1996 FAST 50 AWARDS ISSUE

P> There can be little doubt about the influence of minority-owned contractors on the Greater Washington economy. For the third straight year, a company participating in the Small Business Administration's 8(a) program tops Washington Technology's ninth annual listing of the 50 fastest growing companies in the Greater Washington region.

So as in the previous eight listings of the Fast 50, 8(a) companies dominate -- with little sign of waning influence despite attacks on racial preferences in contracting.

Still, the reign of 8(a)s and government contractors on this list is only partial. As in previous years, other breeds of high-tech companies qualify. Three of the hottest stock plays on Wall Street and in on-line services made the list: PSINet Inc. (No. 39), UUNET Technologies Inc. (No. 33), and of course, America Online Inc. (No. 20). Also appearing is a smattering of commercial software and services companies.

So what does this Fast 50 list say about the state of entrepreneurship in the Greater Washington region?

Think of the list as a map. On that map only one Fast 50 company -- Mnemonic Systems Inc. (No. 48) -- is located in the District of Columbia. Thirty-eight of the Fast 50 call Virginia their headquarters, reflecting the continuing concentration of high-tech firms in Northern Virginia; the rest are based in Maryland.

The majority of fast-growing companies in the region -- its most common topographical trait -- are minority-owned government contractors. These companies are engineers for hire -- problem-solvers. They have tapped federal set-aside programs to gain a toehold in the government systems integration and technical services market, doing everything from wiring local area networks to putting Ph.D.s on the latest Pentagon study to reselling Dell computers to government agencies.

Most of these companies are sole-proprietorships. They have low profit margins. Their primary asset is people rather than products. They tend to rely on internally generated money and a line of credit from local banks to finance growth.

Many will fade fast as they exit from under the protective cover of sole-source government contracting.

To be sure, a few will become self-sustaining companies and even major players in the government contracting trade. I-NET Inc., a past Fast 50 and 8(a) graduate, has had some success competing with companies such as EDS. Government Micro Resources Inc., also a past Fast 50, has become a major reseller of microcomputer systems.

But these companies share little in common with the venture-capital backed companies in the heart of Silicon Valley or along Boston's famed Route 128.

To find such companies, one must look to one of the more dramatic features in the region's entrepreneurial landscape.

This is the land of on-line and Internet services giants such as UUNET Technologies. Venture capitalists fund them, and they are driven by vested employees looking to strike it rich in a buyout or public offering.

Like the Pacific islands formed from recent volcanic eruptions, these companies are relatively new to the Washington area. A number of converging forces created them. The explosion of the Internet began with the government's decision to end subsidies for the Internet backbone in 1995, which triggered the commercialization of cyberspace. Internet entrepreneurs in the area then emerged from the pool of management and technical talent cultivated at communications giants such as MCI Telecommunications Corp., Bell Atlantic Corp. and AT&ampT; all have large government and commercial organizations in the area. These entrepreneurs were able to exploit the expertise and infrastructure developed by contractors such as PRC Inc., Mitre Corp., Science Applications International Corp., BTG Inc. and CACI International Inc., which for decades have built advanced telecommunications systems for defense, intelligence and government research.

The mixing of these two segments in the Washington area has provided fertile ground for Internet entrepreneurs.

And venture capitalists have been quick to move in from Silicon Valley, Boston and Philadelphia to give free reign to their ideas.

Finally, a third group of high-tech entrepreneurs occupies a small but growing niche -- a middle ground. Their expertise is building complex software systems -- a legacy, perhaps, of the influence of big government contractors. Unlike their counterparts in Silicon Valley or the Pacific Northwest, these companies aren't in the mass market software business. Their stocks -- if they do trade publicly -- lack the hype and glamour of an America Online. Some might call them boring -- the plumbers of the information technology revolution.

FileTek Inc. (No. 32) is a typical example. The company provides software to manage libraries of data in government agencies and large corporations. It builds products, but ones that require sophisticated services and systems integration.

Still, the boundaries between these different "regions" of entrepreneurship often overlap -- as one would expect from a town known for services rather than blockbuster products. CritiCom (No. 18), an 8(a) company, provides everything from engineering services for government agencies to Internet access; BTG, a supplier of computer systems integration and services to defense and intelligence agencies, is branching into Internet services; FreBon International Corp. (No. 40) provides video teleconferencing hook-ups; A-1 Cabling &amp Consulting Services Inc. (No. 24) supplies wiring and computer/telephone integration; and SOTAS Inc. (No. 8), builds telecommunications test and diagnostic equipment for phone companies.

So the list is a microcosm of the area's economy. Government contracting dominates, but a healthy base of commercial telecommunications and software companies also calls the area home. Such diversity, undergirded by a focus on services, suggests many of the year's Fast 50 could become tomorrow's Fortune 500.