It is conventional wisdom that what it takes to get a business off the ground is very different than the skills necessary to manage a company as it matures. In the natural evolution of a startup, the young, brash founder will inevitably need to be replaced by a more experienced, steady executive — at least according to the thinking of traditional investors.
Yet some of today’s most successful business leaders, from Jeff Bezos to Bill Gates and Elon Musk, prove this assumption wrong. Their trajectories demonstrate that entrepreneurs may actually be more effective leaders of large companies than traditional CEOs. Entrepreneurs develop a long-term vision and assemble a team to see their plan through. Sometimes their vision is decades ahead of everyone else. They eschew short-term gains for a much grander prize. In the end, they build extraordinary, innovative companies that embrace a unique culture offering strong employee growth and a cohesive community. Entrepreneurial wealth creation drives our global economy and affects billions of workers and consumers.
My academic research has found that businesses can thrive by keeping their founders at the helm even as they mature and go public. My firm created an Entrepreneur 30 Index (ER30) that tracks the 30 largest entrepreneur-led companies in the U.S. stock market, employing a proprietary 15-variable model to select stocks. When measured against a comparable index over the time period 2005 to 2018, we find that entrepreneur-led companies significantly outperform their peers. In fact, over the past 14 years, entrepreneur-led companies beat other benchmarks by double to triple returns.
To rule out other explanations for the success of the companies in the ER30, we incorporate investment factors such as company size, market risk, leverage, momentum, and sector weightings into our model. The final assessment reveals an “Entrepreneur Factor” as the single most dominant factor that contributes to superior stock market performance during the measured time period. This suggests that having an entrepreneur at the helm oftentimes becomes a key catalyst driving the success of a company. In other words, leadership matters!
What makes entrepreneur-led companies outperform other large, publicly traded corporations?…
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