The Next Bill Gates

June 27, 2008

This week, the torch was passed from one of the great GameChanging CEOs of the past to one of the great GameChanging CEOs of the future.

As of today, Bill Gates ends his 32-year run as co-founder and chairman of Microsoft. He is leaving all day-to-day operations to focus on philanthropic and charitable good works through the foundation he and his wife started called – appropriately enough – the Bill & Melinda Gates Foundation.

By any measure, Gates belongs in the GameChangers Hall of Fame. He steps down after what can only be described as an incredible run, one of the most legendary careers in the history of business.

Love him or hate him, he and his company changed the game forever in the world of PCs, computer games and the way we write documents and presentations. Microsoft is one of the greatest success stories of the 20th century and one of the most valuable companies in the world, worth $260 billion in market value. Many of my clients made a fortune in Microsoft's stock over the past two decades. I recommended it from 1990 to 2001, when it gained more than 5,000% as it remained a GameChanger for nearly 11 years! (Get my current recommendations here.)

Gates had a few very public battles in his time in which he took on some real giants – such as IBM in the early 1980s, and then the Department of Justice and various European Commissions in the 1980s and 1990s. (I suppose that would begin to wear on someone, wouldn’t it?)

Through it all, he was the principal spokesman for Microsoft, smooth and scholarly with the media and shareholders. But with his employees, Gates was known to be fiercely competitive and quick to criticize.

I’ll give him credit for this, though: He lived by the same standard he set for others. A few friends of mine who held senior positions at Microsoft would vacillate between love and hate for Bill, but they also realized that no one worked harder or accepted criticism better than Bill Gates. If he was wrong, he wanted to hear about it from others.

This willingness to listen and change course when shown to be wrong is one of the most defining characteristics of GameChanging CEOs. It’s also one shared by the man I believe will have an equal or greater impact on his company, his shareholders and the world than Bill Gates.

The Next Great GameChanging CEO

What if I told you there is a company that will surpass Microsoft in the next five years and become the most valuable technology/media company in the world? And what if I told you the company would still be less than 10 years old?

It’s true. I’m talking about Google, which went public on August 19, 2004, and is worth an astounding $170 billion in less than four years. For some perspective, Google is already more valuable than IBM, Hewlett-Packard, Intel, Dell and Cisco Systems!The amazing part of the story is that we are only in the first couple of miles of the marathon, and CEO Eric Schmidt is just getting warmed up.

Like Bill Gates, Eric Schmidt has a reputation of being a hands-on CEO, yet he is also very respectful of his partners’ intellects and abilities. He is a grand visionary and superb at plotting strategies to successfully execute the brilliant ideas.

Schmidt is already a GameChanger on many levels. Let me highlight just a couple for you. First, he has created a unique and innovative corporate culture that attracts some of the best and brightest minds on the planet–also a hallmark of true GameChangers. (Get my complete list of GameChangers here.) People want to work for Google. It's consistently voted one of the best companies to work for in America, and that ensures a steady flow of fresh, innovative ideas. (OK, maybe the lava lamps, free lunch and dinner and the onsite gym help, too!)

Second, Eric Schmidt and Google do not give any revenue or earnings guidance to stock analysts. Zip. He set this GameChanging policy from day one. He'll let the analysts construct their respective financial models and expectations, but he or the CFO will not endorse the numbers.

This is a risky strategy, because we all know that expectations strongly influence a stock’s behavior, and without any guidance from the company, Wall Street’s projections could get overly optimistic. Of course, the reverse is also true, and being the incredibly well-run company that it is, Google consistently meets or exceeds analysts’ expectations, causing them to regroup and pencil in even higher expectations going forward.

I love this approach. Schmidt figures the business will have its ups and downs, but that if the company stays focused on the long-term and doesn’t get caught in the quarter-to-quarter game, then the future will stay bright for a long time. His whole approach is, "Let us run and build this great business, and the stock will take care of itself."

Life-Changing Wealth

Eric Schmidt is 100% correct, and it’s a good reminder for us as investors that focusing on the long-term is not just the way to build a business, it’s the way to build life-changing wealth. You want to own companies like Google that are run by brilliant CEOs, solid to the core on fundamentals and undeniable leaders in their respective sectors.

These are the cutting-edge, in-your-face companies that are defining or redefining their respective fields. They control pricing rather than react to pricing pressures. They have industry-leading operating margins and growth rates, and they are successful all over the world.

It’s especially important to own these stocks now in this crazy market. Why? When the rebound occurs (and it will… I’m expecting a strong finish to the year), the best of breed always lead the way back.

Technology stocks simply will not go up without GameChanging companies like Google leading the charge. At GameChangers, we’re also investing in the leader in the cellular industry, as well as the retail sector. (Get details here.) In fact, one of our retail stocks is NOT slowing down its expansion plans one iota in this sluggish economy. That’s the leadership and long-term focus I look for. The easy decision would have been to stop expansion temporarily to try to produce higher earnings.

But GameChangers don’t take the easy way. Thank God, because it pays off big for them and for investors like us.