In the past I’ve written a fair bit about the importance of having at least half of your funds in companies run by their founders.
Of course that’s just my opinion and most professional fund managers will have far less than that, but that’s because they have different mandates and investment objectives.
As a retail investor then you can use your own unconstrained mandates to help put the odds on your side in attempting to beat the market’s returns.
One big advantage with successful founder led companies is that you can be comfortable the business is being run by someone focused on its long-term success via proper capital allocation and cost controls to grow the business and its profitability. Poor cost control for example is a problem I’d commonly associate with older businesses where the founders are long gone.
While buying founder led businesses means you’re almost certain to avoid a lot of the problems associated with companies that have a high turnover of senior management, which should be a red flag for most investors.
So here are three more founder-led businesses I’d be interested in buying in FY 2020.
Hansen Technologies Limited (ASX: HSN) is a software billing business with a long-track record of growth that has come about partly via acquisitions. Importantly though this has been achieved without a ballooning share count or debt pile. The kicker is that the company trades on a reasonable earnings multiple and dividend yield given its track record of growth.
Xero Limited (ASX: XRO) is the cloud-based software-as-service accounting platform that is growing strongly and still retains its founder Rod Drury as a non-executive director on the board. It’s in a two way battle with larger rival Intuit as the reseller of Quickbooks in the online accounting platform market, but there should be plenty of room for both these players to succeed. A lot of commentators also argue Xero has a better product, which suggests its global growth could power ahead yet.
Facebook Inc. is a poster boy for the wild success of founder led tech businesses alongside the likes of Netflix, Google, Shopify and Salesforce. All of these businesses have won in part due to their founders’ strategies of reinvesting in the businesses for growth over short-term profits and dividends.
Whereas a non-founder led business will often be run to focus on dividends over opportunities ahead in a fast-changing world. For the record I think Facebook is a stone cold buy today.
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Tom Richardson owns shares of Xero, Facebook and Google. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Hansen Technologies and Xero.
You can find Tom on Twitter @tommyr345
The Motley Fool Australia has recommended Hansen Technologies. The Motley Fool Australia's parent company has recommended and may own shares of Netflix, Google, Amazon and Shopify. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.