"All business owners or potential business owners should be interested in what these fast-growing companies are doing," says Tony Libertella, a professor at the Hagan School of Business at Iona College. "They are successful, at least in part, because they are early identifiers of important emerging trends, and they act on those trends." The CEOs surveyed by "Trendsetter Barometer" feel confident that their companies will meet their own ambitious revenue goals over the next 12 months, and more than six in 10 are optimistic about the U.S. economy in general. That's up from earlier surveys, and only 6% of the growth-company CEOs are gloomy about the nation's economic prospects.

America's fastest-growing companies appear to be relying less on new bank loans and more on substantial credit reserves and increased cash flow from improved profit margins as they plan major new investments in the year ahead, according to the survey.

CEOs of fast-growing companies are confident the U.S. economy will expand.

At the close of the third quarter last year, only 30% of the "Trendsetter" firms completed bank loans or loan extensions, down from the 35% level early in the calendar year and off two percentage points from a year earlier.

"Interestingly, this decline in borrowing comes at a time when 64% of the CEOs indicated that they plan to make significant new investments in corporate growth over the next year," says George Auxier, national director of entrepreneurial advisory services for Coopers & Lybrand. "More fast-growth companies are now planning new investments, up three points from the prior quarter and six points from a year ago." Planned investments are expected to represent 13.6% of revenues, up considerably from 10.4% in the previous quarter and comparable to a year ago.

While new bank loans have declined, credit reserves have risen sharply for "Trendsetter" firms in recent months. Last quarter, 30% of companies increased their credit, compared with only 26% a year ago. The composite amount of new credit grew to 19%, up sharply from 11.6% a year ago.

The study also found that CEO concerns about profitability as a barrier to growth are relatively low, cited by only 31%, the same as a year ago. "These fast-growth companies are projecting strong revenue growth for the next year," says Auxier. "Their margins are healthier than a year ago, enabling them to finance more of their growth from cash flow."

LOW RATES

Less bank financing is occurring at a time when bank rates are low, another indication that "Trendsetter" companies are less reliant on loans.

In fact, bank loans remain an attractive financing alternative for America's fastest-growing companies. In the third quarter of 1996, all "Trendsetter" firms paid interest rates at a recent composite low of 9.12%, down 76 basis points from a year ago, when they were paying an average of 9.88%. This represents an 8% decrease in the cost of money to these firms.

Among those "Trendsetter" firms that did seek new loans, few were denied. Thirty-two percent applied and 2% were rejected, a net turndown rate of only 7%.

"Based upon this track record, bank loans will continue to be a very attractive source of funding for growth companies' expansion plans," Auxier says. "In addition to high credit availability and working capital, CEOs indicate they will also be considering alternative funding, such as "angel" investors (16%), private placements (15%), venture capital (8%) and a restructuring of debt (16%) over the next 12 months." The CEOs of America's fastest-growing companies plan dramatic increases in corporate investments in 1997, and they mentioned information technology most often as a major area for investment in the survey.

Hiring appears to be on the upswing, but temporary workers are on the rise.

While "Trendsetter" CEOs had been increasingly tightfisted since January 1996, there was a real resurgence of planned new investments toward the end of the year. Nearly two-thirds of CEOs surveyed (64%) are panning to make major new investments over the next 12 months, up three points since the previous quarter.

Planned investments in information technology were most prevalent in the survey findings, cited by 63%, followed by new product development (50%), sales promotion (45%), geographic expansion (44%) and advertising (43%).

"In contrast, only 26% of CEOs cite plans for increased spending in research and development," notes Auxier. "This is down from 35% a year ago, a sharp drop of 26%. Some companies may be re-thinking the traditional role of R&D by focusing instead on strategic alliance partnerships, joint ventures and acquisitions as alternatives yielding a more immediate return." More CEOs (59%) cited lack of trained workers as the number-one barrier to business growth in the next 12 months, an increase of seven points from the previous quarter. Other barriers to growth that rose in importance in the most recent survey quarter include competition from foreign markets, cited by 17% (up five points) and the relative strength of the U.S. dollar, cited by 14% (up four points).

"As information technology expenditures deepen and high-tech infrastructure increases, the need for skilled workers with high-tech abilities continues to multiply," comments Auxier. "The country must address this issue if our fastest-growing companies are to continue to win in the global economy."

HIRING ON THE RISE

More than four-fifths of "Trendsetter" companies (83%) indicated that they will hire more full-time employees over the next 12 months, up from 79% in January 1996. However, CEOs say that in the year ahead they will be seeking additional permanent employees equivalent to only 11% of their workforce, considerably below the 15% increase foreseen a year ago.

More than half (53%) of "Trendsetter" companies plan to add more professionals and technicians, while 43% will hire new sales and marketing personnel. White collar support workers are the target of 32%, skilled workers of 26% and blue collar workers of 24% of the companies surveyed.

Hiring of non-permanent workers is accelerating. More than one-third (36%) of "Trendsetter" companies plan to add contract or temporary part-time employees over the next 12 months, a gain of three points since the previous quarter. Non-permanent employee hiring has grown to the equivalent of 6.2% of the present workforce, more than twice the previous quarter's estimates.

Among America's fastest-growing companies, those that export goods and services expected much higher revenue growth rates in 1996 than did their peers who sell only domestically. Moreover, the growth gap between exporters and non-exporters has widened substantially since last studied in 1992, according to Coopers & Lybrand.

Companies looking for growth should set their sights on overseas markets.

Fast-growing companies that export expected to grow at a composite rate of 31.2% in 1996, while those with no plans to sell abroad expected a 24.9% growth rate. That's a 25% difference.

"Firms that move to expand overseas will be the first to reap fresh rewards," says Mark Levine, director of Coopers & Lybrnad's customs and duties practice based in New York. "There are rich and promising markets outside the United States." Compared to their predecessors in the export markets, "Trendsetter" firms now planning to sell overseas are more likely to be service rather than product firms, Cooper & Lybrand reports. The new exporters are also more likely to be smaller firms--and more prone to rely on joint ventures or other cooperative arrangements to smooth their way into overseas markets.