A Leap of Faith with Owner-Operators

Why smart capital allocators with "skin in the game" deserve a big spot in your portfolio (with some examples)

Nikotes

Apr 05, 2025

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Welcome back Explorer!

With “markets in turmoil” and chaos swirling around investors, this seems to be a very good moment to pause, breathe, and remind ourselves why we invest in the first place—and more importantly, where it often makes the most sense to park our hard-earned cash.

When investing in stocks, numbers dominate the conversation. Investors obsess over earnings per share, revenue growth, and return on equity. But at its core, investing isn’t just about balance sheets and income statements—it’s about people. Specifically, it’s about who’s running the company and how much skin they have in the game.

Here enter the owner-operator: a founder, family-led or long-tenure executive who doesn’t just manage a company but owns a significant stake in it. These leaders treat their businesses as personal legacies, not just vehicles for quarterly earnings reports. And history shows that betting on them has paid off handsomely.

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Why Owner-Operators Often Win The Game

The data speaks for itself. Studies, such as the one conducted by 📎 McKinsey and 📎 Harvard, have found that family-led businesses have outperformed their non-owner-led counterparts consistently over the last 35 years. Over time, that gap compounds into a staggering difference in investor returns.

So why does this outperformance exist? It boils down to a few key advantages:

Superior Capital Allocation

Great businesses, besides making money, they know how to reinvest it. Owner-operators think like long-term capital allocators, not just managers. They focus on high-return investments, avoid wasteful spending, and resist the pressure to distribute cash just to please analysts.

Take Amazon under Jeff Bezos. For years, Wall Street criticized Amazon for running razor-thin profits. But Bezos wasn’t concerned with quarterly earnings—he was focused on dominating e-commerce and cloud computing. His capital allocation strategy, emphasizing reinvestment over dividends, turned Amazon into a trillion-dollar giant. If you want to know more about the mastermind who made possible Amazon, feel free to take a look at my latest 📎 Deep Dive Brief on Amazon and his founder.

Now, consider Dick Costolo at Twitter, who struggled to create sustainable value despite Twitter’s massive platform potential. Now contrast that with Tobi Lütke of Shopify, who transformed his company from a snowboarding shop into a global e-commerce platform. Lütke’s disciplined capital allocation, including acquisitions like Deliverr, has helped Shopify remain resilient despite macroeconomic headwinds.

Compare these smart capital allocators with the traditional corporate models, where CEOs often make flashy acquisitions to "keep busy" or distribute hefty dividends to appease shareholders. Those moves might provide short-term gains, but they rarely build enduring value.

Incentives Aligned with Investors: Skin in the Game

When a CEO owns a sizable chunk of their company, their incentives shift. They’re not just an employee collecting a paycheck—they have their personal net worth tied to the long-term success of the business. Every decision they make directly affects their financial future, just as it does for shareholders.

This is evident with Reed Hastings, co-founder of Netflix. Hastings kept a significant equity stake and reinvested aggressively into original content despite initial criticism. His long-term focus helped Netflix redefine global entertainment.

Contrast this with a typical "agent-operator" CEO who’s rewarded with stock options, golden parachutes, and short-term incentives. These executives often prioritize short-term stock performance over long-term value creation, leading to risky acquisitions, aggressive cost-cutting, or unsustainable growth strategies.

Culture and Identity: Frugality

A surprising trait among successful owner-operators is frugality. Many built their companies from scratch, treating every dollar like it's their own—because it is. This mindset often extends throughout their organization, ensuring operational efficiency without unnecessary bureaucracy.

Consider John Malone, the media mogul behind Liberty Media. Known for his sharp financial mind and almost legendary frugality, Malone built a media empire through intelligent acquisitions and capital discipline. His shareholder-friendly mindset earned him the nickname “Cable Cowboy”—a nod to his Wild West-style leadership and relentless independence.

Or consider Mark Leonard, founder of Constellation Software. Despite leading a multi-billion-dollar company, Leonard is known for his low-profile approach—the man used to fly economy class; and even now, as a billionaire, he still pays out of pocket for any travel upgrades. His disciplined capital allocation has turned Constellation into a serial acquirer of software businesses with exceptional 30+% CAGR over the last two decades.

Grit, Innovation and Vision

I’ll go straight to the most obvious case I can think of to explain this: Apple, under Steve Jobs leadership.

Jobs exemplified an owner-operator's ability to drive innovation. During his second tenure, Jobs launched game-changing products—the iPod, iPhone, and iPad—all within a decade. Before his return, Apple was a struggling company with uninspired leadership. His long-term vision, passion, and control over the company’s direction set Apple on a path to global dominance.

The Long Game: Independence from the Street's Whims

Owner-operators tend to ignore Wall Street’s quarterly noise. With large ownership stakes and long tenures, they focus on compound returns and market leadership over time.

Jeff Green of The Trade Desk has got this mindset. Rather than selling early or chasing hype cycles, Green focused on building a long-term technology moat in programmatic advertising. His ability to think in decades—not quarters—has helped The Trade Desk scale meaningfully in a very competitive space.

A Different Kind of CEO

Not all CEOs fit the owner-operator mold. Many traditional CEOs are professional managers, hired to maintain the status quo or react to market conditions. Their compensation is often based on stock options, short-term metrics, or appeasing activist shareholders. These leaders often prioritize public perception over capital allocation, making decisions that please Wall Street rather than build sustainable businesses.

In contrast, “outsider” CEOs—as described in William Thorndike’s book The Outsiders—are a different breed. They:

See their business as an extension of themselves
Prefer decentralized management structures, empowering teams rather than micromanaging.
Make bold moves and delay gratification
Focus on cash flow and intrinsic value, not just earnings per share.
Aren’t afraid to look contrarian in the short term to generate exceptional long-term results.

Note: The Outsiders is a book I highlight as a “must read” in the Expanse Stocks’ Resources section available to all my readers. Feel free to dive deeper here: 📚 Resources

One of the best examples is Warren Buffett. Buffett doesn’t micromanage subsidiaries or chase quarterly targets. Instead, he entrusts his managers to run their businesses independently while he focuses on capital allocation. This decentralized model has helped Berkshire Hathaway become one of the most successful companies in history.

Betting on the Right People

Investing in owner-operators isn’t a guarantee of success, but it tilts the odds in your favor. When evaluating stocks, don’t just analyze revenue growth and profit margins—look at who’s making the decisions.

Key indicators of a strong owner-operator company include:

✅ High insider ownership (at least 5-10%)
✅ Frugal, long-term-oriented leadership
✅ A track record of smart capital allocation
✅ Resistance to the market’s short-term pressures
✅ A culture that prioritizes innovation and efficiency

Some exceptional owner-operator-led companies (beyond the usual suspects) include:

Constellation Software (Mark Leonard) – A masterclass in disciplined capital allocation.
Copart (Willis Johnson & Jay Adair) – Transformed a junk car business into an auction powerhouse.
Heico (Mendelson Family) – Built a niche aerospace parts empire with long-term vision.
Brown & Brown (Hyatt Brown) – An insurance brokerage with a relentless focus on culture and execution.
Old Dominion Freight Line (Congdon Family) – A trucking company that’s crushed competitors with superior operations.
The Trade Desk (Jeff Green) – Ability to envision in decades to build lasting dominance in the competitive adtech market.
Spotify (Daniel Ek) – Prioritizing user growth and creator equity over the public market’s noise.
Couche-Tard (Alain Bouchard) – Quietly built a global empire of convenience stores with decentralized execution and frugal operations.
Fortinet (Ken and Michael Xie) – Founder brothers who have scaled the cybersecurity firm with a relentless focus on innovation and profitability.
TransDigm Group (Nick Howley) – A highly focused and acquisitive aerospace parts manufacturer with a track record of outstanding returns.

There are plenty more out there, but let’s be honest—it’s not always easy to spot them right away. That’s where good ol’ due diligence comes in. Digging deeper into a business and truly understanding its leadership isn’t just optional—it’s part of the job description as an investor.

Final Thoughts: A Leap of Faith Worth Taking

Investing in owner-operators requires a leap of faith—trusting that a founder or family-led business will continue to make disciplined, long-term decisions. But the evidence overwhelmingly supports their ability to generate superior returns.

So next time you analyze a stock, don’t just look at earnings estimates. Look at who’s in charge. Are they a career executive focused on stock options, or are they an owner making every decision as if their own wealth depends on it?

Because in many cases, it does—and that makes all the difference.

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