Innovators can often spot other innovators early on. 10x Genomics (TXG 11.91%) certainly stands out as an innovator in the genomics research world. In this video recorded on March 11, Motley Fool CEO and co-founder Tom Gardner talks with 10x Genomics CEO and co-founder Serge Saxonov about what factors to look for in identifying innovative companies.
Tom Gardner: I'd love to hear from you what you see as some of the patterns of greatness in your category. What are the factors that we should be looking for? How do we find the 10x Genomics-like companies earlier on and separate them from the pretenders, the promotional companies, or the followers versus the innovators?
What might be a few patterns? You can even name if you wanted to a company or two that you admire in your category, but just what are the patterns we should be looking for and therefore, those are the factors that we should continue to use to evaluate TXG?
Serge Saxonov: That's an interesting question. We try to think ourselves within the company, we try to think in terms of first principles, like what is the right thing to do and do it as opposed to modeling ourselves too much like other companies.
To an extent, I think there's a few common failure modes maybe on our industry, substantial companies, especially. When they sort of underinvest in R&D. Our space tends to be pretty sticky. So once you have a product that works, scientists like to use it until something much better comes along and so that creates kind of a fairly extended half-life of technologies and that creates temptation to kind of just keep sort of harvest cash and not invest in technology.
You can get into a vicious cycle where if you're not investing in R&D, great technologists and scientists don't want to work in that company and then you no longer have the capability to develop new products and so you keep cutting it further and further.
Gardner: Then you start making acquisitions that have nothing to do with real product development, innovation integration, and they're just more cash flow play.
Saxonov: Yeah, exactly. Then of course, even if you acquire an innovative company, those people don't necessarily want to work for their culture that is in the business of harvesting cash.
So I think that's a really important. Like focus. A lot of it is, much of success really comes down to people. Maybe all of it really comes down to people who love the company.
To my mind, that's the first thing I always look at, the quality. It's hard to maybe evaluate really well from the outside, but if you could, I would say that that is the No. 1 thing to focus on and in fact, back in the day that will give me initially the greatest confidence about 10x like they were going to go.
Back when we were really tiny. I mean, just a handful of people I knew we were going to do pretty amazing things because of the people we managed to attract to the company. So I would say that's a huge thing.
The third thing I would say is probably customers talking to scientists because, again, our space, our customers are incredibly smart and do they sort of respect the company? Do they respect the people there? Do they respect the products that come out there? I think that's very important.