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100 sizzling small companies to watch
They may not be big, but they're agile and fiercely competitive
In the tough, ultracompetitive world of football, Vernon Davis stands out for his strength, agility, and fighting spirit. When he played for the University of Maryland, the 6-ft.-3-in. powerhouse drew raves as one of the best tight ends in college football. During the National Football League's draft in late April, Davis was snapped up by the San Francisco 49ers. It's no surprise, then, that scrappy sportswear maker Under Armour, which got the jump on giants like Nike in the market for skintight athletic wear, chose Davis to be a celebrity endorser of its products.
As Davis ascends to the elite realm of professional football, Under Armour is scoring some touchdowns of its own. Its sales have grown an average of 78.4% annually for the past three years, and profits have doubled, causing the Baltimore company to bolt into the No.6 spot on BusinessWeek's Hot Growth list of America's 100 fastest-growing small companies. Under Armour's signature tight-fitting shirts, along with its shorts, jackets, and other products, have become athlete favorites, because they're made of lightweight material that wicks away sweat. "Plus, it makes you look stronger than you are," says Davis.
The 100 companies in BusinessWeek's 2006 ranking may not be big, but like the best in the NFL, they're strong, agile, and fiercely competitive. Many have carved out niches that no one else was smart enough to spot or quick enough to pounce on. Some have only a few years of marketing experience. Others have been around for decades but recently pulled off revivals that returned them to the front of the pack. Together, they're a powerful economic force. Small businesses produce 14 times as many patents per employee as large companies do, and they are twice as likely to turn those inventions into successes, according to a Congressional report. They account for half of the private gross domestic product, create more than 60% of net new jobs each year, and pay 44.3% of the private payroll.
Wrinkle boom
During the vetting of our Hot Growth contenders, an economic quirk emerged. The rising thirst for petroleum has driven prices up, translating to gold for the 14 oil and energy-services companies on the list, and a No.1 spot for VAALCO Energy Inc. Yet despite high prices for gasoline, consumers have yet to slash discretionary spending. The average household spends $44 a week on gas — 15.8% more than it did a year ago, according to the International Council of Shopping Centers. Yet same-store sales in the second week of May jumped 4.2% over the same period a year ago. Shoppers aren't hesitating to shell out $40 for an Under Armour shirt. And they still flock to malls to shop at Guess? (No.78) and to watch their kids make stuffed animals at Build-a-Bear Workshop (No.40).
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The costly war that boomers are waging against the aging process makes them a lucrative target. No.20 NutriSystem sells its weight-loss products mostly to younger boomers—women in their mid-40s — but older dieters have started to catch on to the Horsham (Pa.) company's program. So CEO Michael J. Hagan has launched an over-60 program and will introduce a seniors program this year, with a menu featuring more protein and fiber and an exercise program tailored to a crowd with creaky joints. "We see this as a big, attractive segment," he says. "They buy as much for life extension as for vanity." That could fuel NutriSystem's hot run: Annual sales have jumped 94.4% on average over the past three years, and profits 101%.
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