A low risk investment you can virtually buy and forget like Starbucks when it listed: $1,000 invested then is now worth $201,901.18—a hard to believe return of 202 times your money

Introduction: The Differences That
Make the Difference

  • Why does Starbucks have more stores than any other coffee company, and not Peet’s (which had a 20-year head start on Starbucks), Seattle’s Best, or someone else?
  • What turned an “upstart” discounter named Walmart into the world’s biggest and most profitable retailer, and one of the world’s top two companies by sales? In the process, passing the then much larger Kmart and Target chains to become bigger than both of them combined?
  • How come Ray Kroc’s McDonald’s gained the “First Mover” advantage, to become the world’s biggest hamburger chain, while Burger King, which had a two-year head start, lost theirs? And a third burger chain, Burger Chef, which was within shooting distance of taking the #1 spot from McDonald’s—went out of business instead?
  • And why was Whole Foods, of the hundreds of specialty grocers in the United States when it opened its doors, the one that grew to dominate its market?

What, to summarize, are the crucial differences that make the difference between a good company and a great growth stock?

These are the questions that we’ll be examining—and answering—here. The aim is to give you the tools and concepts you need to identify the next startup company that could follow in the footsteps of these four.

Tools that can also be applied to start the “Next Starbucks” yourself.

And with numbers like these, who wouldn’t want to get in on the ground floor?

Value of $1,000 invested at the IPO of
McDonald’s Walmart Whole Foods Starbucks
IPO date 21 April 1965 1 October 1970 23 January 1992 1 June 92
$1,000 invested at IPO now worth* $3,705,110.93 $8,637,595.15 $26,757.65 $201,901.18
Dividends $6,438,828.27 $1,526,522.10 $3,913.39 $4,023.25
Total return $10,143,939.20 $10,164,117.26 $30,671.04 $205,924.42
Compounded annual return 19.6% 22.2% 14.8% 24.5%
S&P 500 6.38% 7.27% 6.85% 7.10%
* As of 26 October 2016. S&P comparison over same time period as each company’s IPO to present. Sources: Yahoo Finance, walmart.com, aboutmcdonalds.com.

By comparing Starbucks’ pattern of growth to that of other high-growth companies we can single out the five significant factors they all have in common. The practices that made Starbucks, McDonald’s, Walmart, Whole Foods and their ilk tower above their many competitors.

Once we’ve identified the “differences that make the difference,” they become:

  • They Permanently Change People’s Habits: McDonald’s permanently changed the way we eat—indeed, McDonald’s kicked off the fast food business as we know it today. Walmart and Whole Foods changed the way people shop; and before Starbucks, how many Americans had heard of a $4 latte, let alone drunk one?
  • They’re Copycats: Ray Kroc duplicated the original McDonald brothers’ store worldwide—lock, stock, and barrel.
  • Their Success is Validated by Competition: There are thousands of Starbucks, McDonald’s, Walmart, and Whole Foods “clones” around the world—with more opening just about every day. Competition proves the founder’s concept, and demonstrates that the potential size of the market is enormous. A company that does not inspire competition is destined to serve a small market niche.
  • They’re Driven by the Founder’s Vision and Passion: A company whose management doesn’t inspire its employees won’t inspire—and keep—its customers. The founders of Starbucks (Howard Schultz), Whole Foods (John Mackey), Walmart (Sam Walton), and McDonald’s (Ray Kroc) all successfully transmitted their vision and passion throughout their companies, translating it into a unique customer experience.
  • They have Superb Entrepreneurial Management and Execution: Thousands of good to great businesses share the first four characteristics, but without entrepreneurs at the helm who also have superb management and execution skills, they’re destined to remain small, or even one-man bands.

None of these factors is necessarily unique to a growth company. But when you find all five together in one company, you can be pretty confident that you’ve found a great candidate for the next high-growth stock.

But how can you, as an “average-investor-in-the-street,” find such a hot growth stock? Especially when you have no access to top management, no insider information and no hope of getting any, and would rather go to Starbucks than read its annual report?

While it’s not easy, it’s a lot easier than you probably think.

The first step is to appreciate how and why companies that faithfully practice the “5 clues” inevitably outstrip competitors that don’t.

This is the subject of Part I, where we compare Starbucks, McDonald’s, Walmart, and Whole Foods with each other—and with their various competitors that fell behind—to see exactly how and why the 5 clues separate a great company from a merely good one.

In Part II, we apply the resulting framework to see how it is possible to identify a great company—when it is still small.

You’ll end up with detailed techniques you can apply to spot a high-growth stock—and, just as importantly—strike the “Next Turkey” off your list.

You’ll also discover—

  • Nine ways to spot the “Next Starbucks” by just “walking around”
  • How you can apply the “5 clues” to dig up hidden gems and beat the Wall Street “experts”—from the comfort of your own home
  • Four completely different ways to profit from the next hot growth stock—or the last one
  • How to weed out the dross by “reading between the lines” of a company’s annual report—even if the last thing you’d want to do is take Accounting 101.
  • And—paradoxically—you’ll also learn there will be times when you can make more money more easily by investing in the last Starbucks (or one of its competitors) not the next one.

Applying the “five clues” to identify the next growth company has a surprising side-effect: identifying the “ingredients” essential for a small business to become a big one becomes a “recipe” for starting a successful business of your own.

Which means: rather than investing in the “Next Starbucks,” you could decide to create it yourself!

Continue to Chapter 1: Why aren’t there any Starbucks stores in Italy?