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Strategies & Market Trends : Gorilla and King Portfolio Candidates -- Ignore unavailable to you. Want to Upgrade?

To: chaz who wrote (21953)	4/1/2000 12:46:00 AM
From: John Stichnoth	Read Replies (1) \| Respond to of 54805

The thread is about finding gorillas and kings. My reference to Mike's hunting grounds post was to show that pretty much from the beginning, areas other than computers/networking/telecomm were considered reasonable areas for investigation. Let's go back to TFM. You provided a terrific format for investigating companies in G/K terms. It's good because it deals with so many of the issues in the book. Perhaps the format ignored a critical "condition precedent". The company has to be operating in a gorilla-capable sector. On page 69 of RFM, is discussion of "Layers of Technology". Used as an example is the computer hierarchy of electricity/semiconductors/systems software/applications software. A value chain must be capable of being formed for gorilla power to work. There are other aspects that a gorilla must satisfy, e.g., pp 49 ff--Getting more customers ("business partners actively bring new customer opportunities to gorillas on an unsolicited basis"); Keeping more customers ("[the gorilla] can make more work for its competitors any time it wants"; Driving down costs ("Make somebody else pay for it"; Keeping profits up ("the whole product from a gorilla is worth more than its competitors' whole products"). I do agree, based on my understanding of the area, that biotech cannot support a gorilla play. Layers of Technology have not been demonstrated. There are no "business partners" to work on the biotech's behalf. The biotech cannot force change on competitors. There are no players in the value chain to bear a disproportinate share of the costs of the whole product. The biotech does not have an extended whole product. I would also add that the biotech doesn't have pricing power (I don't remember this last mentioned in the FM, but I believe it is implied). But, even though biotechs can be identified as sterile ground for us here, the exercise of going through the issue (once) was appropriate. It should be awhile before we have to go through it again. And, it will be appropriate to review companies in other out-of-the-box sectors as well. The tendency on the thread has been to look at increasingly smaller markets, with increasingly smaller potential returns, and to try to find companies further and further to the left of the tornado. No one has any trouble nominating a WIND, apparently, even though (in my estimation) the ultimate market size is a fraction of Microsoft's or Oracle's stomping grounds. When Microsoft had $800 MM in sales, it carried a $4 Bn market cap. Today a JDS Uniphase carries a $20 Bn market cap on only $283 MM ttm sales. In focusing on computers/networking/communications we've found ourselves limited to the "hot stocks", which have been bid up for non-gorilla reasons. Our next great Gorilla will be found in a completely different area--in the same way Qualcomm was found in the wireless sector despite that sector's complete absence from TFM. Moore's work grew out of the work of various thinkers on the topics of discontinuous innovation, value chains, etc. The best known writer on discontinuous innovation is of course Clayton Christensen. In "Innovator's Dilemma" he discussed disk drives, and also such technological innovations as hydraulic backhoes, steel minimills (Nucor was a company that could have been identified using GG logic), and discount retailing. I am not saying that any of these areas yielded a gorilla. I am saying that any area in which new technology is being applied is fair game--if it can be shown that the sector is gorilla-capable. Our task as thread members will be to efficiently dispose of presentations that do not fit the bill--in the same way biotech has now been disposed of. Best, John