Success stories: top firms had leadership, flexibility ... and luck.

SUCCESS can be an elusive thing.

A new business space opens up and 10 companies jump in. But only one hits that sweet spot that allows it to soar while the others fade away.

Finding that perfect space is not easy. It's often a combination of a winning product or service, good management and flexibility--and a hearty dose of luck. Yet virtually every company on the Business Journal's annual fastest-growing private companies list has found it, standing out from the tens of thousands of other companies in Los Angeles County. (The list ranks private companies, 1 through 100, according to their growth in revenues from 2003 through 2005.)

Consider West Los Angeles-based Travel Store Inc., a corporate travel management firm, which is No. 62 on the list with a growth rate of 57 percent. When the company started 30 years ago, it found a niche of helping mid-sized companies make basic travel arrangements, at a time when few travel agents focused on this market.

As the competition intensified, Travel Store chose to assign specific agents to individual corporate accounts to facilitate travel plans, trying to get a leg up on competitors by offering customized service. As technology transformed the industry, Travel Store adjusted again by taking on more tasks on behalf of its clients, trying to differentiate itself by customizing even more.

"We are more of an information company today, doing everything from pre-trip approvals to marking up the expense reports," said Wido Schaeffer, president and chief executive of Travel Store. "As a result, we've been profitable for each of the last 15 years, through two industry downturns."

The larger key to Travel Store's success--and to the success of virtually every company on the Business Journal list--can be summed up in one phrase: "Know thy customer."

"The magic word is always the customer, the ability to deliver what your customers want," said Tom O'Malia, director of the Lloyd Greif Center for Entrepreneurial Studies at USC.

But each company needs to figure out its own way to deliver a product or service that's better than most of its competitors.

Sometimes, it's a technological innovation that gets a product into customers' hands even before they realize they need it. That's what happened with Exaktime Inc., No. 8 on the list with 249 percent growth in revenue. Founder Stephen Simmonds realized construction contractors were losing money because they didn't have time clocks on construction sites to track the comings and goings of workers. So, he designed a portable time clock.

In entrepreneurial parlance, this is known as the "first mover advantage"--going into a niche before anyone else gets there. But, of course, spotting a niche before others is a rare skill, though oftentimes the first mover can find unexpected problems. In those cases, it's the followers that do well, benefiting from the pioneer's mistakes.

Portfolio strategy

For many companies, having an array of products on hand for customers is the ticket to success; when sales of one begins to drop, another product can take its place. This "portfolio" approach has propelled North Hills infant toymaker Munehkin Inc. onto the fastest growing list at No. 48, with 73 percent growth.

Munchkin founder Steve Dunn started the company 15 years ago with a line of licensed baby bottles. The idea was that infants like to mimic parents, so when they see their parents drinking out of a Diet Coke bottle, they want one, too.

But this proved to be a mere fad. Given the speed with which fads come and go in the world of infant and toddler toys, what was needed was an array of products, so that "if one product didn't work, it didn't tank the whole company," said Doug Gillespie, Munchkin's vice president of marketing.

So, out came the Mozart magic cube that taught infants different instruments, the inflatable duck tub that tells parents when the water is too hot and the spoons that turn a different color when the food could bum a young mouth.

"Every year we have new products coming out to replace products that have plateaued," Gillespie said. "Retailers recognize our nimbleness and flexibility."

And it has worked: For each of the last nine years, revenue growth has exceeded 20 percent.

Such agility relies on two key factors: adequate market research and the willingness to junk a product line quickly if sales start to sag.

"If you're developing lots of products, you have to do extensive market research, so that you really know what your customers want," said Betsy Zeidman, director of the Center for Emerging Domestic Markets at the Milken Institute.

That's the approach that Mike Muench has taken. Muench is president and chief executive of Line 6 Inc., an Agoura Hills maker of digital guitars and amplifiers. "It all comes down to anticipating what our customers want and then delivering it to them," he said.

The company started 20 years ago as a producer of electric guitars. But in an industry that has been transformed by digital technology, Line 6--which is No. 65 on the list with 56 percent growth--now provides musicians the latest in digital guitars, recording devices and computer interfaces.

Line 6 demonstrates another key tenet for growth: keeping up with technological advances. Many companies develop a product and stick with it too long while customers migrate to newer technologies.

"The use of technology permeates every rapidly growing company, whether it's the Internet to boost sales or software to design and refine the product or service. Those that use technology effectively are most likely to keep growing," said Bob Foster, adjunct professor with the Anderson School of Management at the University of California Los Angeles.

Quality of service

Anticipating customer needs also applies to service companies. For Sun Valley-based Pacific Pavingstone, which installs paving stones and artificial ponds at private residences, top executives have long exchanges with customers, trying to gauge exactly what they want. Then they make sure that the company delivers.

"We give the customer everything they want and more. It's the way we manage our company," said Terry Morrill, who bought the business from a contractor he met while on a renovation job six years ago in La Canada Flintridge.

Of course, timing also played a key role; within months after buying the firm, the housing market took off.

Morill also has instituted a quality control system, tracking how the paving stones are passed from one division of the company to the next. "It allows you to find the weak link in how the company performs and correct it. It's the basic reason we've been able to continue to grow. Customers are satisfied with our work and then pass our name on by word of mouth," he said.

Pavingstone is No. 26 on the list with a growth rate of 105 percent.

The ability to recognize when quality service is lacking is absolutely crucial. Consider Gardena-based California Waste Services, which began as a firm hauling away construction debris.

"The big conglomerates, they didn't care about construction trash, while the little companies didn't have the resources," said Robert Squires, vice president of sales and marketing with California Waste, which is No. 23 with 106 percent growth. "We were targeting a sector that really hadn't been served well by what was out there."

To further distinguish itself, California Waste guaranteed its pickup times, something its competitors often failed to do. "There's nothing more frustrating than having to stop work because the dumpster is full and no one is around to take it away," Squires said.

But just a couple years after the company started, the top executives realized that customers needed something else: someone to help them comply with the dizzying array of recycling mandates. So the company built its own recycling facility and helped contractors fill out the reams of paperwork to satisfy municipal requirements.

With this tweaking of its original business plan, California Waste was ideally positioned for the construction boom that followed.

One of the keys to maintaining high quality service during rapid growth is not to stretch the company too thin, according to Zeidman of the Milken Institute.

If managers and employees are not properly trained and do not have the time to devote to individual customers, some other company will come along that can do these things and snatch away your customers. While this may sound simple, it's a step that trips up a lot of fast-growing companies, she said.

Access to capital

One way companies grapple with this is to find additional capital. In the last few years, getting access to capital has been fairly easy--at least by historical standards--as venture funds, private equity firms and others have had plenty of money at their disposal. The trouble for many entrepreneurs is that along with the extra capital, they may have to surrender some control over their company.

Panda Restaurant Group has tried another tack: ensuring that key people are in place to handle growth by employing a moderated expansion strategy. "It all comes down to the people you have in key positions," said Peggy Cherng, co-owner of Panda, which opens Panda Express Chinese restaurants only after making sure quality managers are in place. Panda is No. 73 on the list with 53 percent growth.

Another strategy for growth is trying to position the company in a market that's poised for takeoff.

"This means you not only have to be focused on the nuts and bolts of running your business, but you also must keep your head up enough to see the broader environment," Zeidman said.

Of course, this requires the ability to accurately read the crystal ball; if you guess wrong, the company's growth prospects can be harmed.

Finally, companies can achieve rapid growth through strategic acquisitions of competitors or complementary businesses, as Travel Store has done over the past several years.

"The companies we acquired were all in a very similar business of servicing medium-sized corporate accounts," Travel Store's Schaeffer said. "We bought them and then enhanced their services. It's part of our effort to be the dominant player in this market in the state."

And not all mergers or acquisitions work out. Corporate cultures may clash, or the new management team may be too caught up in the transition to keep up with changes in the marketplace--not all of which can be anticipated.

Which leads to the final--and most elusive--component of business growth.

"Luck is really an important factor," acknowledges William Crookston, professor of Entrepreneurship at USC's Marshall School of Business.

BY HOWARD FINE

Staff Reporter

Getting Bigger

L.A.'s fastest growing are bulking up.

Average Revenue (millions)

2003    $126
2004    $189
2005    $220

Median Revenue (millions)

2003    $12
2004    $18
2005    $20

Aggregate Revenue (billions)

2003    $12.6
2004    $18.9
2005    $22

Sector Breakdown

Tech                    18
Manufacturing           11
Retail                   9
Real Estate              8
Construction             8
Logistics                7
Staffing                 7
Food                     6
Finance                  6
Marketing                5
Environmental            4
Travel                   2

Source: Business Journal research

Note: Table made from bar graph.