Management quality is of utmost importance when making investment decisions, especially in high-growth, innovative companies operating in dynamic environments. Fortunately for investors, Amazon (NASDAQ: AMZN ) Starbucks (NASDAQ: SBUX ) and Under Armour (NYSE: UA ) are run by successful entrepreneurs who deeply understand each company´s long term vision and growth divers.
Amazon is creating the future
Jeff Bezos is arguably one of the most successful entrepreneurs in the world, and a major driving force behind the amazing success Amazon has experienced over the years. The company has gone from an online bookstore to the leading online retailer in the world, selling an enormous variety of products. In the meantime, it has expanded into areas with promising potential like cloud computing, digital content and hardware.
Bezos is all about the customer, innovation and long-term growth. In his own words:
We've had three big ideas at Amazon that we've stuck with for 18 years, and they're the reason we're successful: Put the customer first. Invent. And be patient.
Bezos has a public email firstname.lastname@example.org he receives and reads complaints from customers. Not only that, but he usually forwards those emails to the relevant Amazon employee to find an explanation and a solution to the problem. Bezos wants to make sure that the customer's voice is permanently being heard at Amazon, even if that takes time from his own busy agenda.
The company has razor-thin profit margins in order to operate with the lowest possible prices, and investments in areas like warehouses and content are a big drag on profitability. Investing in Amazon means buying Bezo's long term growth vision for the company, because current earnings can hardly justify a long position in the company.
Importantly, Bezos puts his money where his mouth is. The executive received only $81,840 in salary during 2012, which makes him one of the lowest-paid CEOs among leaders of large technology companies. Bezos is well aligned with shareholder's interest by his ownership of nearly 87 million Amazon shares, and this means that he will prosper financially as long as other Amazon investors prosper too.
The barista to the world
Howard Schultz has taken Starbucks from a small group of coffee stores in Seattle during the 80´s to a global chain with more than 19,700 stores (and counting) around the world as of the end of the last quarter. But Starbucks is about much more than coffee, and nobody understands that better than Howard Shultz.
"While we are a coffee company at heart, Starbucks provides much more than the best cup of coffee -- we offer a community gathering place where people come together to connect and discover new things"
Brand recognition, a unique customer experience and a well defined cultural footprint are key competitive advantages for the company. Unlike Amazon, Starbucks gets to charge premium prices for its products and generate big fat profit margins in the area of 17.6% of sales at the operating level.
The company is rapidly expanding its store base in emerging markets and growing into new areas like specialized tea, pastry and premium juice with acquisitions like Teavana, La Boulange and Evolution Fresh respectively. Luckily for Starbucks investors, Shultz is an invaluable asset when it comes to leading these growth initiatives while at the same time keeping focus on the essential attributes of the Starbucks experience and brand.
"You will hear about us one day"
Kevin Plank has always had a passion for sports and an entrepreneurial spirit; as special teams captain for the University of Maryland football team during the brutally hot summer of 1995, he was feeling frustrated about having to regularly change his sweat-soaked cotton t-shirts on hot days.
A man of action, he decided do to something about it, and in 1996 he founded Under Armour in his grandmother's basement in Washington DC. Product innovation and a focus on light and breathable fabrics providing moisture management are key differentiating factors for the brand.
Competitive to the bone, Plank used to send Nike CEO Phil Knight a Christmas card every year with a short but strong message:
"You will hear about us one day."
Nike has surely heard from Under Armour since then, the company has become a corporation with a market capitalization of almost $8.7 billion in a relatively short period of time, and Plank is not planning to slow down anytime soon.
He describes Under Armour as a $10 billion brand in a $2 billion shell and aims to sustain sales growth above 20% annually in the coming years. Even if that sounds like an ambitious goal, the company is actually doing better than that: Under Armour delivered a remarkable increase of 26% in revenue and 27% growth in net income for the third quarter of 2013.
Considering his track record and competitive drive, betting against Kevin Plank doesn´t sound like a smart idea.
Founder CEOs usually have a deep understanding about the company and its success drivers. They also have a strong personal connection with the company, which fosters long-term strategic thinking over sort-term profit maximization. When it comes to selecting companies with the right management team, having the founder on board tends to be an important advantage.
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