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Why founder-run corporations usually make good investments

Because of this, founder-run companies like Facebook, Amazon, and Tesla could be good investments.

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February
9, 2021

3 min read

This story originally appeared on ValueWalk

Founder-led companies are companies whose founder is a CEO, president, board member, or other influential position. Many founder-run companies are thriving, such as Facebook, Amazon, Tesla, and others. So, you may be wondering if other companies their founders run would also make appropriate investments.

What some believe about founder-run businesses

Many investors believe that founder-run businesses benefit from long-term guidance from their founders. Executives who have started a company often see it as their life's work. You are therefore highly motivated to think long term rather than thinking about short term milestones like the next earnings report.

Many founders have also invested a significant portion of their savings in their businesses, which means they have significant skin in the game. Investing such a large portion of their net worth in their companies also shows that their financial interests are in line with those of their shareholders.

Another benefit of companies that are still run by their founders is the fact that they tend to know a lot more about the company's business than other executives. They have a clear vision of where they want to go and they will run business in that direction. Non-founder executives know the company well, but may not have the vision that a strong founder would.

What studies say about founder-run companies

It's obvious that names like Tesla, Amazon, and Facebook are big hits, but what about other founder-run companies? The Harvard Business Review conducted a study that shows why such companies tend to outperform their peers led by other executives.

Professors at Purdue University's Krannert School of Management found that founder-run companies in the S&P 500 tend to be more innovative. They also found that such firms generate 31% more patents on average, and that the patents they create are more valuable. In addition, the professors found that companies whose CEOs are their founders are also more willing to invest in renewing and adapting their business models.

This study shows why it might be a good idea to look for companies run by their founders. However, it can be difficult to know where to look for less obvious names. The Entrepreneur Index tracks the top 60 listed companies that are founded and run by entrepreneurs. The list includes companies run by family members of the founder, such as Walmart.

Some other names on the list include Comcast, Netflix, Salesforce, Adobe, Costco, BlackRock, Estee Lauder, Ford, Intercontinental Exchange, Tyson Foods, Regeneron Pharmaceuticals, and O & # 39; Reilly Automotive.

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