Found Not Lost: On the Importance of Founders

Jeff Bezos is stepping aside as CEO of Amazon. Bezos built Amazon into everything it is. He built the culture. If I were having a CEO draft, he would be my first pick. I primarily focus on buying founder-led companies and Bezos is THE founder. Yet, I’m not panicking about him stepping down as CEO. Let’s explore this apparent contradiction.

Founder-led companies have been found (PUN ALERT) to have higher returns than non-founder-led companies. My theory is this is driven by two things: proven track record and skin in the game. Publicly traded founder-led companies generally have an impressive track record. The founder has already shown themselves to be a transformational leader. And many times, you don’t have to worry about the leadership or vision of the company. Furthermore, founders generally have large ownership positions in their businesses. They are incentivized for the long term returns (aligning incentives with shareholders). Founders have more skin in the game than non-founders.

Having your founder step aside isn’t a death sentence for a company. Many great companies are still thriving long after their founders stepped down. Two common examples are Microsoft and Apple, and Microsoft is especially revealing. Bill Gates built an empire, then he stepped down and the company started to sputter under Steve Ballmer. Eventually, Satya Nadella took over as CEO and the stock has skyrocketed since. Ballmer was closer to a founder than Nadella, but the reality is Nadella is a better leader and visionary.

In reality, looking for innovative founders is simply a shortcut. It doesn’t truly matter who your leader is, as long as they are a great leader. Being a founder doesn’t change anything—though history has shown that founders are more likely to be great leaders. Founders have proven track records by the time you invest in them. Investing is an exercise in decision making. Focusing on investing in companies driven by their founders is a useful investing checklist item. When you are drowning in data, a checklist can be a life saver. I believe in buying founder-led companies, but I don’t sell when the founder steps down. Trust the process and let time decide whether the new CEO is Ballmer or Nadella.