5 can-do companies made in America

08-Apr-2011

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An eternal optimist, Liu-Yue built two social enterprises to help make the world a better place. Liu-Yue co-founded Oxstones Investment Club a searchable content platform and business tools for knowledge sharing and financial education. Oxstones.com also provides investors with direct access to U.S. commercial real estate opportunities and other alternative investments. In addition, Liu-Yue also co-founded Cute Brands a cause-oriented character brand management and brand licensing company that creates social awareness on global issues and societal challenges through character creations. Prior to his entrepreneurial endeavors, Liu-Yue worked as an Executive Associate at M&T Bank in the Structured Real Estate Finance Group where he worked with senior management on multiple bank-wide risk management projects. He also had a dual role as a commercial banker advising UHNWIs and family offices on investments, credit, and banking needs while focused on residential CRE, infrastructure development, and affordable housing projects. Prior to M&T, he held a number of positions in Latin American equities and bonds investment groups at SBC Warburg Dillon Read (Swiss Bank), OFFITBANK (the wealth management division of Wachovia Bank), and in small cap equities at Steinberg Priest Capital Management (family office). Liu-Yue has an MBA specializing in investment management and strategy from Georgetown University and a Bachelor of Science in Finance and Marketing from Stern School of Business at NYU. He also completed graduate studies in international management at the University of Oxford, Trinity College.







From MSN Money website,

Despite obvious improvements in the economy, we still hear a refrain that’s all too common on the way out of a recession: America has lost its edge, so its economy is never coming back.

It sounds like former President Jimmy Carter, but this pessimistic whine now regularly emanates from conservatives, who apparently don’t mind bashing America as long as it means they can take a shot at President Barack Obama.

I’ll respond with one word: poppycock.

Despite the impressive growth in emerging markets, the U.S. still ranks consistently high for the kind of moxie and can-do attitude it takes to invent breakthrough technologies and products, and in creating fast-growing, job-producing companies, say academics at Babson College in Massachusetts who study these things.

A recent count, by a Babson College professor, of the most entrepreneurial companies in the world shows that 60% of them are based in the U.S., even though the U.S. accounts for only 23% of the global economy.

So take a deep breath. We’re not losing our edge, and entrepreneurs here are going to keep on thinking up the next big idea, to the envy of much of the world. Don’t take just my word for it. Some of our best entrepreneurs, the consummate optimists who know more about these things than I do, say exactly the same thing.

“What I don’t understand is where the fright comes from,” says Andy Ory, the co-founder and CEO of the tech company Acme Packet (APKT, news), which plans to expand its workforce by more than 40% this year. “I think this country has an enormous opportunity.”

“We definitely have challenges ahead of us, but I think people are too pessimistic,” agrees Colin Angle, the co-founder and CEO of iRobot (IRBT, news). “The U.S. is the best entrepreneur incubator in the world. This is our lifeblood, and this is how we are going to win. People should get out and pursue some ideas.”

There’s money to be made

For investors, there’s money to be made in all this, on two levels.

Entrepreneur bull market

First, the unfounded pessimism confirms to me that not all of the expected good developments in the economy are priced in to stocks. People are still too negative. Indeed, the price-earnings ratio of the S&P 500 is at 13.7, or almost exactly where it was during the Armageddon lows of March 2009, notes James Paulsen, the chief investment strategist at Wells Capital Management. Sure-stocks are up 100%, but earnings are up a lot, too. The takeaway: You can buy stocks now for further gains this year, though a 10% correction at some point is likely.

Second, if you invest in entrepreneurial companies, you are likely to do better than the market. I base this conclusion on research by Joel Shulman, a mutual-fund manager who teaches at Babson, which consistently ranks high for its entrepreneur training programs.

Shulman, an expert on entrepreneurs, concedes that there’s no way to truly identify the entrepreneurial spark in managers without talking to them in person. Since it would be tough to interview so many managers, he instead hunts for the fingerprints of entrepreneurs in company financials, by looking for the key attributes that he says show up when you have a real entrepreneur at the helm.

These include measures such as a preponderance of sales from internal growth instead of acquisitions, low costs, big ownership stakes by key managers, low executive turnover and superior return on invested capital, among others. For the past six years, Shulman has used this approach to find entrepreneurial companies and invest in them, and the results are impressive.

From August 2005 through the end of last year, his managed accounts are up an average of 12% a year, compared with a gain of 0.7% for the Russell 3000. Shulman recently launched a mutual fund that invests on this basis, called EntrepreneurShares Global Fund.

5 that exemplify

Together with Shulman, I’ve identified five relatively young companies whose stocks should outperform over the next several years because they are among the most dynamic entrepreneurial companies in the U.S.

The names: Chipotle Mexican Grill (CMG, news); Acme Packet, which makes gear that help phones and other devices work better on the Internet; iRobot, the robotics company; Intuitive Surgical (ISRG, news), which makes consoles that help doctors perform surgery; and Zoltek (ZOLT, news), which makes carbon fibers used in wind-turbine blades, cars, planes and other applications.

Their stories also illustrate four key factors that successful entrepreneurs and experts say set the good ol’ American can-do spirit apart.

1. Entrepreneurs in the U.S. have vast support systems.

This will sound a little too “Kumbaya” for hard-nosed conservatives, but a major reason for our entrepreneurial success is the vast support network of family and friends that the budding entrepreneur can draw upon.

One of my favorite examples here is Chipotle, the popular and rapidly growing Mexican-food chain, if only because it has grown into a huge company from the humble beginnings of a father’s loan to his son to launch a startup. The restaurant has its origins in founder Steve Ells’ early jobs in restaurants after culinary school.

While working as a line cook in San Francisco, Ells noticed the popularity of Mexican food. That inspired him to open the first Chipotle in Denver, with help from his father’s $85,000 loan. The two calculated they would need to sell about 100 burritos a day to turn a profit; a month later, the restaurant was selling 1,000 per day. Now the chain has more than 1,000 restaurants, and its stock is up more than fivefold since its 2006 initial public offering, trading above $250. But it can probably go higher, as it is growing its store base by about 13% a year.

Angle of iRobot cites this same factor as key in bringing his company through the lean years for a decade before 2002, when his robots finally started to bring in real money. “Without a lot of support and encouragement, things would have fallen apart,” Angle says.

2. Failure is acceptable, as long as you get up again.

In many cultures, if you fail in your business “you will be socially outcast and friends and family will look down on you,” says Abdul Ali, who teaches entrepreneurship at Babson. “In the U.S., if you fail you feel bad, but you move on. You are not ostracized or castigated.”

Ory, who co-founded Acme Packet with Patrick MeLampy, says that “serial entrepreneurs” who try and try again are “incredibly important because they have made a lot of mistakes and learned a lot.” In the early days of Acme Packet about 10 years ago, Ory learned a lot about what would work because he persistently presented product ideas to potential customers and got feedback.

Now his company sells gear that helps establish set traffic pathways along the Internet, allowing applications in phone, video and multimedia work better. Sales reached $231.2 million last year, from almost nothing a decade ago. Aside from that kind of impressive organic sales growth, the fact that its core management team is still in place marks Acme Packet as an entrepreneurial company, Shulman says.

3. Our education system fosters entrepreneurship.

It’s popular these days to bash our education system, but actually it’s still one of our best assets. Angle says iRobot never would have taken shape without the experiences and contacts he got at the Massachusetts Institute of Technology. One key factor was that MIT lets undergraduates work closely with professors early on. “As opposed to graduating with a degree, I graduated with a relationship with professor Rodney Brooks, who became a co-founder of iRobot. Without that, iRobot would not have happened.”

MIT also exposed him to other entrepreneurs, including several members of his fraternity who had founded companies. “These were not godlike folks I could never aspire to be like,” Angle says. “They were guys I could beat at beer pong, and I thought, why couldn’t I be like them and create a company, too?” Today, his company sells popular household robots such as the Roomba floor vacuum and Verro pool cleaner, as well as robots used by the military and police.

Angle says the use of robots will grow steadily over the next two decades to help with tasks like folding laundry, preparing food, cleaning bathrooms and providing home health care for the elderly. He sees more business applications in industrial cleaning and energy development. His company’s sales have increased from $13 million in 2002 to a projected $440 million or more this year.

You may think MIT is the exception, but lots of universities regularly develop and transfer know-how and technology to private startups. One of Shulman’s favorite companies here is Intuitive Surgical, which sells high-tech consoles with robotic arms that help doctors perform minimally invasive surgery.

Known as the da Vinci Surgical System, these devices were developed with help from SRI International and Stanford University, Johns Hopkins University, the University of California at Santa Barbara and MIT. Intuitive Surgical has sold about 1,750 of these systems, and last year they were used in about 278,000 surgical procedures. Sales reached $1.4 billion last year, almost double from 2008.

4. We are a nation of immigrants.

Immigrants get a bad rap these days, but in terms of entrepreneurship, new ideas and job growth, they are one of our best assets. “We attract the best and the brightest from around the world, people who come here and want to stay and that’s how we build our economy,” Shulman says.

A great example of this is Zoltek, which makes carbon fibers used in wind-turbine blades, the bodies of cars made by Tesla Motors (TSLA, news), Corvettes, planes and sports equipment. The company was shaped by Hungarian immigrant Zsolt Rumy, who came here in 1957. Frustrated by challenges in getting military contracts for carbon fiber used in planes at a company he ran in the late 1980s, Rumy figured out a way to make carbon fibers more cheaply so they could be used in the private sector.

“That was a brand-new concept, and it changed the whole carbon-fiber industry,” Rumy says. He sees more uses ahead in areas like automobiles, deep-sea drilling and aerospace to reduce the weight of things like floors, luggage bins and seats.

Rumy says many immigrants are keener to take advantage of the opportunities to start a business in the U.S., because they often come from cultures where it’s impossible to do this. “In a lot of other systems, people may be entrepreneurial, but the system takes it out of them,” he says.

This is just another way of saying that innovators and mavericks are looked up to here. While in many cultures, people with long-term family wealth get the most respect, “here in America if you’ve created wealth, people think you are smart and they look up to you,” Ory says.

There’s one more lesson here for conservatives out to dramatically cut the size of government: Loans and grants from the government can make all the difference for a startup.

Angle says iRobot succeeded in part because of substantial research funding from the government early on. The company hired 150 people last year and now has 650 employees. And Chipotle’s Ells launched an early restaurant with the help of a Small Business Administration loan. Last year, Chipotle sales more than doubled to $1.8 billion since 2006, and the chain employs about 26,500 people.

At the time of publication, Michael Brush did not own shares of any company mentioned in this column.


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