Gerrie Fourie and Zak Calisto are South African investors’ best friends

An analysis by Daily Investor showed that a portfolio of founder-led businesses, including Capitec, Discovery, and Karooooo, has significantly outperformed the market.

Founder-led companies are those in which the founder is the CEO, chairman, or has a position with significant influence.

Founders have a deep understanding of their business and can make informed decisions that positively impact it.

They typically have a large shareholding in their company. This represents the bulk of their net wealth, aligning their interests with those of shareholders.

Globally, founder-lead companies have a track record of outperforming their peers and delivering superior returns for investors.

A study by Purdue’s Krannert School of Management showed that companies where the founder still played a significant role achieved better performance.

It found that S&P 500 companies where the founder was still CEO were more innovative, generated more patents, and were more likely to make bold investments.

These companies had a higher appetite for risk and were more willing to adapt the business model to ensure growth.

Bain and Company found that companies that maintained profitable growth over the long term were disproportionately those in which the founder was still running the business.

The researchers identified three important factors, called “the founder’s mentality”, which bolster these companies.

• Business insurgency – The unique capability that gives a business a special purpose.

• Front line obsession – A love of the details and a culture that makes heroes of those at the front line of the business and gives them power.

• The owner’s mindset – Dialling up speed to act and taking personal responsibility for risk and for cost.

“Lose the owner’s mindset, and your company becomes complacent, slow to act and decide, and risk-averse,” Bain said.

“Leaders can easily turn into custodians and then into bureaucrats, and bureaucrats are especially vulnerable today.”

The research showed that companies that maintain the founder’s mentality as they age are four to five times more likely to be top-quartile performers.

Founder-led companies in South Africa

Daily Investor examined founder-led companies on the JSE over the past 10 years and constructed a portfolio holding only these companies.

The portfolio was equally weighted across the shares, and the only determining factor for including a company was that it had to be founder-led.

For this analysis, we used Aspen, Datatec, Capitec, Stor-Age, Discovery, Blue Label Telecoms, and Karooooo.

• Aspen’s chief executive is its co-founder, Stephen Saad.
• Datatec’s chief executive is its founder, Jens Montanana.
• Capitec’s chief executive is its co-founder, Gerrie Fourie.
• Stor-Age’s chief executive is its founder, Gavin Lucas.
• Discovery’s chief executive is its co-founder, Adrian Gore.
• Blue Label Telecoms’ chief executives is its co-founders, Brett and Mark Levy.
• Karooooo’s chief executive is its founder, Zak Calisto.

The analysis showed that the investment return of the founder-lead portfolio outperformed the JSE top 40 index.

The founder-lead portfolio returned 196% over the 10-year period, translating to an annualised return of 11.48%.

Put differently, every R100 invested in the founder-led portfolio would have grown to R296 over the 10 years.

In comparison, the Satrix Top 40 ETF returned 77% over the same period, which translates to an annualised return of 5.89%.

Every R100 invested in the Satrix Top 40 ETF would have grown to R177 over 10 years.

It should be noted that not all the founder-led companies outperformed the index. Instead, Karooooo and Capitec performed so well that they lifted the whole portfolio.