How to find sustainable growth companies? It can feel a bit like looking for the proverbial needle in a haystack. A well known venture capital investor, Michael Moritz of Sequoia Capital, has created a list of 10 principles called the “Elements of Sustainable Companies”, which he has used to find oustanding companies coming out of the ‘Valley’ (Silicon, not Test…).
Among the names that Sequoia discovered after checking their business plans against that list of principles are: Cisco Systems (Nasdaq: CSCO), Electronic Arts (Nasdaq: ERTS), Flextronics (Nasdaq: FLEX), Symantec (Nasdaq: SYMC), Nvidia (Nasdaq: NVDA), Ikanos Communications (Nasdaq: IKAN), and, of course, Google (Nasdaq: GOOG). Not a bad track record.
Sequoia founder Don Valentine was on the board of Cisco from 1987 through 2005.
By investing in sustainable companies early, and then holding for the long haul, Moritz, Valentine, and others at Sequoia have generated major returns.
Here are the Sequoia rules:
Clarity of purpose. Great companies can be summarized in a single sentence.
Large markets. Buy where there’s a billion to be made. At least.
Rich customers. Not hard to grasp this one…
Focus. Simple products with obvious value are easy to sell.
Pain killers. Great businesses solve a real problem facing consumers.
Think differently. Inventive firms drive their competition nuts.
Team DNA. Talent attracts talent, and talent usually produces excellent returns.
Agility. Being first to new markets matters.
Frugality. Great managers allocate capital only where they must.
Inferno. Excellent businesses produce huge returns from even small doses of capital.
Easier said than done, but all the same a useful checklist.
