Follow the Entrepreneur

The title of this article is one of my secrets to successful investing. The approach is based on finding brilliant and unique individuals who have a strong track record of creating companies and selling them to larger firms as they become successful -- enriching themselves and shareholders in the process.

Entrepreneur to the bone
Netflix (NASDAQ:NFLX) CEO Reed Hastings is one entrepreneur worth following. Before he was shocking Blockbuster (NYSE:BBI) and revolutionizing the movie rental business, he founded Pure Software in 1991. He led Pure through its 1995 IPO, completed several acquisitions, and helped make the firm one of the 50 largest software companies in the world by 1997 -- when it was acquired by Rational Software for approximately $515 million (a 22% premium to Pure's market cap at the time). IBM (NYSE:IBM) subsequently gobbled up Rational in 2003.

Netflix was Reed's next venture. He formed the company in 1997 and launched the now omnipresent subscription movie-rental-by-mail business in 1999. Today, Netflix has more than 3 million subscribers and the company expects to generate more than $600 million in revenues this year. The company's market cap has increased three times -- to $1.2 billion -- in the three years since its May 2002 IPO, and the company has allied itself with Wal-Mart (NYSE:WMT), the largest retailer in the world.

A biotech leader
Looking for that kind of entrepreneurial spirit can also help you find winners in the always unpredictable biotech sector. Protein Design Labs (NASDAQ:PDLI) CEO Mark McDade came to the company from Corixa, a company he co-founded in 1994. During his tenure there, he served as COO and president -- helping oversee a company that increased seven times in value during his watch. Corixa was acquired in July by GlaxoSmithKline (NYSE:GSK) for $300 million.

Since taking over at Protein Design Labs in 2002, McDade has turned the company from a pure R&D operation into a top-notch marketer. Going forward, this will make the company less reliant on royalties from companies such as Genentech (NYSE:DNA) for revenue and help it profit greater from the blockbusters in its own pipeline -- such as Nuvion for the treatment of severe ulcerative colitis, a disease that affects 40,000 people in the U.S. alone.

The market has rewarded this move, driving the stock up nearly 200%. I've recommended the company twice to Motley Fool Rule Breakers subscribers in the last year, and it's up an average of 42% for us so far -- with a lot of room to run.

Foolish final thoughts
The best innovators and entrepreneurs often build the best companies, and strong management is one criterion we look for when picking stocks for Motley Fool Rule Breakers. To date, we've found more than 20 companies that fit the bill, and those picks are beating the market by nine percentage points.

And we expect to find a lot more. We have our eye on hundreds of talented entrepreneurs in our Rule Breaker Universe, more than 500 companies strong. Join the hunt by taking a 30-day free trial. There is no obligation to subscribe. Click here to learn more.

Charly Travers is the Motley Fool Rule Breakers biotech analyst. He owns shares of Protein Design Labs. Netflix is a Motley Fool Stock Advisor recommendation. The Motley Fool has a disclosure policy.