When making investment decisions, the quality of the management team running the company is one of the most important variables to consider. Amazon (AMZN 1.75%), Netflix (NFLX 1.93%), Starbucks (SBUX 0.70%), Chipotle (CMG 0.93%), and Tesla (TSLA 0.72%) are led by extraordinary CEOs, and that says a lot about these companies and their long-term potential.
Understanding the industry and the company
Howard Schultz led Starbucks from a small group of coffee stores in Seattle during the 1980s to a global empire with 20,184 locations as of the end of 2013. Since the beginning, Schultz wanted to replicate the unique customer experience he observed in Italian coffee shops during a trip to Italy, and this understanding of the factors for success in the industry has been invaluable for Starbucks investors over the years.
In fact, from 2000 to 2008 Shultz while was away from his CEO position, the company went through a very difficult period. Starbucks was overexpanding, the brand was losing luster, and the customer experience was being watered down.
When Shultz came back as a CEO, he redesigned the stores to recapture the coffeehouse feel, he closed underperforming locations, and refocused the company on quality, attention to detail, and innovation. This made Starbucks stronger than ever, and the company has grown without pause since.
Steve Ells, founder and co-CEO of Chipotle Mexican Grill, opened the first restaurant in Denver, Colo., in 1993 and has built a national chain with more than 1,500 stores and growing at full speed from that single location.
Unlike other fast-food chains, which usually move toward more processed and artificial ingredients as they grow in size, Chipotle has followed a very different road, and that strategy is yielding extraordinary results.
The company's "Food with integrity" approach to Mexican cuisine may create operational complexities and higher costs, but customers seem to really appreciate better taste and nutritional qualities that come with it. The company reported an explosive increase of 20.7% in sales during the fourth quarter of 2013, so there is little doubt Chipotle is one of the most remarkable growth stories in the restaurant industry over the last years.
Leading for the long term
Jeff Bezos has taken Amazon from an online bookstore to a global retail juggernaut with almost $61 billion in sales, and he has done it by focusing on the customer and building long-term competitive strengths as opposed to trying to increase short-term profits.
Bezos made that quite clear to Amazon shareholders since the beginning, as expressed in his first letter to shareholders in 1997:
We will continue to make investment decisions in light of long-term market leadership considerations rather than short-term profitability considerations or short-term Wall Street reactions.
Amazon sells its products at aggressively low prices to maximize the company's growth opportunities, even at the expense of current profitability, and Bezos' visionary leadership is the big driving force behind that innovative and successful strategy.
Reed Hastings has made some considerable mistakes while leading Netflix to become the market leader in online video streaming. The Qwikster fiasco and his attempts to excessively raise prices in 2011 were costly for the company in terms of reputation and customer loyalty back then.
However, Hastings' vision and long-term focus have been enormously profitable for investors in Netflix over the years. Hastings has pushed Netflix to compete head to head against bigger companies in the race for content acquisition and also to venture into the expensive area of exclusive content creation.
Rising expenses have been a reason for concern among Wall Street analysts when it comes to investing in Netflix. However, Hastings is proving those concerns wrong as revenues are outgrowing expenses and profitability has been rising over the last several quarters.
Elon Musk likes to think big, and he is unquestionably one of the most ambitious and successful business leaders of our time. The South African American entrepreneur has already achieved extraordinary success in areas like digital payments, solar energy, and space travel among others.
Tesla has made extraordinary progress over the last years, demand for the widely acclaimed Model S is exceeding expectations, and the company continues to expand its infrastructure and production capabilities to satisfy growing demand. You certainly need a visionary long-term approach if you are going to disrupt the automotive business. Fortunately for Tesla shareholders, the company has strong hands at the wheel.
When investing in the best companies for the long term, aligning yourself with the right CEOs can be a crucial success factor. Tesla, Amazon, Netflix, Starbucks, and Chipotle are led by high-quality CEOs with deep industry knowledge and long-term vision, and that's an enormously valuable asset for investors in these companies.