Off the top of your head, start naming great companies that were founded by a pair of young upstarts working out of one of their homes. Apple Computer
How about that Michael Dell kid, assembling desktops out of his dorm room in Texas? Then we have Shawn Fanning out in Massachusetts. All the teenager did was help kick off the digital music revolution -- giving Apple the fertile soil for its iPod -- when he created the Napster
These warm stories are great. They can inspire the everyman in all of us to believe that great things can happen with the most unlikely of catalysts. Reed Hastings dreamed up the Netflix
Luck is no accident
The humble beginnings of many of the great growth companies of our generation have led some to believe that greatness is often bestowed on simpletons who just happen to be at the right place at the right time.
It's a glorious notion, but it cheats the gray matter that separates the potentially great companies from the undeniably great ones. Breakthrough ideas make companies matter, but breakthrough execution makes companies last. Believing otherwise underscores the significance of brilliant management.
A great idea coupled with a competitive advantage, like Apple with its iPod or Netflix with its DVD delivery service, will be hard to challenge. The next few months will be interesting for both, as the holiday shopping season will feature more iPod wannabes and Netflix faces more ambitious digital download ventures. But neither company is going away anytime soon. When you can create magic and widen your moat at the same time, it's more sheer genius than serendipity.
Anyone who tells you that our Motley Fool Rule Breakers newsletter service recommends upstart stocks with great concepts but unproven leadership is missing the point. When iRobot was singled out recently, David Gardner and I weren't siding with some engineering hacks who had created the first robotic vacuum cleaner. The Roomba, floor-mopping Scooba, and military PackBot robots are pretty darn cool, but this company that made them was born in the late 1980s at MIT's prestigious artificial intelligence lab. The lab's director and some of his star pupils birthed the company that is reinventing the simplification of tidier homes and bloodless battlefields.
"I like buying companies that can be run by monkeys," Peter Lynch once wrote, "because one day they will be." That's a great sound bite, but let's not forget what happened at Apple. Jobs and Woz were eventually shooed away from the company. Surely Apple could find a more capable helmsman. Did it? When the company's future seemed bleakest, it invited Jobs back, just in time for him to serve as architect of one of the coolest turnaround stories in years. The Stanford youths who concocted Yahoo! and Google may have brought in seasoned CEOs to give their companies a little market validation, but the founders remain active contributors.
So please don't make the mistake of assuming that growth stocks are risky because they have unproven veteran leadership. They do -- and when they don't, it's usually because having veteran leadership may be more of a liability for an upstart looking to transform a fading industry. In those cases, I would argue that the greater investing risk lies in buying into the stodgy old relics.
You don't need to trust Smith with your life, but you can probably trust him with your portfolio. Rule Breakers aren't lucky story stocks. They are selections with substance, blessed with the gray matter to turn ideas into actions.
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What are you waiting for? Don't monkey around with your money when superior ideas are there for the plucking.
This article was originally published March 1, 2006. It has been updated.
Longtime Fool contributor Rick Munarriz has nothing against monkeys. He even lives a few miles away from Monkey Jungle. He does own shares in Netflix. Netflix and Yahoo! are Stock Advisor recommendations. TheFool has a disclosure policy. Rick is part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.