"High-tech is a particularly treacherous area for investors. The Gorilla Game gives investors a powerful framework within which to develop investment strategies"--Alfred R Berkeley III, president, The Nasdaq Stock Market, Inc

In short, as readers and authors, it's time for us to get introduced.

We'll begin with us. We are three professionals who spend every working day either creating or analyzing business strategies for high-tech companies.

Geoff Moore is a business strategist for high-tech companies, a venture partner at Mohr Davidow Ventures, and author of two best-selling books on the subject, Crossing the Chasm and Inside the Tornado. He and Tom Kippola are part of The Chasm Group, a consulting practice based on the framework of ideas in these books. The framework itself describes how high-tech markets develop in characteristic ways that set them apart from other markets, all of which can be traced back to the challenges of the Technology Adoption Life Cycle. The way in which the market overcomes these challenges has the side-effect, in many cases, of catapulting a single company into an extraordinarily powerful position that is surprisingly long-lived. These companies are called gorillas, and The Gorilla Game is about how to build a complete investment strategy around buying and holding their stocks.

The chasm/tornado framework has gained broad acceptance within the high-tech industry. Both of Moore's books are featured in graduate school curricula at Harvard, MIT, Stanford, and other leading schools of business and engineering. Venture funds such as Institutional Venture Partners, The Mayfield Fund, Atlas Venture, and Mohr Davidow have made them required reading for their portfolio companies' management teams. They are also standard reading for the executives at Cisco, Hewlett Packard, Microsoft, SAP, and Digital Equipment Corporation. All this, in turn, has led to consulting engagements for The Chasm Group with these and a host of other Fortune 500 technology companies, as well as with numerous startups and small-cap companies that intend to become the next generation of high-tech leaders. The end result is a wealth of experience about the dynamics of competitive advantage in high-tech markets which has helped form the basis for this book.

Paul Johnson is a senior technology analyst at BancBoston Robertson Stephens, a leading investment bank in the high-technology industry. He has teamed up with Geoff and Tom to help convert their business strategy framework into a framework for an investment practice. Paul's credentials took a big step forward when in 1990 he was the first analyst on Wall Street to write a BUY report for Cisco Systems. Since then he has been the one who has made the first call to buy Cabletron, Ascend, and Pairgain, and more generally, the one who first outlined the consolidation trend in the networking sector and explained what it meant.

In 1993 he and a colleague, Michael Mauboussin, a Managing Director at Credit Suisse First Boston, developed a model for understanding how the stock market values competitive advantage, and ever since Paul has used this work to explain why gorilla stocks have a valuation that is so far in excess of their competitors. It is called the Competitive Advantage Period model, and it is part of the courses Paul teaches as an Adjunct Professor of Finance at the Graduate School of Business, Columbia University. A simplified version of this work, presented in , lies at the core of this book, where combined with the market development models from Inside the Tornado, it provides the essential stock market context for the gorilla game.

Meanwhile, while Geoff and Paul were busy teaching and writing, Tom Kippola and various members of his family with whom he co-invests were just quietly amassing wealth. (Geoff and Paul know there is a lesson in this somewhere, but they are still struggling to grasp it.) Tom had intuitively come up with the rudiments of the gorilla game without any of the underlying theory and began practicing it the day in 1990 when he finally convinced his dad to put $7,000 into Oracle. In the following year Tom and various other members of his family acting on his advice put similar amounts of money into Microsoft, Intel, and Novell, and a couple of years after that into Cisco Systems and Bay Networks. More recently they have been focused on customer support and sales force automation software, as Tom will discuss in . Tom has recently shifted much of his investing attention to a variant of The Gorilla Game -- one that is played at a much earlier stage with privately held companies. Many of these earlier stage investments are made through or in conjunction with two separate investing vehicles, Voyager Capital and Internet Capital Group. Tom is an investor in, and serves on the advisory board for Voyager Capital, the premier information technology venture capital firm in the Pacific Northwest. In addition Tom is an investor in, and sits on the advisory board of Internet Capital Group, a company that identifies, invests in, operates and manages business-to-business e-commerce companies. Tom joined The Chasm Group in 1994 and has subsequently become its managing partner.

So that's who we are -- a high-tech strategy consultant and venture capitalist, an award-winning Wall Street investment analyst, and a private investor with a strong track record for picking high-tech winners. Together we have tried to create a book that will transfer to you a coherent approach to high-tech investing that is easy to understand, straightforward to execute, and rock-solid in its approach to building personal wealth. All of which leads us to your second question: Just who do we think you are?

Gorilla-Game Investors

As a gorilla-game investor, we think you have or can readily acquire "medium" knowledge both of the high-tech industry and of investment principles. That is, on the industry knowledge side, we think you have or can gain a knowledge of the industry that is better than your retail stock broker's but not as good as, say, a venture capitalist's. And on the investment side, we think you can -- and if you continue reading this book, will -- know more about investing than, say, most writers for the business press, but not as much as a professional fund manager.

Finally, and perhaps most importantly, the you that we have uppermost in our minds is a private investor who is turning to the stock market to provide for your family's future. Far from being independently wealthy, we expect you to have modest capital at the outset and to be deeply concerned about not losing it. As a result, we are going to define an investment strategy that has significant upside potential but that is, at its heart, inherently conservative. That is to our mind the real purpose of the gorilla game -- to help private investors participate in the rewards of high-tech stock gains while standing clear of the market's unnerving volatility. To the degree that this notion speaks to your deepest concerns and needs, you are directly in our sights.

There are three other audiences in this grid who also have claims to our attention -- and they are all from the top row where, like us, they make their living in the high-tech sector. For these readers our wishes are as follows:

High-Tech Management Executives

We hope you will rejoice in a coherent framework within which to discuss the stock-price impact of your business strategies. Increasingly, stock options represent the upside of most management compensation programs and in the case of start-ups, the overwhelming bulk of it. Moreover, our culture has moved in recent years to make shareholder value preeminent among management objectives. In light of both these developments, it is more important than ever to have clear interpretations of the impact of business strategy on stock price and vice versa. The models and vocabulary presented in this book are intended to serve that end, and we hope they will help you and your team communicate better with Wall Street, with employees, with customers, and with each other.

Venture Capital Partners

In one sense, venture capitalists are the preeminent gorilla gamers -- it's just that they play the game much earlier in the Technology Adoption Life Cycle, where an IPO is treated more as an ending than a beginning. In this context the various gorilla-game scenarios -- gorilla, chimp, monkey, king, prince, and serf -- are the most important thing to take away from the book. Each defines a different valuation end game in the public markets and thus implies a different attitude toward IPO pricing and to alternative "liquidity events" along the way. In addition, when venture-backed firms are bought by public companies, there is often a cash vs. stock choice to make. When the public company is a gorilla like Cisco, the value of the stock is more likely to appreciate during the lock-up period, and thus makes for an attractive currency -- otherwise, lock-up can feel a lot like jail.

Technology Fund Managers

In many ways, your everyday practices are far more sophisticated than those advocated in this book. Nonetheless, we hope you will find value in its insights, in particular our attempt to build causal connections among management actions, market responses, marketplace status, and stock price. In addition, while we expect you to find our investment rules for the gorilla game far too conservative and limiting, we think you will be quick to spot more subtle variations, opening up the possibility of even better returns by extending the game along lines we deliberately block off. Indeed, we hope to use our Web site to engage you in an ongoing dialogue around some of these alternative games.

Internet Day Traders

Actually, this book is not for you, not unless you are looking to kick the habit. In our view day-trading is a loser's game, period. The only condition under which it pays off at all is in a bull market where, on average, you make money because everyone else is making money. Even in this case you would make more money if you took a buy-and-hold strategy. In effect, day-trading is like refinancing your house in an up market on a daily basis and taking the capital gains out as income -- and that's on a good day. In anything other than a wildly rampant bull market, your chances of making money are no better -- OK, and no worse -- than going to the track. The point is, day-trading really is more like gambling than investing and in any event has nothing to do with the goals or methods espoused in this book.

So much, then, for introductions. There is, however, one more issue to address before we move on to our first chapter. There is an element of the gorilla game as an investment strategy that will prove extremely frustrating to anyone who spends the bulk of their time in high tech -- the game almost never advocates investment in any stock that you are interested in! That is, the specific set of rules we ask private investors to follow, the ones we describe in detail in and of this book, exclude all but a hundred or so of stocks. Ours is deliberately a hyperselective investment strategy which calls for investing in as few companies as possible. The number of hoops a stock has to jump through to get into the final set is so great, and the criteria are so restrictive, that perhaps 100 of the 8,000 or so public companies -- and no private companies -- will qualify.

So please let it be understood that this does not mean we think all these other stocks are undeserving of investment. We have enormous enthusiasm for the prospects of several hundred high-tech firms we know, and we think many of them will (may?) generate extremely attractive returns. But for the gorilla game proper, to meet the specific needs of a risk-averse and capital-constrained investor, we have imposed a much tighter set of constraints than govern the bulk of high-tech investors currently in the market. We ask our more sophisticated readers to respect that game, therefore, even as they go about finding ways to get around it.

Finally, as the previous paragraph can only begin to hint, we expect from time to time to create a bit of controversy. We also expect, from time to time, to say things that are flat out wrong. We have tried very hard to get things right the first time, but our experience as authors and analysts is, nothing is 100% right ever, and certainly not at the first release. In that light, we have made a commitment to maintain a Web site at www.gorillagame.com, where readers can raise challenges, pose questions, share results, and generally pursue further the topics and strategies outlined in this book. We encourage both active gorilla-game investors and all other interested constituencies to use this Web site as a way to learn, as well as to teach, so that we all can become better at the gorilla game.