Doing Business in the Inner City

Bloomberg Businessweek partnered with the not-for-profit Initiative for a Competitive Inner City to showcase the fastest-growing inner city businesses in the U.S.

(This story has been corrected to change Cisco Systems to Power-One in the fifth paragraph.)

New Orleans native Kenneth Purcell and his wife have called 911 about 20 times in the past year to report break-ins and other crimes near their home and his business, located just three blocks apart in the city's Warehouse District. But that hasn't driven him from the inner city. His 25-employee software firm, iSeatz, is thriving, with sales last year of $38 million, up from $28 million in 2008. That success has been helped by what Purcell calls the "social capital" gained by creating local jobs when he moved back from Manhattan two years after Katrina. "In the midst of hearing about all these big businesses that were abandoning the state in which they were founded, I said, to hell with that," the 35-year-old founder and chief executive says. "I wanted to go home and do the opposite of everyone else."

His company landed second place in this year's Inner City 100 ranking of the fastest-growing inner-city businesses in the U.S. The list—based on five-year compound annual growth rate—is a Who's Who of high-potential private ventures in downtrodden urban areas.(Bloomberg Businessweek is the media partner.) Think multimillion-dollar manufacturers and construction companies (these industries make up 31 percent of the 2010 ranking), not mom-and-pop bodegas.The annual roundup is compiled by the Boston-based not-for-profit Initiative for a Competitive Inner City, founded in 1994 by Harvard Business School competitiveness guru Michael Porter. The ICIC's goal is to show that not only can companies thrive in the inner city, but there are also competitive advantages to locating there. Over the past 12 years, winners have created 71,000 new jobs and employed 40,000 inner-city residents.

Porter notes that the 2010 crop, similar to last year's, dealt nimbly with the effects of the recession and is prepared for the recovery. "Many took the initiative early in their life cycle to adapt their businesses to changing market demands and address new growth opportunities. This is a hallmark of strong leadership as well as an ability to thrive even in uncertain economic times." That may be why 85 percent of the companies on the list expected revenue to increase in 2009-10, with more than a quarter predicting upwards of 30 percent, about double from the previous year's expectations.

Agile Diversification

Former automotive supplier W Industries, No. 24 on the list, began to diversify seven years ago. About 90 percent of the Detroit manufacturer's business now comes from outside the auto industry. The company is currently looking to hire an additional 100 to 200 employees annually from the local area, says CEO Ed Walker, whose father established the business in 1981.

Another entrepreneur in the midst of adapting is Aileen Liu, whose 19-employee Allston (Mass.) battery maker HDM Systems takes 9th place. Liu, who ran a telecom supplier called International Power Devices before selling it to Power-One (PWER) for $34 million, started to shift away from focusing mainly on the commercial trucking industry to target the defense industry. Her daughter, LeeAnn Liu, who heads up operations, predicts HDM's new defense applications will drive most of the company's growth over the next two years.

The list represents more than just feel-good stories about small businesses that help struggling urban economies. It's also intended to persuade big businesses and institutions to invest more in inner cities through their normal business operations, not through corporate social responsibility initiatives. Michael Porter makes a persuasive case for this in a commentary describing his vision of urban areas revitalized by companies investing close to home.

For more elements of this special report, click on the related stories and multimedia links on the upper right hand corner of this page. Be sure to catch video profiles of nine of the companies and a slide show with snapshots of the top 25. And check our staff blog for occasional updates about companies on the list and the call for next year's nominations.

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