Industry, diversity mark private firms' revenue growth. (L.A.'s Fastest Growing Private Companies).

GOODBYE conventional wisdom. The nation may have been mired in a recession, but as a group, L.A.'s 100 fastest-growing private companies marked greater revenue growth over the last three years than last year's batch.

Representing nearly a dozen varied industries, from real estate to transportation to technology, the list provides a snapshot of the local economy: one not overly reliant on a single sector, dominated by small- and mid-sized businesses and, with an average age of 22 years, at once youthful and mature.

"The growth has been in those smaller innovative companies, companies that are able to move quickly to innovate, to respond to new competitive challenges and to take advantage of market opportunities," said Donald H. Straszheim, president of Straszheim Global Advisors Inc.

Among the 100 companies, the average rate of growth between 1999 and 2001 was 88.3 percent, with 22 posting triple digit growth during the period. That's higher than the 84.4 percent three-year average posted last year, although less than the comparable periods from 1996 to 1999.

The median rate, which is useful in this case because a few high-growth companies tend to skew the total, was 48 percent, down from 53.4 percent in 2001.

Next year's list might be a different story. Of the 63 companies that provided revenues for the first three-quarters of 2002, only 10 had already made their 2001 annual numbers. As a practical matter, maintaining the same rate of percentage growth is difficult once a certain revenue base is established.

As a group, the companies have added nearly 12,000 employees nationwide over the past three years. They had aggregate revenues of $16.8 billion in 2001, $6.1 billion more than in 1999.

The fastest growers, on a percentage basis, tend to be on the smaller side. Only 28 had revenues of $100 million or more, with the greatest rate of growth taking place among companies with revenues between $25 million and $50 million.

Three, Unified Western Grocers Inc., Cook Inlet Energy Supply and AECOM Technology Corp., had revenues of more than $1 billion, indicating that it is possible to stay big and private. (AECOM earlier this year registered for its initial public offering, though it has been shelved until the market recovers.)

"Twenty-five years ago our economy was dominated by a few large companies," said Straszheim. "Now it's smaller companies that characterize where people work and where they make a living. It's dominated by a bunch of small aggressive entrepreneurial companies."

Perhaps most surprising on the current list is the technology industry, which managed to place 15 businesses among the fastest growing, many of which have been on the Business Journal's list several years in a row.

"You've got growth that occurred in a period of difficulty for technology - that's pretty good," said Steven Cochrane, director of regional economics for think tank Economy.com.

Challenges remain

The Business Journal compiled its list using information provided by the individual companies, as well as supplemental data from various third-party sources. Businesses were ranked based on percentage revenue growth between 1999 and 2001. Qualifying companies are headquartered in Los Angeles County and had to have at least $5million in revenues in 2001.

The list does not include advertising agencies, which measure their progress in terms of billings, or law firms, which gauge their performance in profits per partner. Both measures are slightly different from revenue or sales figures provided by the vast majority of other companies and are therefore excluded.

For most of the fastest-growing 100, adapting quickly to the economic slowdown has helped expand the revenue stream.

The fastest growing company over the 1999-2001 period was Key Information Systems, a Woodland Hills business that designs and installs computer systems. The company has managed to grow amid a falloff in business and technology spending by finding new customers to make up for the cutbacks by existing clients.

"Were we to have not added any customers, we would be down 10 or 15 percent year to year," said Lief Morin, president of Key Information, which had revenue of $34 million in 2001, up 1,600 percent from 1999.

This year's No. 2, PeopleSupport Inc., was scrambling to find new customers a while back - not just to maintain growth, but to stay in business.

PeopleSupport was founded in 1998 to handle customer service functions for dot-comers like eToys and eHobbies. Then the bubble burst, and PeopleSupport was left with a client base of dead and dying Internet firms.

To sell itself elsewhere, company management re-thought its business plan, spending more than $20 million so it could offer service and technical support over the phone as well.

For PeopleSupport, the economic malaise has brought a healthy supply of cost conscious customers. "There has been a strong shift towards outsourcing for all types of things. In many ways it's counter cyclical," said Lance Rosenzweig, People Support's chief executive.

"The collapse of the dot-coms was the kick in the rear we needed to come up with a solution for bigger companies," he said.

Of course, climbing revenues don't mean a company is churning out profits. Despite astronomic growth over the past three years, only recently did PeopleSupport move into the black - and only then after burning through tens of millions in venture capital.

Patrick Haden, a partner at Riordan, Lewis & Haden, a Los Angeles-based private equity firm investing in growth companies across most industries in Southem California, said tapping equity sources is a key to a small firm's ability to grow.

"If you're growing," he said, "you have to make sure you don't have too much debt to inhibit all of your future growth opportunities. Having the proper capital structure can be a challenge, because a private company might have to go out and raise equity."

Uncertain future

Despite the rapid run-up in revenues posted by the fastest 100, many executives remain wary about the future. The real estate and construction sector has soared over the past three years, but it has begun to shown signs of weakness.

"I don't think we will have the same revenues that we had last year, it will be slightly under," said Paul Matt, chief executive of Matt Construction Corp., a general contractor specializing in commercial projects and based in Santa Fe Springs. Matt is No. 85 on this year's list, down from No. 33 in 2001. "People are holding back on spending money because they're afraid of what might happen in the future," he said.

Still, weakness in an industry translates into opportunity for dominant players. Los Angeles travel agency STA Travel Inc. saw revenues rise to $153.6 million in 2001, up 34 percent from 1999. In April STA, which is focused on the student market, acquired a New York based competitor out of bankruptcy and is forecasting revenues of $270 million for 2002.

"Everybody's got a lack of demand at the moment," said Nick Thomas, STA's president and chief executive. "We've found our competitors didn't fare as well as we did, so we were able to take them over."

One weak spot was health care, which placed just two companies on the list. Molina Healthcare in Long Beach had an impressive showing, with three-year revenue growth of 171 percent, to $500 million in 2001. Not one biotechnology firm was among L.A.'s fastest growing.

"We're still fairly weak in (biotech) compared to, say, the Bay Area or San Diego," said Michael Montgomery, co-chief executive of Digital Coast Partners LLC, a boutique investment banking firm in Santa Monica.

Cochrane, an economist who studies the Los Angeles economy in detail, said he's projecting the health care industry to be a bigger player. "That's one where you might see more firms in future years," he said.

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