3 Growth Companies Led by Successful Founding CEOs

Amazon.com, Whole Foods Market, and Tesla are run by successful founder-CEOs with outstanding long-term vision, and that says a lot about these companies and their future growth prospects.

Jan 22, 2014 at 2:00PM

Investment decisions need to take multiple factors into consideration, but nothing can replace a high-quality management team with a deep understanding of the company and its success drivers. Amazon.com (NASDAQ: AMZN), Whole Foods Market (NASDAQ: WFM), and Tesla (NASDAQ: TSLA) are led by successful founder-CEOs with outstanding vision and a long-term approach to managing the business and that can be an enormously valuable asset for investors.

Amazon's three big ideas
Jeff Bezos is not only one of the most successful and innovative business leaders in the world, but he also has a special talent for explaining in simple and effective words the main principles that have produced so much growth for Amazon over the years: "
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." 

Amazon is relentlessly focused on long-term growth as opposed to short-term earnings figures; it operates with razor-thin profit margins in order to provide an efficient service and competitively low prices for its customers. This has produced spectacular sales growth for the company over the years, even if profitability remains under pressure.

In a rare case of smart strategic vision from Wall Street, the market doesn't seem to be too concerned about low profit margins as long as the company continues to capitalize on its long-term growth opportunities: Amazon has risen by 725% through the last five years, far outpacing the S&P 500 index and its total return of 154.5% over that period.

Whole Foods offers a fresh and healthy culture
John Mackey co-founded Whole Foods in 1978, and he has led the company from a single store in Texas to more than 360 stores and growing. Management believes it can ultimately have room for 1,200 stores in the U.S. alone, so Whole Foods has plenty of opportunities to continue profiting from the trend toward healthy and natural nutrition for years to come.

Mackey believes in conscious capitalism, meaning that companies should focus on maximizing value for all their stakeholders, including employees, customers, and society as a whole --not only short-term economic profits.

In Mackey's own words:

I really don't think shareholders should come first, I think it's fundamentally a bad strategy... Happy team members result in happy customers, happy customers result in happy investors. If you put shareholders first, you won't get there. 

Whole Foods caps executive pay at no more than 19 times the average employee's salary. Workers make higher-than-average incomes and they also get generous incentives like stock-based compensation and opportunities for professional development. The company has been listed in the Fortune 100 Best Companies to Work For rankings since 1998.

This visionary culture means lower turnover and higher employee productivity for Whole Foods, and it effectively produces superior profitability for shareholders in the company. Whole Foods has an operating margin around 6.8% of sales versus an industry average of 2.9% according to data from Morningstar.

Tesla has strong hands on the wheel
Tesla aims high; the company is trying to revolutionize the automotive industry, and that necessarily means a risky proposition for investors. Fortunately for Tesla shareholders, founder and CEO Elon Musk understands that cutting-edge innovation requires a special kind of leadership and corporate culture:

Let's think beyond the normal stuff and have an environment where that sort of thinking is encouraged and rewarded and where it's OK to fail as well. Because when you try new things ... well, a large number of them are not gonna work, and that has to be OK. If every time somebody comes up with an idea it has to be successful, you're not gonna get people coming up with ideas. 

Musk should know; he has made important achievements in areas like digital payments, alternative energy, and space travel, among others. His vision, innovative drive, and talent are certainly big advantages for Tesla and its shareholders in the years to come.

Tesla has recently announced that sales in the fourth quarter are expected to exceed prior guidance by approximately 20%, as the company is ahead of expectations in terms of vehicle production, so Musk seems to be driving it in the right direction: along the challenging road of growth and disruptive innovation.

Bottom line
Management quality is of utmost importance, especially when you're investing in innovative growth companies operating in highly competitive environments. Amazon, Whole Foods, and Tesla are run by founder-CEOs with a visionary leadership and an unquestionable commitment to the company for the long term. This says a lot about the long-term growth potential of these companies.

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Editor's note: A previous version of this article referred to Walter Robb as a co-founder of Whole Foods. The Fool regrets the error.

John Mackey, co-CEO of Whole Foods Market, is a member of The Motley Fool's board of directors. Fool contributor Andrés Cardenal owns shares of Amazon.com. The Motley Fool recommends and owns shares of Amazon.com, Tesla Motors, and Whole Foods Market. Try any of our Foolish newsletter services free for 30 days. 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.

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