The Inner City 100: Adapting to Hard Times

This year's list shows how companies can thrive in rough areas

Kenneth Purcell has called 911 about 20 times in the past year to report break-ins and other crimes near his office in New Orleans' Warehouse District. Nonetheless, iSeatz, Purcell's 25-employee software company, is staying put. As a New Orleans native, he thinks it's important for businesses to create jobs in rough neighborhoods. "We have faith the city is going to rebound," says Purcell, 35. "It's heading to a more stable, more secure place." ISeatz is thriving, with sales last year of $38 million, up from $28 million in 2008.

Purcell's company earned second place in this year's Inner City 100, a ranking of the fastest-growing urban businesses in the U.S. The annual roundup is compiled by the Initiative for a Competitive Inner City, a nonprofit founded in 1994 by Harvard Business School professor and competitiveness expert Michael Porter. The goal is to show that companies can gain a competitive edge by locating in urban areas, while at the same time benefiting local economies. Over the past dozen years, companies on the list have created 72,000 jobs in city centers.

These are no mom-and-pop operations. They are multimillion-dollar manufacturers (18 percent of the 2010 list), builders (13 percent), and tech services outfits (also 13 percent). About 85 percent of the companies on the list say sales will grow this year, with more than a quarter predicting expansion of at least 30 percent.

It helps that governments pump money into city centers. Nearly a third of this year's winners say government contracts are their primary source of revenue. Total Team Construction Services of West Sacramento, Calif., ranked No. 1 on the list, has done work for the Veterans Affairs Dept., the U.S. Air Force, and California counties.

Many companies on the list have adapted to hard times. HDM Systems (No. 9) once specialized in high-capacity batteries that power 18-wheelers when they're parked, to reduce idling. When the trucking industry collapsed last year, founder Aileen Liu shifted her focus to supplying defense contractors. W Industries (No. 24) sensed trouble among automakers early and began to diversify beyond car parts seven years ago. Today 90 percent of its business comes from defense contractors, aerospace companies, and others outside the auto industry. CEO Ed Walker, whose father established the business in 1981, now hopes to take advantage of Detroit's property bust and buy a new workshop for the 200 employees he plans to hire this year.

One purpose of the list is to persuade big companies to invest in inner cities as part of their normal operations, rather than through corporate social responsibility programs. On page 56, Harvard's Porter explains how corporations can help revitalize American cities—and boost profits—by purchasing services and supplies from small companies near their inner-city headquarters.

The bottom line: Companies are finding that they can prosper in impoverished city centers—though government contracts help.

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