Where to find and how to invest in founder-managed firms

Reed Hastings has overseen a 28-fold increase in Netflix’s shares since its flotation
Companies that are set up and then run by the same person for a long time tend to be lucrative investments. Dr Mike Tubbs explains why, how to find them, and which ones to buy now.

Amazon, Berkshire Hathaway, Dyson, Facebook, Netflix and Virgin Group all have one thing in common. They are market leaders that have been managed by their founders since their inception. But not all founders have the ability to lead their companies and grow them into global giants. That’s because founders capable of long-term success not only need an excellent initial business concept or product idea, but also the talent and foresight to grow the company and bring in the high-quality staff capable of managing a large operation.
When it goes right, however, it bodes very well for investors. Surveys have shown that founder-managed firms outperform on shareholder returns. For example, a study by Bain & Company in 2014 showed that founder-managed companies in America’s S&P 500 delivered nearly three times the total shareholder returns of other companies over the period 1990-2014. Credit Suisse, taking a global view, found that founder-owned or family-owned firms generated higher margins and outperformed other companies by more than a factor of two from 2006 to 2018.
Four founder-managed success stories
A brief look at some founder-managed success stories shows what compelling investments they can be. Amazon was founded by Jeff Bezos in his garage in 1994 and floated in 1997 at a share price of $1.96. The share price has risen to $2,000, turning an initial investment of $5,000 into $5m in 21 years. Warren Buffett’s listed investment company, Berkshire Hathaway, started out as a failing textile company. Buffett took it over in 1964 when the share price was $19; it reached $335,600 in October 2018, giving early shareholders a gain of more than 17,600 times.

“Amazon, set up in 1994 by Jeff Bezos, has turned $5,000 into $5m in 21 years”

Netflix was set up in 1997 by Reed Hastings, renting physical DVDs over the internet. Its initial public offering (IPO) took place in 2002 and it launched its streaming service in 2007. By 2017 Netflix’s total number of US subscribers equalled the sum of all cable company subscribers. Reed Hastings remains CEO. The share price rose by a factor of 28 from the IPO in 2002 to a peak of $418 in 2018. Finally, Abcam was founded in 1998 by Jonathan Milner, a biotech researcher at Cambridge, who decided to do something about the poor quality of antibodies (proteins used to diagnose diseases) by founding Abcam. Abcam became “the Amazon of antibodies”, a supplier of a wide range of top-quality antibodies through a global website backed up by excellent customer service. The shares have jumped by a factor of 36 in 14 years.

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