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- Herausgeber: John Wiley & Sons
- Kategorie: Fachliteratur
- Sprache: Englisch
Explore a framework to build and invest in profitable companies that consistently outperform the rest
How do great organisations go from paper to profit? What are the secrets to sound, lucrative decision-making? And how can you analyse executive and company performance for smarter investing — as a leader or a shareholder? In The Founder Effect: Three Pillars of Success in Founder-Led Companies, investment funds manager Lawrence Lam identifies the intangible elements that drive the success behind outstanding global companies.
Backed by behavioural psychology, case studies and examples from some of the world’s most iconic brands, The Founder Effect shows you how to uncover a business’s potential for profit. This handbook presents a compelling three-pillar framework, giving you the tools you need to evaluate track record, assess motivation, and go beyond marketing spin to uncover actual progress.
- Understand the magic formula that generates success within executive management teams
- Uncover how intelligent organisational design supports a company, from people to productivity
- Review leadership judgement and uncover cognitive biases that influence decision-making
- Discover what motivates an executive team, from psychological ownership to incentive structures
- Ensure that an organisation’s leadership truly reflects its core values and culture
Perfect for investors, founders, executive management, board members and other business leaders, The Founder Effect is a can’t-miss resource for measuring what takes a company from good to great.
'Lawrence Lam provides a clear framework for evaluating management teams by highlighting the traits that make great founders successful. The Founder Effect is a must-read for anyone looking to understand what sets top leadership apart.' — Chip Wilson, Founder of Lululemon
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Veröffentlichungsjahr: 2025
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Table of Contents
Cover
Table of Contents
Title Page
Copyright
Dedication
About the author
Introduction
Why I wrote this book
The three traits of great management teams
The Founder Framework
PART I: Judgement
CHAPTER 1: Decision accuracy
Steering the ship in the right direction
Future impact
The best defence is offence
CHAPTER 2: Strategic allocation
Harnessing capital for strategic impact
The power of people allocation
CHAPTER 3: Group cognitive biases
The causes of group cognitive biases
Group cognitive biases
Indicators of group cognitive biases
PART II: Alignment
CHAPTER 4: Extrinsic motivators: Effective incentives
Different types of extrinsic motivators
The fundamentals of executive remuneration
Executive KPIs: Look beyond the financial targets
CHAPTER 5: Intrinsic motivators: The intangible driver
The science of intrinsic motivation
Imagine you are the owner
PART III: Influence
CHAPTER 6: Internal influence: Leveraging the workforce
Maintaining proximity to customers
Structures that distribute autonomy
CHAPTER 7: External influence: Attracting a radical base
Uniqueness
Building a movement
Epilogue: If you know, you know
Acknowledgements
References
Introduction
Part I
Part II
Part III
Index
End User License Agreement
List of Illustrations
Introduction
Figure I-1: Hermès’s market capitalisation since IPO, 1994–2023....
Figure I-2: Nike’s quarterly sales in China, 2010–2016.
Figure I-3: The Founder Framework.
Chapter 1
Figure 1-1: Siemens’ net profit, 2008–2023.
Figure 1-2: Net profit for Marks & Spencer versus Inditex (parent company of...
Chapter 2
Figure 2-1: W.R. Berkley cumulative total return, 1973–2023.
Figure 2-2: How would you stabilise this LEGO bridge?
Chapter 5
Figure 5-1: The Soma Cube puzzle.
Chapter 6
Figure 6-1: The circle of influence is a two-way flow.
Figure 6-2: The organisation structure at Flight Centre.
Figure 6-3: A holacratic organisation structure.
Figure 6-4: Traditional hierarchical organisation structure.
Chapter 7
Figure 7-1: Higher effort differentiation initiatives produce outsized long-...
Figure 7-2: Dino Polska’s net profit since its IPO listing.
Guide
Cover
Table of Contents
Title Page
Copyright
Dedication
About the author
Introduction
Begin Reading
Epilogue: If you know, you know
Acknowledgements
References
Index
End User License Agreement
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Lawrence Lam provides a clear framework for evaluating management teams by highlighting the traits that make great founders successful. The Founder Effect is a must-read for anyone looking to understand what sets top leadership apart.
— Chip Wilson, Founder of Lululemon
The Founder Effect breaks away from conventional business theory, offering a deep dive into the out-of-the-box entrepreneurial mindset. It explores the innovative strategies that have been key to Chemist Warehouse’s enduring success and growth.
— Jack Gance, Chairman and Co-Founder, Chemist Warehouse
The Founder Effect isn’t just another business book. It’s a powerhouse of insight that unveils the secrets to how we operate—capturing the essence of a founder’s mindset and how we have forged success and growth at Flight Centre.
— Graham Turner, Global Managing Director, CEO, and Co-Founder, Flight Centre Travel Group
Providing essential insights for evaluating executive management teams, Lawrence Lam’s The Founder Effect is an indispensable resource for achieving long-term and sustainable success.
— Robert Millner AO, Chairman and Non-Executive Director, Soul Patts
The Founder Effect offers crucial insights for executives and management teams striving for long-term success. Lawrence Lam provides a clear framework for evaluating leadership and driving sustainable growth, which is key for any forward-thinking organisation.
— Chris Davies, CEO, Telstra Superannuation
First published 2025 by John Wiley & Sons Australia, Ltd
© 2025 John Wiley & Sons Australia, Ltd
All rights reserved, including rights for text and data mining and training of artificial intelligence technologies or similar technologies. Except as permitted under the Australian Copyright Act 1968 (for example, a fair dealing for the purposes of study, research, criticism or review) no part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise. Advice on how to obtain permission to reuse material from this title is available at http://www.wiley.com/go/permissions.
The right of Lawrence Lam to be identified as the author of The Founder Effect has been asserted in accordance with law.
ISBN: 978-1-394-29371-1
Registered OfficeJohn Wiley & Sons Australia, Ltd. Level 4, 600 Bourke Street, Melbourne, VIC 3000, Australia
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To the one who is always by my side on this shinkansen, and to the one peacefully dreaming as I pen these words, I love you both.
About the author
Lawrence Lam is an investor, founder, and author with over two decades of experience in global financial markets, dedicated to uncovering what truly drives long-term success in business. As founder of Lumenary Investment Management, Lawrence draws on years of analysing, researching, and interviewing global executive teams to identify the traits that set exceptional companies apart. The Founder Effect distils these insights into a practical framework for evaluating leadership and governance — tailored for investors, executives and board directors alike.
Beyond his work in investments, Lawrence is deeply committed to civic initiatives that support businesses and promote family-friendly urban spaces. On weekends, you’ll find him with his young family exploring the many cafes and shops of Melbourne, and on the basketball court; an avid player since age eight, Lawrence refuses to retire from competitive basketball despite multiple surgeries — because, as he puts it, ‘ball is life’.
Learn more at lawrencelam.org.
Keep in touch
Get updates about Lawrence’s founder-led companies fund and discover new founder-led companies each quarter.
Introduction
‘In the company of sages, there is constant delight.’
— Lao Tzu
Human nature compels us to present ourselves and our tribe in the best possible light to the outside world. The corporate world is no different. Management teams foster an image to highlight their strengths and opportunities, while downplaying the challenges and dysfunctions within. You don’t air your dirty laundry. There are strong incentives to craft the perfect image to reassure employees, investors, board directors, and customers. This is expected and understood as part of the corporate game. However, when discerning investors, board directors, and other executives peer into the inner workings of a company from the outside, the curated image portrayed by internal managers offers little real value — instead, what is of value is gaining a realistic insight into the potential of the leadership team, the motivations of the people in the team, and their ability to grow the business. It is only once the façade is removed that a true understanding of how a company thinks is revealed. After all, a company is a mere collection of decisions made over time that, once accumulated over many years, steer the company in a certain direction. Once you can understand how well a company thinks, you will be able to realistically judge for yourself its potential for success.
This book is not intended to be another general leadership skills manual. Rather, it aims to provide a framework for assessing the effectiveness of management teams from the perspective of readers wearing several different hats: executive, board director, investor. At the core of this book is a framework for the assessment of the people in management teams.
This book takes the perspective of an outsider looking into a company. While outsiders may not have the benefit of insider knowledge, they can resourcefully utilise all the publicly available tools investors have at their disposal. In such a data-rich era, every investor has in their arsenal the ability to assess, to a reasonable level of accuracy, the strengths and weaknesses of a management team. Using the Framework in this book, I show you how to make such assessments by sharing my experiences of interviewing, researching, and analysing the temperament and effectiveness of management teams that enable them to make sound commercial judgements. Every company and sector is different but, as you will see, the principles of human nature and teamwork are largely universal. Although it may appear that the assessment of management teams is entirely subjective, there are objective indicators which allow an outsider to form a view of a team’s capabilities.
For executives who will use this book as an internal assessment and benchmarking tool, the ability to view one’s own team from the perspective of an outsider will serve as a realistic appraisal of your team’s strengths and weaknesses. It will inform you of how you are perceived by the outside world — savvy investors and customers can see through the public relations spin, therefore informing you of the necessary adaptations needed to genuinely improve your management capabilities and chemistry.
Board directors should take a keen interest in this area as the stewards of shareholder capital. It is crucial that they make unbiased and independent assessments of their management teams as they are the ones that have empowered managers with executing the vision and strategy of the company — and yet we so often see management teams exerting significant influence when it comes to assessing their own performance. If you ask a chef how their dish was supposed to taste, they will always tell you any imperfections were meant to be. Instead of relying on management reports to form a view, board directors should start with an independent view, but evolve that assessment by adapting to new inputs from management reporting, employee feedback, customer sentiment, and market perception, all of which dynamically shift over time. By doing so, board directors can elevate their governance of executive teams, strategically incentivise them, and proactively address potential personnel challenges by shaping an effective decision-making framework within the organisation.
Why I wrote this book
Let me share how I became inspired to put pen to paper and write a book about what it takes to create and recognise great management teams — more specifically, how I came to believe in the unique effect of founders on how their businesses are managed and run. Over my 20-odd years in financial services, I have seen a plethora of ways companies have been run. Through my various roles — which started with the Australian federal financial services regulator the Australian Prudential Regulation Authority (APRA), followed by a corporate advisory role at Deloitte, investment banking roles at Royal Bank of Scotland and MUFG, my position as a professional investor in the investment firm I founded, Lumenary Investment Management, and as a consultant to boards — I came across a multitude of executives who I would deem highly intelligent and motivated. However, the majority of those people could not create long-lasting success in the companies they were leading. Sure, they could create value over a few years — but not decades. Only a rare few could sustain success over the long haul.
It is often said that the earliest phase of a career is the most influential in shaping our perspective. This is because the observations we make when our minds are most open are often the least clouded by cognitive biases. Paradoxically, it is the lack of experience that allows us to see things with a certain clarity, free from preconceptions. For me, the first time I encountered a group of truly exceptional company leaders was early in my corporate advisory career, as I worked across various industries and companies (more on this in the next section). After that initial encounter, I became keenly attuned to the inner workings of companies and their leaders over the following decades. While most management teams I encountered fit the mould of the status quo, every now and then, I would meet executives who stood out — demonstrating the very traits I had noticed earlier in my career. What set these exceptional leaders apart was not their experience, qualifications, or skills, but an intangible mindset — a set of behavioural characteristics that did not show up on paper but were reflected in the way they ran their companies. These traits became a recurring theme in the successful companies I observed, leading me to view them not as an output of brilliant companies, but as a precursor of long-term corporate success. This realisation inspired me to develop a framework for identifying these traits, helping to predict which companies would flourish. By sharing these insights, I hope to help the corporate community recognise and celebrate these quiet achievers for their consistent excellence and unconventional leadership.
Now, let me share with you the story of my first discovery — how one particular company caught my attention and became my first case study in understanding the foundations of true, sustained success.
My first discovery
One of my first roles involved advising corporations on their hedging strategies, risk management policies, and use of derivatives. These were the heady days prior to the Global Financial Crisis (GFC), which meant all sorts of interesting and creative risk management instruments were being employed by corporates to avoid the ultimate sin at the time: a ‘lazy balance sheet’. To eke out every bit of return, it would be common practice to maximise borrowings and invest in complex financial instruments, or to shift assets off the balance sheet using special purpose vehicles (SPVs). To keep up with the competition, corporates were encouraged by their advisors to pursue these aggressive strategies and fall in line with market best practice — and who wouldn’t want to adopt best practice? It was this herd mentality (which in hindsight was entrenched by the preceding decade of growing prosperity) that led to a nonchalant attitude and a lack of questioning of the commonly accepted approaches at the time. However, as a fresh-eyed observer in the early phase of my career, I had the benefit of little experience. My role was focused on analysing and devising recommendations to businesses on their optimal use of financial capital. This required an understanding of the financial statements — being able to see how a company could optimise its capital structure to shore up its financial strength, or raise funding to accelerate growth through debt and hedge against market risk with derivative instruments. The benefit of such a role was the exposure to all types of businesses. No matter what size or sector they belong to, all businesses have financial statements. And these financials reveal a company’s underlying health just like a blood test indicates the health of a person. But more than that, these numbers reveal intention — they show where decision-makers are prioritising their capital. I was able to answer questions about their business using these numbers. Were they a risk-averse organisation looking to hedge every dollar of exposure? Were they in growth phase and looking to raise funds by issuing financial instruments to fuel their growth projects? The numbers provided me with a window into the inner thought processes of a plethora of businesses that spanned a wide variety of industries. What I saw was the majority of companies behaving relatively similarly — their levels of debt would broadly be in line; the types of risk management tools to hedge against interest rate and foreign exchange rates were the same, or thereabouts; the types of projects they would pursue had a similar payback period (which was unsurprising, as they were all advised by the same banks). But one day my perception changed when I was assigned to work on behalf of a local wine manufacturing business.
What caught my attention at first was its growth. Here was a winemaker based in rural Australia that was consistently increasing revenues over its 40-year history. Moreover, it was a sensibly run company, with minimal debt and steady margins. It also held more cash than other typical companies I had seen. As I delved deeper, I discovered the company was not listed. It was still privately held by the founding family and was now being managed by the second generation of the family, who had developed a subsidiary wine brand designed for the overseas market — which turned out to be a huge success in the US and China; a key driver of its recent growth. And as the numbers showed, the business needed very little external capital. Instead, it reinvested profits back into such growth projects.
This 40-year-old winemaker did the opposite of what was trending. While most companies at the time relied heavily on bank funding and avoided a large cash balance in the pursuit of growth, this company, bearing the weight of its founding family’s legacy in both its name and logo, was interested in the organic, longer-term growth of the brand. Over time, as I had the opportunity to hear and understand the management team’s approach, I began to appreciate the long-term nature of their actions. As a steward of the company, the CEO and son of the founder was driven to create a long-lasting company that would continue to bear fruit for his children and grandchildren. The business strategy was centred around longevity and delivering sustainable growth. Instead of borrowing heavily to fund growth projects, the business preferred to keep a large cash buffer and instead reinvest the income to organically grow, thereby avoiding the influence of external financiers and remaining in control of its own destiny.
As you might expect, having the family name inscribed in the company brand instils a deep sense of pride, but more importantly, a level of responsibility to safeguard its reputation for future generations. The company was committed to protecting this legacy at all costs, often choosing to launch new subsidiary brands for international markets to avoid any confusion with its established domestic identity. Decisions on new ventures were approached with a long-term perspective, measured over decades, rather than the usual three-to-five-year horizon common in most corporations. This approach also explained why the company was so cautious with the use of external capital — its financial foundations were to be strengthened over time, not diluted with lenders and more shareholders. This allowed the company to acquire competitors during industry downturns, as it remained financially strong when others had over-leveraged. The sustained success this winemaker achieved and the style of business it ran attracted me. I began to seek out more companies like this to observe. But as I was to learn in the next phase of my career, such companies were quite rare.
Every now and then I would encounter a company with a similar philosophy but, unless I sought them out deliberately, it was very unlikely one would come across my desk fortuitously. By then I knew the characteristics of these founder-led companies and I could find them in the public markets. What I realised was that I could learn just as much from these founder-led companies as from their counterparts — the non-founder-led companies, where the bureaucratic disease had taken hold and a myopic quarterly focus had become entrenched.
There was no better way to contrast these opposing styles than by comparing them with the very organisations I worked for. Instead of a long-term focus on brand building and generating sustainable revenue streams, the multinational investment banks I represented were tied down by their own bureaucratic processes and internal infighting, which handcuffed their ability to adapt quickly to market needs. Instead of a company motivated and aligned with its shareholders, I observed investment bankers engaged in lobbying to secure the highest possible annual bonus they could by redesigning key performance indicators (KPIs) and shifting their targets with clever, well-reasoned presentations. It was an annual dance that would occur in the months leading up to bonus season. So ingrained was this culture of the annual bonus that executive management teams were themselves part of this annual dance.
The value of an investment banker to the global management team was measured by their ability to meet short-term targets — typically set within a three-to-five-year timeframe, with progress reviewed annually. The frequent turnover of staff eroded any sense of loyalty or commitment to the business’s long-term growth. Instead of functioning as a cohesive team, we became more like mercenaries, assembled to complete the next task, and nothing more. Our attention was squarely focused on personal bonuses, and the game became a test of our ability to demonstrate individual contributions to the annual budget targets. What makes the experience of an investment bank interesting is that the sheer brainpower within the team was undisputable. The capability and work ethic were not in contention. But in comparison to the founder-led companies I had observed earlier in my career, our motivations were not aligned with the long-term interests of our shareholders. Because of the way the incentives were structured and the culture within investment banking, the focus of decision-making worked only on short time horizons. There was no sense of delayed gratification — almost everything we did was to generate income for the current year or to deliver on the three-year management plan.
Investment banking is inherently transactional, with less emphasis on cultivating long-term relationships with suppliers and customers, unlike founder-led companies. As a result, these banks tend not to build on their brand’s foundations but instead rely on cyclical rather than organic growth. Their expansion typically comes through transactions and acquisitions of other banks, or increased growth from the next wave of market activity.
What I learned in my time in investment banking was the importance of alignment and incentives. Humans have an innate desire to achieve, but as we will see later in this book, these ambitions can be distorted if the incentive structure is incorrectly applied and the time horizon excessively compressed. Although the approach in the investment banking world was in stark contrast to what I observed with the winemaker earlier in my career, it was invaluable to compare the two and see how meaningful behaviours propelled by the right motivations are key to the long-term destiny of a company.
By this point in my career, I had been exposed primarily to relatively large companies. It was not until I consulted to family offices that I gained an insider’s appreciation for risk and the opportunity it could present. Unlike the winemaker, which was an operating company, family offices have the expectation that risk comes with growth. One particular family office I worked with, founded by an accomplished businessman in his own right, had the ambition of building an endowment-style strategy focused purely on generating passive income that could fund its philanthropic endeavours in perpetuity. Through close collaboration with the family, I came to appreciate the importance of commercial judgement and the ability to take calculated risks. The family’s goal of generating perpetual income drove them to pursue entrepreneurial opportunities and new revenue streams to sustain the necessary growth for the endowment. The focus, then, shifted to taking the right risks — making bold decisions that would yield significant long-term rewards.
For many of the founders I have met, making bold decisions is achieved by taking calculated risks where some form of competitive advantage already exists. Jack Gance, the co-founder of Chemist Warehouse, Australia’s largest pharmacy chain, says he aims to ‘enter into markets where I have the advantage. Never get into a fair fight or you’ll both end up with bloody noses’.1 That was the driving philosophy with which he grew to dominate the Australian pharmacy landscape. The lessons on risk-taking and correct decision-making would come to resonate with me, recurring time and time again with companies I would observe as an investor.
The three traits of great management teams
At its core, this book explores the question of value creation: Why do some companies evolve into wealth-generating engines, while others manage only short-lived growth before fading away? The essence of value creation lies in the series of decisions made by a company’s leaders. These choices steer the organisation’s course and define its future potential. Ultimately, it is the management team that drives value, determining which products and services to offer, formulating the strategies to win market share, and optimising the use of company resources. In their hands rest the fate of the business. This book explores the role of professional management teams, and by learning how to assess their effectiveness, we can gain the ability to foresee the success of any company.
It is worthwhile clarifying what is meant by value creation as it may mean different things to different organisations. Value creation in the context of this book is about wealth creation. This can take the form of earnings growth, dividend growth, and stock price appreciation. Exceptional management teams create great companies which, like a planet, attain their own gravitational force to attract talent, capital, customers, and therefore profits. Planets continue gathering their own momentum as they get bigger in size, collecting dust from space over millions of years. Great management teams nurture companies that, once set on the right path, continue snowballing in size by themselves and well into the future. And for those that get it right, the financial rewards for shareholders, management teams, and boards are life-changing — not to mention the value created via their products or services that meet or, even better, exceed consumer expectations.
Take for instance Hermès, the well-known French luxury brand. Founded in 1837 as a boutique harness-maker, the business has evolved from a saddlery in the 1800s into the luxury handbag and clothing company it is today. During that time, it has created immense wealth for its founding family, which today still owns 65 per cent of the available shares. At the end of 1994, it was valued with a market capitalisation of US$1.3 billion. Today, its market capitalisation is around US$220 billion — equivalent to a staggering annual compound growth rate of 19.3 per cent per annum (see figure I-1). In addition, shareholders have received significant dividend growth over time. Hermès’s enduring value lies in its brand — it is not a company driven by fleeting trends. Instead, its business value is anchored in a strong brand strategy that will continue to generate wealth for its owners for many more years to come. This success has not been easy to come by; it is the culmination of sound management and long-term decisions that have firmly established Hermès as a symbol of luxury in consumers’ minds. In other words, Hermès’s current success is the product of an accumulation of wise management decisions made over many years.
Figure I-1: Hermès’s market capitalisation since IPO, 1994–2023.
Great companies come from diverse sectors and are led by management teams with varying philosophies and styles. The large body of research on management styles and techniques is directed towards professionals so they can employ them to improve their impact. This is a constantly evolving field in its own right, shaped by the ever-changing nature of human behaviour and societal expectations. However, this book is not focused on the nuances of management styles and skills; rather, it is the analysis and assessment of the results that we are interested in. And since we are focused on the outcomes delivered through a management team’s skill, there are clear objective tests that can be applied across all sectors and styles to gauge the management team’s potential to create long-term value.
At the end of the day, the role of management is to steer and grow the company to create long-lasting value. To do that, they need to demonstrate the capability for:
Bold decision-making
Motivation for the right reasons
Commanding the masses.
Regardless of a company’s industry or size, these three qualities are essential for effective management teams, forming the bedrock of long-term success and sustainable growth. Hermès exemplifies how the remarkable value created by such companies is deeply rooted in each generation of management upholding these principles.
Bold decision-making
There are specific moments in a company’s history that present a fork in the road for management to decide whether to take a left or right turn. The correct choice generates value, while the wrong choice erodes value. Hermès experienced this in the 1990s when then-CEO Jean-Louis Dumas made the decision to phase out externally owned retail franchise stores while increasing the number of company-owned stores. In the short term this decision significantly increased capital expenditure and reduced sales volumes, but Dumas, being a member of the founding family, had the longer-term goal of elevating the in-store experience. He sought greater control over customer interactions with the brand — and despite the initial cost, the reduction in stores eventually generated an increased sense of exclusivity and brand cachet among customers, leading to an improvement in margins. This example underscores the value of eschewing rigid conventions in favour of a thoughtfully independent approach. In this instance, what appeared detrimental to the business in the short term was, in fact, the right decision for the long term. Dumas recognised the opportunity to elevate brand perception by limiting volume and enhancing the in-store experience, contrasting sharply with the prevailing strategy of broadening distribution and prioritising expansion. The effects of such decisions may not stand out with great significance by themselves but when stacked on top of each other and compounded over time, they begin sculpting a company’s future.
Bold decision-making is not only based on independent logical deduction but having the fortitude to take calculated risks. Far too many bureaucratic companies fall into a culture frozen by conservatism at the board and management level. The appetite to take calculated risks then becomes lost in the aversion to venture off the beaten track, for fear that veering too far from benchmarked competitors automatically puts the company at risk. History is sprinkled with companies that have failed to move or have been too slow to adapt to changing technology (think Kodak or Blockbuster). We want management teams that take calculated risks and will change course if needed.
Nike was one of the earliest US companies to enter the Chinese market in 1981. Phil Knight, Nike’s co-founder, had made the decision to begin manufacturing in China in the 1970s as he saw the large population, low wages, and talented workforce. Just as China was emerging from its decade-long Cultural Revolution and trade reopened, Phil Knight made use of Nike’s already established manufacturing foothold by opening a marketing office, having negotiated its entry with the Chinese Communist Party by aligning itself with the government’s ambition of economic growth and liberalisation. It was one of the first US companies to set up a local presence in China following the Cultural Revolution.2
