You have probably noticed the pattern. The companies that can afford to look slightly stupid for a few quarters are often still run by a founder, or still held by a family. The companies that must look brilliant every 90 days are often public and busy.
That is not romance about entrepreneurs. It is a claim about clocks. And there is data, and there is a supermarket war.
The argument is simple: if your horizon is the bonus cycle, you will not build the thing that only pays after the bonus cycle. Israel already ran the experiment in grocery logistics. The capital markets have been running a larger one for decades.
Shufersal Built a Warehouse. Blue Square Built a Quarter.
In the 1990s, Shufersal invested in a large logistics centre in Rishon LeZion.
In the short term, it sat on the results like a brick. Quarter after quarter, the story from Blue Square (HaRibu’a HaKachol) wrote itself: look at their losses; look at our numbers; look at our pay, our bonuses, the compliments from the market. Why sacrifice a few good quarters to build infrastructure that might help the company in a few years? The bonus was paid now. The career moved now.
The logistics centre was not “a bigger shed.”
It changed the balance of power with suppliers. Before it, the big food companies arrived at every branch, stacked the shelves, and ran a large share of the inventory. The centre let Shufersal buy in one place, take the goods at one point, and move them itself. It took back a piece of the supply chain and could demand discounts and distribution fees.
It also cut operating cost in the stores. Instead of dozens of supplier trucks, branches got a small number of consolidated deliveries, already set up to unload. It made a serious private label possible: import, store, spread. And it was a cushion when the price war got ugly.
Blue Square stayed on the old model: heavier store costs, more dependence on suppliers.
Today Shufersal is a retail brute. Blue Square, as that rival, is gone.
You may argue about the corporate genealogy. You cannot argue with the shape of the lesson. One side accepted a worse spreadsheet in order to own the system. The other side accepted a better spreadsheet in order to own the applause. The applause has a short half-life. The system does not.
The Numbers Behind the Folk Tale
Bain looked at the S&P 500 and found that from 1990 to 2014, companies where the founder was still involved delivered 3.1 times the total shareholder return of the rest of the index—about 1.8 times even after stripping out tech (Bain, Founder’s Mentality).
Chris Zook of Bain, writing in HBR, pointed to related evidence on innovation: S&P 500 firms with a founder CEO generated on the order of 31% more patents, and more valuable ones (HBR; the underlying academic work is Lee, Kim, and Bae on founder CEOs and citation-weighted patents).
Bain is not a choir of one. Credit Suisse’s Family 1000 (more than a thousand listed companies where a family or founder had a significant holding) found that from 2006 to 2022 they delivered about 3% a year of sector-adjusted excess return versus similar firms (Credit Suisse Research Institute, 2023).
This is not a hymn to nepotism. Family firms have a well-known failure mode in which the spoiled grandchild inherits the business grandfather built and does a thorough job of returning the family to the middle class. The point is narrower.
If every quarter you must prove a result that is clear, fast, and attributable, you will not green-light a logistics centre. You will green-light a promotion.
If you are the owner, you can think in a decade. You are probably less interested in cosmetics on the next quarter’s face.
Public Markets Do Not Make You Stupid. They Make You Punctual.
The Kodak / Blockbuster / MTV pattern is the same clock in a famous logo. People inside those firms could see the shift. Their pay could not stay for it. A founder who still controls the place can look like a zealot for a warehouse. A professional manager who needs this year’s number cannot.
Boards of listed companies are not helpless. They are, however, the only group that can lengthen the clock on purpose: vesting, hold periods, permission to be “inefficient” on a named strategic build, and a refusal to treat a rival’s prettier quarter as an argument.
If you cannot point to one living investment that currently makes you look slightly worse than a peer (and that you are defending anyway) you are not a long-term board. You are a very expensive metronome.
- Why the numbers people almost always defeat the visionaries
- The efficiency report that hides the damage
- How to move your company’s work onto your customers (satire)
- The doorman fallacy
- Leads versus the brand you cannot count
- Goodhart’s Law
- The quarter versus the decade
- A KPI audit for boards
Relevant Sources
- Barriers and Pathways to Sustainable Growth: Harnessing the Power of the Founder’s Mentality — Bain & Company — https://www.bain.com/insights/founders-mentality-barriers-and-pathways-to-sustainable-growth/
- Founder-Led Companies Outperform the Rest — Here’s Why — Chris Zook, HBR — https://hbr.org/2016/03/founder-led-companies-outperform-the-rest-heres-why
- The Family 1000: Family Values and Value Creation — Credit Suisse Research Institute (2023) — https://www.allnews.ch/sites/default/files/20230321_credit_suisse_csri_family_1000_2023.pdf
If your board needs a way to defend one ‘ugly’ decade investment against a pretty quarter, that is a governance design problem. Contact me.