Book Reviews | 10:00 AM
Why Investors Get It Wrong About FoundersThe Hidden Traits That Actually Matter
By Lawrence Lam, author of The Founder Effect
Investors love the idea of the visionary founderthe charismatic leader with bold ideas and an anti-establishment persona. But too often, they get blinded by hype.
Founders who dominate headlines and deliver compelling presentations aren’t always the ones who build sustainable businesses. While some founder-led companies achieve extraordinary long-term success, many more fail due to leadership blind spots, governance issues, or an inability to execute their vision.
The real challenge for investors and boards isn’t identifying passionate foundersit’s distinguishing between those who create lasting value and those who are just good at selling a story.
The true indicators of founder success lie beyond surface-level qualities. Instead, investors should focus on three hidden traits that separate great founders from those destined to struggle.
1. Long-Term Decision-Making Over Short-Term Optics
Many investors are naturally drawn to founder-led companies, and the ‘skin-in-the-game’ argument is a compelling one.
Combine this with founders who excel at storytelling, and it’s easy to see why some investors allocate capital without critically assessing the distinction between exceptional and mediocre leadership.
However, in my experience, true long-term winners don’t always look impressive in the short term. The key lies in distinguishing between founders who genuinely prioritise the future and those who are merely riding the wave of their narrative.
In the 1990s, Hermes faced mounting competition and a pivotal moment in its brand evolution. Jean-Louis Dumas, a key member of the Hermes family, made a bold decision that defied conventional wisdomhe reduced the brand’s global store footprint.
While this move led to a short-term dip in revenue, it reinforced Hermes’ exclusivity and cemented its long-term position in the luxury market.
Decades later, this strategy has paid off, with Hermes now standing as the world’s most valuable luxury brand. Contrast this with many founders who focus on aggressive fundraising and rapid expansion, often at the expense of sustainable business economics, while they simultaneously cash out their personal equity stakes.
What Investors Should Really Look For:
-Long-term vision Does the management team reinvest in long-term growth projects rather than merely maximising short-term milestones?
-Ability to make bold decisions Can the management team make tough, strategic calls when necessary?
-Governance structures that support long-term thinking Are founders building scalable teams and decision-making processes instead of consolidating power?
2. Psychological Ownership
Many investors assume that founders with large equity stakes are naturally committed to their company’s success. But ownership isn’t the only factorit’s about how genuinely motivated they are to see the company succeed beyond their own financial interests.
There are observable signs investors can use to determine this, which I outline in The Founder Effect.
Brunello Cucinelli, for example, treats his luxury brand not just as a business but as a legacy, constantly reinvesting in craftsmanship and supply chain sustainabilitycritical for long-term success. Compare this to founders who prioritise personal wealth extraction through stock sales, excessive compensation, or financial engineering.
Key Indicators of True Psychological Ownership:
-Beyond financial incentives Does the founder’s motivation stem from more than just financial gain?
-Stewardship mindset Does the founder see their company as a long-term legacy rather than a short-term financial win?
3. Ability to Influence Internally and Externally
Many investors focus on a founder’s ability to generate excitementwhether through media presence, investor relations, or viral marketing. But true leadership influence extends far beyond external hype.
Elon Musk, for all his controversies, has built Tesla into more than just a car companyit’s a movement. Without spending on traditional advertising, he has cultivated a passionate customer base and an internal workforce that believes in Tesla’s mission.
Lululemon has done the same, creating a global community that aligns with its lifestyle and values.
What Investors Should Assess:
-Internal influence Can the founder retain and inspire top talent, or is there constant turnover?
-Brand loyalty beyond marketing spend Are customers engaged with the company’s mission, or is it a fickle relationship?
-Organisational agility Is the company set up to be nimble, or is it bogged down by bureaucracy?
Spotting the Real Winners
The difference between a great founder and a hyped one isn’t always obvious at first. Years ago, I met with a founder-led company that was destined for success.
The founder wasn’t interested in a flashy office but instead focused on building an executive team that was close to customers and staff. They carried very little debt and chose to remain financially independent. Over the next decade, I watched as their share price tripled.
Investors must look beyond the hype and focus on the traits that truly matter: long-term decision-making, psychological ownership, and genuine influence. For founders who exhibit these qualities, they end up building more than just a businessthey build institutions that outlast them. And for investors, those are the companies worth betting on.
For those interested in this topic, The Founder Effect provides a detailed framework for investors to objectively identify exceptional management teams.
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Lawrence Lam is the author of The Founder Effect (Wiley $34.95), a book exploring the essential traits of successful executive teams and governance structures that drive sustainable growth. As Founder and Managing Director of Lumenary Investment Management, he brings over two decades of expertise in global equities, risk management, and advising boards. For more information visit https://lawrencelam.org/ and https://lumenaryivnest.com
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