In between the Rule Breaker and the Rule Maker is the Tweener. We spend lots of time in this space explaining, teaching, and looking at and for Rule Breakers. And we spend lots of time elsewhere in Fooldom sizing up Rule Makers. But where's the Tweeners section? Where's the TweenerFolio?!
For those who are new to this way of thinking, let me briefly summarize. Here is the story of great business as we see it here at The Motley Fool...
Most great businesses begin as Rule Breakers. They are started by a single person or a small team of visionaries who are not satisfied by the business status quo. They see some way to serve you and me better --solving a present problem or creating a new possibility. With their start-up, they Break the Rules of business in their industry. Usually exhibiting high growth, a high degree of attention to customer satisfaction, bright and upbeat marketing, and a product or service good enough to generate lots of word-of-mouth "viral marketing," the Rule Breaker shortly thereafter springs onto the public markets and pitches a flawless first few innings.
Later on, the company hopes to Make the Rules in its industry -- to have so much cash, so much name recognition, so much distribution, so much, er, so much, that they become an Unsinkable Molly Brown with high profit margins and even higher life expectancy.
But in between, there is a transitional moment. It is the Tweening stage, when a company is in beTWEEN Breakerdom and Makerdom.
When does it begin? It begins when one or more other companies offer a legitimate business alternative to consumers. In effect, the original Rule Breaker is now being copied, meaning it isn't breaking the rules anymore. During this stage, the company must now rise from having once broken the rules to beating back competitors that are trying to stop it from making the rules.
In my experience, more often than not a company is unable to rise to such an achievement. It's not easy to be a great Rule Breaker in the first place, but it's even harder to become a Rule Maker.
So that's the short version on Tweening. For the longer version, you can refer to our book on the subject, Rule Breakers, Rule Makers. Anyway, herewith is my take on where our seven portfolio companies lie along the Breaker-Maker spectrum:
Amgen has Tweened.
I would describe Amgen (Nasdaq: AMGN) today as a Tweener bordering on Rule Maker. Its total value (or market capitalization), roughly $60 billion, remains more than many of its competitors combined. Add up Genentech ($25 billion), Biogen ($9 billion), Genzyme ($7 billion), Millennium Pharmaceuticals ($6 billion) Human Genome Sciences ($6 billion), Celera ($2 billion), Incyte Genomics ($1 billion) -- to name a few of the brighter lights of biotech -- and you still don't quite reach Amgen's total capitalization. We bought Amgen as the Breaker candidate for biotechnology as an overall industry. Two things about that. First is we don't think of biotech as an industry anymore, but rather as a technology giving birth to many industries. Second, Amgen's market cap as a percentage of all biotech companies will almost certainly decline with the passage of time. The only question in my mind is, beyond having Tweened as the single dominant top dog of biotechnology, is Amgen a Rule Maker? Ask the Rule Maker guys.
Amazon.com remains in its Rule Breaker phase
Until Wal-Mart (NYSE: WMT) or someone else steps up and offers as much selection and one-click convenience as Amazon.com (Nasdaq: AMZN) does, this company hasn't Tweened. The question as to whether Amazon will still be independently in business on that day remains.
Please note, by the way, that Amazon does not meet our present relative strength criterion of 90 as of this writing. In fact, it sits at a meager 8. It does not therefore qualify for purchase as of March 28, 2001. The real-money portfolio we run and that you're reading about today does not sell holdings once they're no longer "Rule Breakers." We advocate and practice buying companies as Rule Breakers, and then holding them until we find a better place for our money. Our dream is to hold our Breakers all the way through decades and decades of profitable Rule Making.
AOL Time Warner left the realm of being a Rule Breaker years ago
These days AOL Time Warner (NYSE: AOL) nowise resembles the fragile white lily we first wrote up and purchased on Aug. 5, 1994. I'd called it a mega-Rule Maker, except it doesn't fit some of the Rule Maker criteria (how 'bout that debt?!). For now we'll just call it a sprawling jungle of a company. I predict these guys will begin spinning off properties in earnest over the next three years. AOL Time Warner needs to worry about consolidating itself before consolidating the multimedia world. Anyway, Breaker she's not.
In a rare instance, the federal government made Celera a Tweener
The efforts that the Human Genome Project have made to claim victory -- or even just a tie score -- over Celera (NYSE: CRA) have been Herculean, especially when you consider that the Project's pre-Celera timeline was to have its work finished by something like 2005. Anyway, Venter & Co. have not to my mind gone far enough in making it clear to the general public why their genomic database is different, better, special compared to the guv'm'nt's. Therefore, I say Celera has Tweened. The company is going off in new directions, toward proteomics and toward its own drug development. Therein lies new Breaker possibilities. I see a really decreasing possibility that Celera will wind up a Maker in the field of genomic data. I do still long to have Celera allow me to create my own personal account on its website wherein I can keep my encrypted genomic data and compare them against the database for personal insights.
eBay is a Rule Maker
In September of 1999, I first identified the moment that I thought eBay (Nasdaq: EBAY) had Tweened. Not only were Amazon and Yahoo! (Nasdaq: YHOO) also already running auctions, but that month had just seen the announcement of FairMarket, supposed to be an alliance of numerous medium-to-large websites coming together to compete against eBay. eBay Tweened in September of 1999, and whether you look at the stock price of FairMarket today (a shade over $1) or the inability of Yahoo! PLUS Amazon to come anywhere near to the scale of eBay's auction site, it is evident to me that eBay is a Rule Maker.
Human Genome Sciences is a Rule Breaker
Human Genome Sciences (Nasdaq: HGSI) continues to be the Rule Breaker it was when we first purchased it last September (now it's at a 40% discount to that price -- gag!). HGS stands as the top dog candidate within what I'll call the "applied genomics drug field." That means it's a full-featured biotech organization that is using its own genomic research and data to create new drugs. This is what Celera is in some senses trying to become (probably part of the reason HGS has a market cap more than twice Celera's).
Starbucks is still a Breaker
Sorry, but there is no legitimate business alternative to Starbucks (Nasdaq: SBUX) coffee. Not even anything near it; there is no national brand that is anything like Pepsi to Starbucks' Coke. These guys are everywhere! Everyone else is regional, and in most cases both marginal and unprofitable. I can go into any important airport in the United States (and I've been to most of 'em over the past month!) and find not just one Starbucks, but usually half a dozen. No other company remotely approaches delivering on that promise. Perhaps the only viable threat on the horizon is McDonald's (NYSE: MCD) new McCafe.
That's my take. What's yours? I encourage your contributions to our Rule Breaker Companies discussion board -- or you could contribute to a particular company's board by going to http://boards.fool.com and typing in the relevant ticker symbol to find the board. I have an always-open mind and like to learn! Fool on.
David Gardner is co-founder of The Motley Fool. Since this portfolio is his money, he owns all the stocks in it. He doesn't own McDonald's, Wal-Mart, or Yahoo! For a complete list of his holdings, see his profile. The Motley Fool is investors writing for investors.
