The Red Herring 100 issue is our annual survey of everything that is great about technology, innovation, and entrepreneurial capitalism. More than ever, producing it means seeking those companies that are bent on overcoming theoretical scientific limits and are capable of building sound business models from their developments.
We peered into corporate research and development labs and the cubicles of scrappy startups. At IBM and Matrix Semiconductor, we found chip engineers obsessed with extending Moore`s law forever. "This is why I go to work every day," says Bill Gallagher, manager of magnetoelectronics at IBM`s T.J. Watson Research Center.
We then subjected each candidate to the assessment criteria favored by VCs and investment banks: the firm`s potential to disrupt an existing market or to create a new one altogether, its execution of strategy, and the quality of its management. Of course, we also weighed financial performance. (Other business magazines depend solely on metrics--Fortune lists Enron as a top company for 2002--but we make a virtue of our subjective criteria.)
This year`s list of the best 50 private and 50 public companies reflects three noteworthy developments. First, globalization: more than 20 non-U.S. firms are represented. Biotech firms like NeuroNova and PowderJect Pharmaceuticals, both from Europe, and communications giants like NTT DoCoMo and Singapore Telecommunications, from Asia, are evidence that technological innovation is a leading source of change in business worldwide and that entrepreneurial capitalism is flourishing everywhere.
Second, a return to business basics: as global markets improve, corporations will purchase products and services that demonstrably improve profits, productivity, and existing business processes. For this reason, we chose 20 software companies, some of which, like Asera and BEA Systems, offer products that will digitize business processes by linking front- and back-office applications.
Finally, the recovering economy: about one-fifth of our top 50 public companies report negative three-year earnings growth, victims of the dramatic tightening of corporate IT investment in the past 18 months. But the adage of great companies innovating through a downturn proves true. A formidable company like Sun Microsystems still invests some 10 percent of annual revenue in R&D. And in a nod to the recovery, we violated our prohibition against private firms in S-1 registration and chose to include the software maker Plumtree Software and the semiconductor-equipment firm FormFactor. By the time you read this, they might be public.
These limit-breaking companies are tackling challenges unique to their sectors. Energy companies are working to make renewable energy as cost-effective as power from fossil fuels, while biotech firms face the most daunting of challenges: preserving life. Ultimately, all Red Herring 100 companies are proof that innovations matter--not just technologically, but because they fulfill pressing needs. - Blaise Zerega
Keep coming back to Redherring.com. Over the next several days, we`ll publish profiles of all the Red Herring 100 companies, in-depth articles on selected companies, and analysis about why some seemingly obvious candidates were excluded from this year`s list.
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