It's common knowledge that Microsoft (NASDAQ:MSFT) is one of the great success stories of the past quarter-century, and that the company has made Bill Gates the richest man in America.
What's probably not common knowledge, though, is that Bill Gates was actually reluctant and skeptical about bringing Microsoft public. In an excellent post-IPO article written by Fortune's Bro Uttal (link opens PDF file), Gates said the entire process would be a "distraction" to both him and everyone at his company. Gates said his priority was the company's software business. Period.
Interpreting Microsoft's success
Gates used the loot he made from Microsoft's IPO to pay off a $150,000 mortgage. No private island. Heck, he didn't even buy a private jet. Initially, he even argued to lower the price range for the IPO below Goldman Sachs' recommendation -- because he felt uncomfortable with too high a market cap.
In the mid-1980s, many were surprised that Microsoft took so long to go public. But as Uttal observed at the time:
"Unlike its competitors, Microsoft was not dominated by venture capital investors hungry to harvest some of their gains. The business gushed cash. With pretax profits running as high as 34% of revenues, Microsoft needed no outside money to expand. Most important, Gates values control of his time and his company more than personal wealth."
What can we deduce from this? That Bill Gates was focused on the long-term success of his business, rather than simply cashing in on an IPO. Gates' actions suggested that he was in it for the long haul. As a friend said in the 1986 Fortune interview, "All Bill's ego goes into Microsoft. It's his firstborn child."
Twenty-some years later, we know that's true. And we know his dedication to the business has rewarded shareholders well.
After all, Gates was a shareholder himself. When Microsoft went public, its top leaders held roughly half of the company. As a Main Street investor, that means management's interests are aligned with your own.
Gates and Microsoft are hardly the lone example. Think of Michael Dell during Dell's (NASDAQ:DELL) rise to the top. (And think of Dell's 2% bump when Michael Dell announced he was returning as CEO last week.) Study the early histories of Nike (NYSE:NKE), Best Buy (NYSE:BBY), and Charles Schwab (NASDAQ:SCHW).
How many times have we heard that one?
While there likely won't ever be a "next Microsoft," there will be a slew of small businesses that looked a lot like Microsoft in its early days. So as you search the public markets, take a page from our playbook at Hidden Gems, and look for:
- Small market capitalization
- Founder/CEO with a large personal stake
- Conservative management
You can find these things with a basic screening tool and some sound Google-fu.
Close to home
At Hidden Gems, one of our favorite small companies around is Buffalo Wild Wings (NASDAQ:BWLD), which, not coincidentally, is backed by a strong management team that has a nearly 20% stake in the company. Also -- again, not coincidentally -- Buffalo Wild Wings is up more than 95% since being picked for Hidden Gems subscribers in July 2004.
As you hunt for the Microsoft-esque winners of tomorrow, look for leaders that resemble a young Bill Gates -- and follow them to huge returns.
And if you'd like to join our Hidden Gems investing service, or to see all our picks, gratis, click here to start a 30-day trial. Since inception in 2003, our lineup of picks is beating the S&P 500 by more than 25 percentage points.
Fool contributor Glenn Brandys does not own shares in any company mentioned. Microsoft and Dell are Inside Value recommendations. Best Buy, Dell, and Schwab are Stock Advisor picks. The Fool has a disclosure policy.
