There’s One Attribute That Makes an Entrepreneur a Great Long-Term Leader

From Jeff Bezos to Bill Gates to Elon Musk, we are in the age of founders as long-term leaders. Why?

Bill Gates sits on a red armchair and poses for a picture during the funding conference for the Global Fund to Fight AIDS.
Photo: Jeff Pachoud/AFP/Getty

ItIt 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!

Over the past 14 years, entrepreneur-led companies beat other benchmarks by double to triple returns.

What makes entrepreneur-led companies outperform other large, publicly traded corporations? We believe it all comes down to the long-term commitment of the leaders at the top. They feel personally invested in the success of their companies and are motivated by their long-term legacy as much as short-term profits. Traditional CEOs, by contrast, cycle through brief stints at organizations where their primary motivation is as much about maximizing their own career success and earnings as ensuring the lasting health of the business.

The long-term orientation of entrepreneurs is matched by long-term commitment. When not pushed out by investors, they tend to stick around. Entrepreneurs leading companies in the ER30 have an average tenure of 18.1 years, compared to 4.4 years for CEOs of companies in the Dow Jones Industrial Average as a whole. Entrepreneurs stay in power more than four times longer, thus helping to ensure that they see their vision through to completion. These entrepreneurs surround themselves with loyal executives and board members who share their long-term vision, as Mark Zuckerberg has famously done with trusted advisors like Sheryl Sandberg (who has been at Facebook over a decade) and Chris Cox (who recently left after 14 years with the company).

Entrepreneurs’ natural tendency to focus on the legacy and lasting success of their companies is reinforced by incentives that are aligned with long-term growth. Many founder-CEOs earn their fortune from high ownership stakes in their companies rather than direct compensation. For example, Jeff Bezos, one of the CEOs in our ER30 Index, receives a relatively modest annual salary, with virtually all of his wealth coming entirely from Amazon stock. His personal financial enrichment and goal alignment tie exclusively to the long-term wealth creation of his company.

This long-term orientation leads to a management philosophy that invests strongly in an organizational infrastructure built over many years. Entrepreneurial companies create value through organic revenue and job growth, R&D investments, and innovation rather than through quick fixes such as company acquisitions and corporate firings. Entrepreneurs avoid the bureaucracy that stagnates growth and stay nimble and efficient in operations and expenditures. Their focus is on harnessing all available resources for maximum gain.

While there are a number of reasons entrepreneurs outperform traditional CEOs, this doesn’t mean that all founders are the best fit to lead their companies for the long haul. My research focuses on businesses that have made it to the stage of being a publicly traded corporation, finding that those with entrepreneur-CEOs have a unique edge over their peers.

What makes entrepreneur-led companies outperform other large, publicly traded corporations? We believe it all comes down to the long-term commitment of the leaders at the top.

Unfortunately, it’s hard for large corporations to reverse course and recapture the startup magic once they’ve been swamped by bureaucracy, risk-averse culture, and professional CEOs. Apple famously slumped after the departure of co-founder Steve Jobs in the mid-80s, until he returned to breathe a second life into the company that became his legacy.

The lifelong commitment Jobs had to Apple is rare in corporate America these days. While it was once common for people to stay with a single company for their entire career and rise up through the ranks, that path is becoming more and more unusual. Entrepreneurs are the rare exception to this trend, “rising through the ranks” in a different way as they build their companies up from the ground. Entrepreneur-led companies are one of the few places where you can still find a mindset of lifetime loyalty and a willingness to invest time and energy in a payout that will only come many years down the road.

Whether you’re an investor looking for a promising stock strategy or an employee choosing where to work, it comes down to a question of who you would you rather back: a professional CEO who jumps from company to company and will be with an organization for four years on average, or an entrepreneur-CEO who’s deeply committed to helping their business succeed over the long-term? While a traditional CEO may have a wealth of experience, according to my research the commitment, passion, and long-term mindset of an entrepreneur-CEO will ultimately win out in the market.

Founder/CIO at EntrepreneurShares and Professor of Entrepreneurship at Babson College. He has an MPA from Harvard as well as Ph.D., CFA credentials.

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