Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 604

Lessons from the rise and fall of founder-led companies

Founder-led companies often attract investors because their leaders have significant personal stakes in the business. The assumption is that these individuals will make decisions with long-term value creation in mind, aligning their interests with shareholders. Some of the world’s most successful companies—Amazon, Alphabet, Meta, and Berkshire Hathaway—have thrived under their founders. But for every high-profile success, many more founder-led companies never reach the top. Founder presence alone does not guarantee success. While all companies begin with a founder, only a select few evolve into industry leaders.

For investors, board directors, and executives, the challenge isn’t just identifying founder-led companies—it’s determining which ones have the longevity and leadership depth to succeed over the long term.

The nuances of founder-led companies

Some founders evolve with their companies, adapting to new challenges and steering their organisations through changing market conditions. Others, however, can become their own biggest obstacles. Early success, fuelled by a founder’s relentless vision and focus, can sometimes lead to rigidity and blind spots as the company scales.

Founders, like all executives, are skilled at presenting their company’s strengths while downplaying its weaknesses. In fact, they may be even better at shaping narratives than most, given that many have had to do so since their earliest fundraising campaigns. When assessing these companies, it’s critical to look through the polished façade to see the actual realities of the business.

Even the best founders can lose their edge. The question isn’t just whether a company is founder-led, but whether the founder remains motivated, has built a strong leadership team around them, and has successfully disseminated their philosophy. What are some red flags to look for as founder-led company evolves over time?

  • Becoming institutionalised: watch for founder-led companies that succumb to external pressure by unnecessarily bulking up their management teams and boards to unwieldly numbers for the sake of conforming to textbook corporate governance, thus losing their innate advantage: speed.
  • Changing motivation: when the hunger for growth fades and is replaced by a focus on personal wealth maximisation or ego, the company often suffers.
  • Failure to disseminate the philosophy: the founder’s core philosophy is lost with poor organisational design or high turnover; execution becomes increasingly difficult.

These warning signs are not just theoretical. Let’s examine two companies that illustrate the contrasting trajectories of founder-led firms.

In practice: Fastly vs. Cloudflare

By way of example, take Fastly (NYSE:FSLY) and Cloudflare (NYSE:NET), both pioneers in edge computing. These companies went public within months of each other but have experienced the opposite trajectory since.

Fastly, founded by Artur Bergman, focused on building a strong technical product but when Bergman stepped down from the CEO position and instead took up a CTO role very early on, the core philosophy was diluted. Did the newly instated CEO have the final say? Or was it the CTO with a significant ownership stake? Product development stalled and the growth strategy became overly reliant on a handful of key customers. Along the way there were a few operational mishaps and Fastly has floundered since listing.

Cloudflare, on the other hand, has gone from strength to strength, embedding its founders’ philosophy into the company’s DNA. Co-founders Matthew Prince, Michelle Zatlyn and Lee Holloway built a decision-making structure that could operate autonomously. This approach accelerated product development cycles, allowed them to scale teams effectively, and created a governance structure that balanced founder influence with agility.

Founder-led companies, like any other, evolve and change

Founder-led companies are built with a natural edge. Their leaders are deeply invested—both financially and emotionally—in the success of the business. This alignment is reassuring, though motivations can change over time and this is why founder-led businesses must be continually monitored.

Has the founder created an enduring leadership structure, or is everything still reliant on them? Has the board and management team become too large? These are the questions that determine whether a founder-led company is on the path to sustained success or if it’s heading toward stagnation. In The Founder Effect, I take a deep dive into the nuances of assessing the quality of management teams.

Extraordinary wealth can be generated for investors, board directors and managers involved with founder-led companies. There is one caveat though: you can only realise this value by distinguishing the exceptional from the mediocre.

 

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. The material in this article is general information only and does not consider any individual’s investment objectives. Companies mentioned have been used for illustrative purposes only and do not represent any buy or sell recommendations.

 

2 Comments
Kevin
March 29, 2025

A little quirk came up. Berkshire took 41 years to reach 1 ,it hit 1 in 2006( $100K) . I checked and it is @ $800K now.. The first million seems to take forever .Then don't stand in front of that snowball ,it will crush you . That underrated and rare skill of knowing how to multiply a number by 2 and get the correct answer .

1 2 4 8 .I don't think it will reach 16 in my lifetime but you just don't know . For the people that see the obvious and split an A share into B shares to collect that "dividend " for 30 years as they slowly sell down. Who knows,might still have 25% of them left at the age of say 90 after retiring at 60. Somebody just had to buy 1 share years ago at say $1K,then have the patience to wait and go through the ups and downs .

It ain't broke,don't fix it.

Kevin
March 29, 2025

Somebody asked me a question say 10 years ago,or whenever Bezos became the richest man in the world,perhaps 7 or 8 years ago. The light came on and I saw the obvious. Picking the founder led companies at the start or early would be impossible for 99.9% of people at least. Picking them afterwards would be easy if we could see the obvious.
Start around 1980 with Sam Walton ( Wal mart). He dies around 1992, then you've got Bill Gates ( Microsoft ). Carry on and then you have J. Bezos with Amazon.A bit longer and Musk with Tesla. There would be a few missing but they are the group that comes to mind.

The things needed to be a good investor.Patience to wait and understand compounding.Then the important one,constantly going against the " consensus of opinion". The mental strength needed for 45 years of the crowd and the financial industry endlessly telling you "YOU CAN'T DO THAT". I wonder who the next richest person in the world will be ,another company to add to a very concentrated portfolio.

 

Leave a Comment:

RELATED ARTICLES

Chemist Warehouse founder reveals his success secrets, Part 2

Chemist Warehouse founder reveals his success secrets

Collateral damage follows the end of profitless prosperity

banner

Most viewed in recent weeks

Australian house prices close in on world record

Sydney is set to become the world’s most expensive city for housing over the next 12 months, a new report shows. Our other major cities aren’t far behind unless there are major changes to improve housing affordability.

The case for the $3 million super tax

The Government's proposed tax has copped a lot of flack though I think it's a reasonable approach to improve the long-term sustainability of superannuation and the retirement income system. Here’s why.

7 examples of how the new super tax will be calculated

You've no doubt heard about Division 296. These case studies show what people at various levels above the $3 million threshold might need to pay the ATO, with examples ranging from under $500 to more than $35,000.

The revolt against Baby Boomer wealth

The $3m super tax could be put down to the Government needing money and the wealthy being easy targets. It’s deeper than that though and this looks at the factors behind the policy and why more taxes on the wealthy are coming.

Meg on SMSFs: Withdrawing assets ahead of the $3m super tax

The super tax has caused an almighty scuffle, but for SMSFs impacted by the proposed tax, a big question remains: what should they do now? Here are ideas for those wanting to withdraw money from their SMSF.

The super tax and the defined benefits scandal

Australia's superannuation inequities date back to poor decisions made by Parliament two decades ago. If super for the wealthy needs resetting, so too does the defined benefits schemes for our public servants.

Latest Updates

Planning

Will young Australians be better off than their parents?

For much of Australia’s history, each new generation has been better off than the last: better jobs and incomes as well as improved living standards. A new report assesses whether this time may be different.

Superannuation

The rubbery numbers behind super tax concessions

In selling the super tax, Labor has repeated Treasury claims of there being $50 billion in super tax concessions annually, mostly flowing to high-income earners. This figure is vastly overstated.

Investment strategies

A steady road to getting rich

The latest lists of Australia’s wealthiest individuals show that while overall wealth has continued to rise, gains by individuals haven't been uniform. Many might have been better off adopting a simpler investment strategy.

Economy

Would a corporate tax cut boost productivity in Australia?

As inflation eases, the Albanese government is switching its focus to lifting Australia’s sluggish productivity. Can corporate tax cuts reboot growth - or are we chasing a theory that doesn’t quite work here?

Are V-shaped market recoveries becoming more frequent?

April’s sharp rebound may feel familiar, but are V-shaped recoveries really more common in the post-COVID world? A look at market history suggests otherwise and hints that a common bias might be skewing perceptions.

Investment strategies

Asset allocation in a world of riskier developed markets

Old distinctions between developed and emerging market bonds no longer hold true. At a time where true diversification matters more than ever, this has big ramifications for the way that portfolios should be constructed.

Investment strategies

Top 5 investment reads

As the July school holiday break nears, here are some investment classics to put onto your reading list. The books offer lessons in investment strategy, financial disasters, and mergers and acquisitions.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.