenue in 2005 and $35,000 in 2008 would not be eligible to make the list. This year, companies wishing to be ranked were required to have at least $200,000 in revenue in 2005 and $2 million in 2008. We set these thresholds to guard against exactly the problem you identified.

    As you browse the list, you’ll see that, towards the bottom, the levels of growth are indeed low, but there are no companies with negative growth, as you joked about in this post. What can I say? We’re in a recession.

    To Jordan’s point, we do focus exclusively on revenue growth. Profitability is certainly a fundamental key to the success of early-stage companies (cash flow is even more important), but we have found over 25 years that readers are ultimately most interested in sales and sales growth. I’m not sure why a bias against companies that outsource (which is pretty common these days) would be meaningful. What Jordan sees as an unsustainable strategy other entrepreneurs might view as a completely rational business opportunity. Time will tell.

    Finally, why apply? There are various benefits, but recognition is the big one. We created the list to shine a spotlight on entrepreneurs because we admire them, and we think they deserve more thanks and praise than they often get. If you want to apply next year, let me know. I hope you’ll consider it.

    Best,

    Mike