Why Founder-Led Firms Are the Real Safe Haven in Volatile Times
In the last real stress test, founder-led firms rebounded almost six times harder than companies run by hired executives.
History rhymes. In the most recent downturn, founder-led firms rebounded by 58.4% - almost six times the return of companies led by hired executives.
Unexpected Safe Haven
When markets anticipate volatility, investors usually flock to the usual suspects - gold, bonds, maybe a utility. We’re seeing that again today. But the last real stress test, the COVID crash, revealed something else hiding in plain sight.
Founder-led and family-built companies didn’t just survive; they bounced back harder and faster than the rest. A Reuters study showed that in 2020, founder-led firms gained on average 58 per cent, while the rest of the market managed just 10 per cent. In tech, the gap was even greater – founder-run firms doubled, while the S&P 500 crawled up less than 8 per cent.
The lesson is clear: founder-led businesses don’t just outperform in good times. Their edge shows up most strongly when markets are volatile.
The Post-COVID Bounce, in Numbers
Australian markets experienced their own version of this phenomenon. Xero rallied over 80 per cent in 2020, its subscription base proving bulletproof as small businesses scrambled to digitise. ARB Corporation, family-run for decades, turned a travel freeze into a tailwind – profits jumped 113 per cent in six months as Australians kitted out 4WDs for domestic holidays.
Even including the post-COVID unwind in 2022, the aggregate numbers are stark. Over the five years to mid-2024, a basket of the largest founder-led names in the ASX 200 returned close to 400 per cent. The broader index managed just 65 per cent.
What’s the lesson for investors? The edge in founder-led companies comes from behaviour. Outperformance is born from the way these businesses are run, not just the industries they’re in. The real skill is recognising those traits early – spotting the owners who act like owners before the market prices it in.
Why the Edge Endures
Founders and families play by different rules. They think like owners because they are. With so much of their wealth tied up in equity, they’re not chasing quarterly optics. Their goal is to build an enduring company.
They make calls others shy away from. When the pandemic hit, Adyen, a US$50 billion Dutch payments group, kept hiring while competitors froze. ARB, still in family hands, doubled down on supply just as demand looked uncertain. That conviction rarely comes from career managers. Decision-making is faster, bolder, and not subject to corporate bureaucracy.
They also run leaner, safer balance sheets. Families prefer cash cushions to leverage, sparing them from desperate capital raisings when markets seize up. And most of all, they stay the course. Families treat their capital as permanent. They’re not planning exits, which frees them to think in decades, not quarters.
The result is simple: in downturns, founders have dry powder to reinvest when others are retreating. By the time the tide turns, that contrarian boldness shows up in the numbers.
How Investors Can Position Portfolios for Volatility
So how do investors put this insight to work? The first place to look is ownership. Companies where founders or families still hold meaningful stakes tend to behave differently. Skin in the game is the best filter for alignment.
The next layer is the boardroom. When founders or family members are still at the table, capital allocation usually tilts long-term. It’s not about smoothing earnings this quarter, it’s about building foundations for the next decade.
Cashflow discipline is another tell. The strongest founder-led firms are naturally conservative with debt, careful with reinvestment, and rarely hand out every spare dollar in dividends. They prefer to keep dry powder for the moments that matter.
For those who don’t want to pick stocks one by one, there are global vehicles that capture exposure to these corporate behaviours. And finally, think in cycles. This is not a day-trading trick. The advantage shows up most clearly through downturns and recoveries. Volatility is your friend here—it gives you the chance to buy resilience at a discount.
History suggests the right approach is to accumulate founder-led businesses during downturns, then trim profits when valuations overheat, rotating into undervalued peers with the same DNA.
The Hidden Hedge
Safe havens aren’t just about weathering the storm, they’re about what comes after. Gold might preserve value, but it doesn’t create it. You still need to time when you convert gold back into growth assets. Bonds will protect you until interest rates turn. Founder-led and family-built companies, by contrast, defend on the way down and grow on the way back up.
That’s why they quietly outperformed through COVID and why they’ll matter again in the next bout of volatility. The lesson for those positioning portfolios today is clear—don’t just hedge with metal or fixed income. Hedge with founders.
