Fast growth matters.
Having a deep pool of fast-growing public companies is a plus on many fronts for Orange County’s economy and community.
An obvious benefit: They combine to serve as an engine of job growth.
“The more of these type of firms we have, obviously it looks better for employment for Orange County,” says Esmael Adibi, director of the A. Gary Anderson Center for Economic Research at Chapman University.
Orange County has plenty of fast growers, as featured in this week’s Business Journal Special Report, which includes lists of locally based public companies that have grown revenue by at least 15% over two years (see page 17).
The lists, separated by company size, ranks them based on percentage gains.
The 37 featured companies have collectively increased the number of their OC employees by 1,180 in the past year, to nearly 18,000 jobs. That’s a growth rate of about 7% versus a 2% gain for all businesses in Orange County over a similar period.
Another Benefit
Less obvious is the “multiplier effect” that comes as fast-growing companies tend toward increased spending.
“Companies will need capital goods and machinery, depending on the nature of the business,” Adibi said. “So there’s all kinds of alternative spending. Both employment gains and [increased] spending have a multiplier effect for the region. More workers, more salaries, more spending.”
Publicly traded companies contribute to OC’s business landscape in some unique ways, prodding growth in other areas of the local economy, said Adam Little, a Newport Beach-based managing director of investment and research firm B. Riley & Co.
“Public companies are typically the ones that are most visible,” he said. “And, because [becoming] public is still a major way to achieve an exit [or] build a business over time, well-performing public companies are a good thing for startups and smaller companies.”
Fast-growing public companies also tend to spread wealth throughout the economy via employees.
“Hopefully many employees will be rewarded by being able to participate in the benefits of publicly traded equity and growth,” said Kenneth Parker, a partner in the OC office of Dallas-based law firm Haynes and Boone LLP.
Haynes and Boone counts on public companies to account for a “significant portion of our client base” in Orange County and overall, according to Parker.
Challenges Bring Opportunities
The challenges that come with operating as a public company represent opportunities for other service providers, such as bankers, accountants and public relations firms.
“Fast-growing companies are fun and exciting,” Parker said. “They are generally exuberant, but at the same time, they have to deal with a multitude of legal problems that crop up as companies grow. The bigger a company gets, the more it becomes a target for plaintiff’s attorneys. The company may not have caught up in the wage-and-hour or HR area, or may simply have become big enough so that a patent troll decides to take a shot at the company.”
The amped-up competitive atmosphere for publicly traded companies could increase their need to have a local network of key service providers at hand.
“Publicly traded companies must disclose material events, and therefore competitors learn of them quickly,” Parker said. “There are requirements [to have] independent board members to oversee the company’s affairs. … There are public filing and disclosure requirements that are both costly and carry risk if not done correctly. Finally, what many private company owners underestimate is the drive of Wall Street for growth and quarterly earnings performance. Wall Street loves—and sometimes demands—both. And that can lead to different decision-making, including some driven toward short-term quarterly performance.”
‘Source of Pride’
Fast-growing companies can also serve as “a source of pride for other entrepreneurs looking to get started in a region,” said B. Riley’s Little. “Fast-growing companies demonstrate innovation and success. To the extent these fast-growing companies are representing the region’s economy, the better they do, the more it attracts attention in the form of talent and capital.”
The availability of talent coming from the local universities is a key element for business growth here, said Patty Juarez, regional vice president for Wells Fargo’s commercial banking operations in North Orange County.
A local talent base is what will keep local companies here, she said, adding that the bank itself is active in recruiting from local schools in all of its markets.
Geography, Infrastructure
“Frankly, we’re in a privileged geography—the beauty of this area alone brings a lot of people here and have a lot of businesses stay here,” Juarez said. “And our infrastructure is also important. The construction and availability of housing is important to keep companies here. … We [professional services] providers just have to be ready to be great business partners.”
Companies that find themselves as parts of an industry cluster help put themselves, their sectors, and the larger business community on the map, which holds the potential to create momentum that brings further growth.
B. Riley’s Little pointed to the technology sector, which he closely follows, and said there’s a debate going on among cities and regions nationwide about which region “is No. 2 to Silicon Valley.”
“People in Los Angeles, Orange County, Portland, New York, Austin and Boston … [they’re] all talking about the success of their region,” Little said. “People in OC know they don’t have to move to L.A. or the Bay Area to start a business and attract funding.”
