How Do Leadership Traits Drive Investment Success?

Josh and Austin dive into leadership lessons from Admiral William H. McRaven’s book The Wisdom of the Bullfrog and why the best leaders spend time in the trenches with their team. The guys share some stories about leadership that will make you rethink what it means to be in charge, and connect the dots to investing, explaining why founder-led companies with hands-on leaders might be your next great investment.

For the full transcript, links, and show notes, visit theinvesteddads.com/221

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Transcript

Welcome to The Invested Dads Podcast, simplifying financial topics so that you can take action and make your financial situation better. Helping you to understand the current world of financial planning and investments, here are your hosts, Josh Robb and Austin Wilson.

Austin Wilson:

All right. Hey, hey, hey. Welcome back to The Invested Dads Podcast, a podcast where we take you on a journey to better your financial future. I’m Austin Wilson, Co-Portfolio Manager at Hixon Zuercher Capital Management.

Josh Robb:

And I’m Josh Robb, Director of Wealth Management at Hixon Zuercher Capital Management. Austin, how can people help us with our podcast?

Austin Wilson:

Subscribe, hit the plus, hit the follow, whatever button it is on your podcast player so that you get new episodes when they drop. That’d be awesome. And if you could leave us a review on Apple Podcasts or Spotify or wherever you’re listening, that would help us to help more people, so we’d appreciate that. So today, Josh…

Josh Robb:

Yes.

Austin Wilson:

… we are talking about some leadership traits that we look for in people and companies that we may or may not invest in.

[0:57] – The Wisdom of the Bullfrog 

Josh Robb:

Yes. So, we’re going to talk about those. I’m going to start by talking through leadership traits and what a good leader should be trying to do. And then you’re going to take that and put that into when it comes to investing or evaluating good investments, some things you could do from there. And so, I’ll start with my piece. And this started from an idea I had. Tony Hixon, my partner at Hixon Zuercher, and I, we’re going through a leadership book. The book is called The Wisdom of the Bullfrog: Leadership Made Simple (But Not Easy). And the Bullfrog is, the guy that wrote this book is US Navy retired Admiral William H. McRaven.

Austin Wilson:

McRaven.

Josh Robb:

Yes.

Austin Wilson:

It’s like a sandwich made out of a raven.

Josh Robb:

Yeah. And the Bullfrog, by the way, is the senior SEALS person, so the oldest or longest serving there. So that’s where that term came from. But he wrote this leadership book. Really good book, enjoy it a lot. We’ve enjoyed going through this together. But one of the sections, it was a couple chapters actually where he talked about this, is the idea of the leader in his engagement and involvement on the front lines. And so he gives a lot of points or examples from his experience being in the military, but he then extrapolates that to any type of leadership spot. So as we talk through that, we have really two things that stood out that I want to really focus in on today. And these two things then will drive into your thoughts of how you then take that from a leader, founder especially, someone who started the company, and how that has value in it.

Austin Wilson:

And I think it’s a fitting thing you’re starting with a book discussion. Because what are leaders?

Josh Robb:

Readers.

Austin Wilson:

Leaders are readers.

Josh Robb:

Leaders are readers.

Austin Wilson:

So that’s good.

[2:43] – Traits of a Good Leader 

Josh Robb:

Yes. All right, so the first one is the idea that the leader will have a better understanding on what is going on and what needs done best if they’re in the trenches or front lines. And he had quote from Pope Francis that said, “A shepherd should smell like his sheep.”

Austin Wilson:

Sheep stink.

Josh Robb:

Yes. But it’s not because that’s a good smell. But the idea is the more time you spend around them, you should have that impact. They should have an impact on you.

Austin Wilson:

Yep.

Josh Robb:

All right. And so the idea that a leader will have a better understanding of their company, of their organization, if they’re spending time there. Because a lot of times leaders think, “Well, I’m the visionary. I need to be out doing the high level. I need to be thinking forward.” But they may miss the opportunity to build up and lead their people by not being there with them. And so I’m going to start with that piece. And a good leader needs to know what’s going on. And he gave an example of when he was serving in Afghanistan, he make his walk around their place or complex, their base. And his story example was 4:00 a.m. and they’re doing some nighttime missions and he heads out to do kind of a walk around. And as he walks by, he stops by and he walks into where they do their laundry and notices half the washing machines don’t work. And so he keeps on his walk and stops by where they’re repairing their vehicles. And he’s like, “Man, what’s going on? We’re a little short-staffed over here.”

He ends up in a guard tower sitting with this guy and talking through, and he gives some examples in there, but the end result is the guard is like, “Oh, man, my radio keeps dying. I wish somebody would keep replacing these batteries before we take them.” And so he finishes his rounds and when he is doing his meeting with his other leaders, people below him, he’s saying, “Hey, here’s the things you need to be addressing.” And he’s talking about washing machines and mechanics, and they’re probably thinking, “Why is this guy who’s in charge of this whole elite group, why does he care about washing machine?” And the point being, if he can improve morale, if he can help provide the necessary tools needed for the workers, or in this case the soldiers, they’re going to do a better job.

And one of the things was he thought, “Hey, let’s make sure they’re all trained on that gun and everything that needs done.” And the team’s like, “Well, we’ve never been attacked.” Well, sure enough, shortly after that, they were able to adequately defend because he said, “Let’s have a rotating training as well and make sure they all have batteries on their radios.” So the idea, he would’ve missed all that. No one’s going to escalate that up to the top leader, something as small as, “Hey, let’s make sure we have a process of changing batteries out on radios.” Right? No one’s going to escalate that to him. But if he doesn’t know that’s an issue, there could be a breakdown in a bigger problem.

Same is true for a leader in an organization, is if you’re not having time and opportunity spent with the people doing the day-to-day job, you’re going to miss out on finding those chances. And the chances are you’re the one that can make an immediate impact. They may not have the authority to ask for a new washing machine. They may not have that… Wherever, whatever your organization is, have the ability to enact a change without escalating it. But you can show up and right away say, “This is getting done.” And so there’s a sense of the leader will know the most important things that need to be done when they spend time there.

All right. And the next one, and this is the other piece of it, is you’ll get more engagement from your employees or from the people you’re leading if they see you in the trenches with them, if you’re rolling up your sleeves, getting your hands dirty doing the work yourself. And he, again, in one of the other chapters talks about the farther away you get, the easier it is to justify or say, “I don’t have time for… My time is valuable. I should be spending it doing X instead of doing this.” And the reminder needs to be that the success of your organization is really driven from the people that are on the ground, boots on the ground doing it. And if you don’t have a finger on that pulse to know how that’s going, you could miss that opportunity to correct something before it gets too bad.

Austin Wilson:

Yeah.

Josh Robb:

So here’s an example, actually, real-life story that I wanted to put in here to show this. And so when I first started dating my wife, this was way back.

Austin Wilson:

Three or four years ago.

Josh Robb:

Way back. And actually in high school we started dating. And I went over to her grandparents house for Thanksgiving. And so I joined her and her family for Thanksgiving dinner, and we went, and this was the first time I met her mom’s parents, so my wife’s mom’s parents, so her grandma and grandpa. And so we were sitting there talking and I think we had a football game on, and we’re waiting for the food to start. And as we’re talking through, I asked him a little bit about himself. He was retired. He had worked at Cooper Tire. And so that’s… Here where we live, where Austin and I live, that was, I can’t say is, was a…

Austin Wilson:

It was. Yeah.

Josh Robb:

… tire plant, Cooper tire.

Austin Wilson:

It still is a plant.

Josh Robb:

It is. They bought out by Goodyear now. Goodyear owns them, but at that point they were their own company, Cooper Tire. And he had worked there.

Austin Wilson:

That’s where I started my career.

Josh Robb:

He had worked there his whole life and he had retired. And so as we’re talking, and he somehow made the connection that my grandparents were involved in the leadership of Cooper Tire. My grandpa was on the board and his brother was the CEO and his other brother was something else. And they were all the upper level of management and leadership. And so when he made that connection, he said, “Hey, I want to share a story, the first time I met your grandpa.” Or, “The first time your grandpa met me,” kind of that, I forget how he phrased it. But the idea was, “The first time we met,” he goes, “I had just got hired at Cooper,” he’s working in the factory on the floor assembling tires. And he said that the Brewer brothers, which was my grandpa and his brother, they would come down and walk the floor.

And back in that day, this is true in a lot of business, they wore suits and whatever, but he’d come down. And making tires is not a clean thing to do. You get a little dirty in doing that. But they’d all walk the floor and talk and hang out and just check in on everything. And he said… It was early on, probably the first couple of weeks of him working there that they came down and he said, “I am glad we hired you because I know that local farm boys are extremely good workers. They’re hard workers, they do a great job.”

And so he was complimenting him. He knew who he was. And there’s quite a few workers there, a lot of employees there. And that he knew he was a new hire, knew a little bit about him to talk directly to him, not just say, “Oh, you’re new here, glad you could be here.” But he knew something about him, knew he was from the area, knew a little bit about his family background. And so it stuck out to me for a couple of things. And I remember this, so this is… That conversation with me was 25 years ago, 26 years ago from today. That conversation was probably 40 years…

Austin Wilson:

Before that.

Josh Robb:

Yeah, because he was already retired and he had worked a whole career there.

Austin Wilson:

A long time ago. It stuck with him.

Josh Robb:

It stuck with him that that interaction was meaningful. And the key is that from a leadership standpoint, knowing your people, a little bit about them, and individualizing that conversation made a big impact being there. Because the other thing he told me was that… He goes, “Boy, this new group is not the same. When I left, you just didn’t see them anymore.” And so at that point, my grandpa and his brothers had retired and there was another… And it wasn’t like they were doing bad in leadership, but it was a different style. And from him, he preferred seeing the leader every once in a while down there in the factory floor with him.

Austin Wilson:

Absolutely.

Josh Robb:

And so that was just a piece of that that really, to me, made a big impact and it stood out to me. And as a leader, you’re best when you’re alongside the people that you’re trying to lead. You can’t lead from somewhere afar, you have to be with them to be an effective leader. The two things that are those traits that come out of being involved and being up front is that you get to know more about what’s going on, fix problems directly, be engaged. And then, two, you get the opportunity with the people you’re leading to motivate and encourage them. And that’s the last thing to point out is you can also praise and acknowledge them in front of their peers in the moment when you’re doing that. Research shows that’s as valuable or more valuable than salary increases.

Austin Wilson:

Right.

Josh Robb:

The fact that they’re called out positively in front of the people they work with for acknowledging something they did is a huge boost in their esteem, their sense of worth within the company, and how they view the company. And so there’s a lot to be said about a leader being engaged on the frontlines.

Austin Wilson:

Yeah.

[12:06] – Dad Joke of the Week 

Josh Robb:

All right, so before we switch over, I got a dad joke for you.

Austin Wilson:

Okay.

Josh Robb:

But what we’re going to do then after that is talk from Austin’s standpoint of, okay, one type of leadership are those founders, are the idea that if you started the company, there may be some traits that you can see that may be of value when it comes to evaluating whether a good company to be investing in. So before we get there, dad joke of the week. What do you call shoes that are made from bananas?

Austin Wilson:

I don’t know.

Josh Robb:

Slippers.

Austin Wilson:

Slippers.

Josh Robb:

Yeah. Banana peels. That’s a good one.

Austin Wilson:

Makes me think of Mario Kart.

Josh Robb:

Oh, yeah. Throw the banana.

Austin Wilson:

I love Mario Kart, and it peaked at Nintendo 64.

Josh Robb:

The one on the Nintendo Switch.

Austin Wilson:

Is it good?

Josh Robb:

It is good.

Austin Wilson:

Okay. So I’m way behind. I don’t have that one.

Josh Robb:

The plus with that is you can play multiple people on it. The 64, you could, but with the Switch is, you could do it on a screen, four person just like before, but you can connect multiple if you’re doing handhelds too and have your own screen. So there’s some value there and they have kind of the retro ones you could do plus some of their new things. So it’s a good time.

Austin Wilson:

Slippery banana.

[13:17] – Strong Founder-Led Companies 

Josh Robb:

Yes. All right, so now we’re going to switch gears and say, okay, we learned a little bit about leadership, but you got some ideas of thinking about companies that are founder-led, and if the founder is a good leader, sometimes you can see those traits.

Austin Wilson:

So there are five reasons, including some examples, so really four plus some examples of things we like to see in founder-led companies and the things that the founders typically have when they’re leading companies that make these really good investments. So…

Josh Robb:

Now, caveat.

Austin Wilson:

Caveat. These are not recommendations.

Josh Robb:

We are going to talk about concepts. We will mention some companies as examples, but not a recommendation one way or another whether you should buy these or not in your portfolio. Always talk with your financial advisor and make sure it fits with your strategy before making any decisions.

Austin Wilson:

If you don’t have an advisor, check out the “invest with us” tab on our website. Maybe we can be a good fit to help you out. So like I said, handful of different characteristics that we’re going to talk about as well as some examples of some leadership traits that I really look for when we’re looking at companies. Number one is long-term vision. So this is really, really crucial for success when you’re looking at a business, especially when you’re looking at founder-led companies because it makes that organization focus on more sustainable growth rather than just being swayed by short-term pressures, because maybe something’s in or out of favor at a given point in time, but as long as they have that long-term vision, they’ll be able to achieve that over time, keep an eye on the goal, not be swayed short-term. Another thing is that founders often have really deep emotional intellectual investment in their company.

So they’re often very tied in to what’s going on and very in tune with what’s going on which helps them to think beyond short-term profits to make sure the company is really setting itself up to do well long-term and be relevant into the future. And this long-term perspective is something that makes… In strategic planning, particularly important. When companies are looking at investments in the future, investing in innovation, and building that culture that they want to sustain them going forward, that long-term perspective really helps there. It also helps the business to weather their short-term challenges. So there’s going to be economic downturns, there’s going to be recessions, there’s going to be competitive pressures, but if you don’t lose sight of your ultimate long-term goals as a company, you’re going to do better in weathering those short-term challenges. And then when you’re looking long-term, by focusing on the future, founders are really able to steer their companies towards lasting success, making sure that they are remaining competitive and adaptable, because markets are constantly changing, but the goal at the end of the day isn’t going to change because it’s a long-term vision.

So having a long-term vision is something that’s really important for founder-led companies, for example, but these are things that often have made really good investments in the past. Again, no recommendations here, but it has worked out. Another thing that is really good to see in these founder-led businesses is their passion, their commitment to their company. These people are often just deeply passionate about their business and what they do, and they have a personal stake in that vision being realized, often bajillions of dollars in stock, or if it’s private business, they just have a lot of equity in something. So their life is essentially on the line financially. So they have invested interest to be really passionate about what they’re doing and how the business is doing. This makes their commitment to that business exceptional and much higher, I believe, than what you would have from a non-founder or non-large stakeholder, CEO.

They’re often more willing to put in the extra hours, make sacrifices, and stay with the company through all tough times up and down and all through the way, which is really crucial for them overcoming any obstacles to have that long-term success. So a lot of commitment there is something that’s really important, and that can motivate employees as well. So if employees see that their founders are just hanging out and sticking with them through and thin and really passionate about what’s going on, that’s going to create a work environment where everyone else is dedicated to that mission as well, which is going to lead to higher productivity, better morale, hopefully lower turnover, all sort of things over time. So that passion and commitment is really important. Another one is agility and innovation. So founder-led businesses, often known for being more agile and innovative in their business practices because these founders are typically willing to take a lot of risks and make pivots or make changes when necessary, often because it’s just that. It’s necessary to make a change and they’re willing to do it, and that can be drastic in some instances.

But if they don’t have the traditional restraints of traditional corporate bureaucracy or red tape they have to do to get decisions to happen, they can make swift decisions that can make a company adapt quickly to the market changes, make them adapt quickly to emerging trends or unforeseen challenges over time. And this is crucial in industries that are rapidly evolving. And the one that pops to mind is something like AI, artificial intelligence technology. You have to be able to innovate to stay ahead of competitors, and that can really dictate whether you succeed or you fail in the industry. Another thing is their deep understanding of their product. The market is going to allow them to experiment with what works and what doesn’t work with new ideas, new strategies, which is going to continuously improve and grow the company over time.

So that agility and innovation is really key. A lot of those are hard things you can of measure in a lot of ways, but culture is something that’s really hard to measure, but it’s really important. So if you have a founder-led company, that founder culturally aligned with the rest of their company, those people can shape the culture of their companies. They have a lot of power there. And this can help them instill their core values and their principles from the very beginning because they’ve been through it all. “This is who we are and this is how we do things.” Well, that can be very important coming from someone who founded the company. And this cultural alignment ensures that the company operates in a way that reflects their vision, their values, which is going to help the company to be strong and have a cohesive identity that’s resonating with employees, customers, and business partners there.

Another thing is that the company’s culture can improve employee retention, attract talent even, which is really helpful, and create a sense of purpose which drives everyone towards common goals. And that’s something that Josh mentioned, is just getting everyone on the same page, making everyone who comes to work have a sense of purpose that what they do is helping to fulfill those goals and how the company is getting there. And that’s huge. And then when the culture aligns with the vision, it creates that unified direction, and it’s going to permeate every single aspect of the business which is going to enhance its ability to execute all the strategies effectively and grow over time. So that cultural alignment is very, very key for a founder, CEO of a public firm. And let’s talk specifically, again, not stock recommendations here, no recommendations here.

Josh Robb:

Yes.

[20:02] – Should You Invest in Strong Leadership Companies? 

Austin Wilson:

These are three very popular companies I’m going to talk about with three very popular leaders that are founders… Or I’m going to say founder-ish in nature here. So, number one, Jeff Bezos, right? He’s no longer, by the way, the CEO of Amazon, but he was. He founded Amazon, was a CEO for a long time. Under his leadership, Amazon started as an online bookstore, right?

Josh Robb:

They did books. They did books.

Austin Wilson:

That’s what they were. But they turned into the global e-commerce giant, like one of the biggest in the world. And then they turned into a cloud computing company, an entertainment company, and even more. But his-

Josh Robb:

And a free shipping company.

Austin Wilson:

Jeff Bezos. He had a founder-driven vision, which focused on obsessing about the consumer. “What does the consumer want? What does the consumer need? How am I going to get there?” And really had some long-term thinking that helped the company over time, was continuously innovating. And this allowed Amazon to dominate various industries over time. And he also had a very large stock stake in the company which aligned his personal and financial interest with Amazon’s success, which drove great growth and expansion over time. Another one is Elon Musk and Tesla. And you’re going to say, “Oh, no, Elon Musk didn’t found Tesla.” You’re right, okay? I’m going to give you that. Elon Musk did join Tesla in 2004 as an early investor and led their early public funding round. Tesla was founded in 2003 by a couple other guys. Since then, however, Musk has been the face of the company.

Josh Robb:

Everybody associates…

Austin Wilson:

Everyone associates Elon Musk and Tesla like peanut butter and jelly. They’re the same. He’s been the face of the company. He’s taken a significant leadership role, and CEO role eventually. He’s been the chief product architect of many things and greatly influenced their direction and growth. And it’s really hard to separate the two right now. And he’s another example of the richest man in the world, give or take on a given day, but most of that is in Tesla stock. So his financial interests are also aligned with the company’s financial interests. So if the company does well, he’s going to do well. So that alignment has really driven a lot of shareholder returns over time and returns for himself. The third and final example is Mark Zuckerberg, right? Formerly Facebook, but Meta Platforms is the company now. He is the CEO. He founded Facebook in college of all places.

And it has just always been about focusing on connecting people, expanding their social networking system. And because he’s the founder, he’s always valued openness and innovation and a global community. And that’s been central to the company’s evolution from Facebook to multiple things, including Instagram and WhatsApp. And also his substantial financial ownership stake has kept his vision closely aligned to the company’s trajectory, which has made the company grow aggressively fast over time and just continuously adapt. Some examples of stocks and companies that have worked over time, and some key traits that we look for and have seen in many, many publicly traded company CEOs that are also founders or close to founders, big key leaders in the companies there. So Josh, final thoughts.

[23:01] – Final Thoughts from Josh & Austin 

Josh Robb:

And again, you don’t have to be a CEO to be a leader. In fact, most leaders aren’t just that category. And so when we talk about these traits and these ideas is you probably have some sort of leadership role in your life that you can apply these to, is don’t ever get to the point where you’re so removed from leading that you’re just focusing on the high vision and you’re off in your own little space kind of dreaming and vision casting. You got to be involved. So no matter what that is, whether it’s coaching, whether it’s leading a team or a small group, any of those things, stay engaged. You can be the one that has the biggest impact and drive morale and vision from the group more closely when you work with them. And then again, when it comes to investments, like you said, there’s a lot of incentive for those that found the company. It’s their idea, their brainchild, their baby, that they’re highly motivated to see that succeed. So something always to keep in mind.

Austin Wilson:

Yeah, I totally agree. Honestly, some of the best leaders that I know have been the people who have been elbow to elbow with people in the weeds. And they do the work, they do the hard work and they put their brains together with you and they just make things happen. And those are the people that people respect.

Josh Robb:

Yes.

Austin Wilson:

Well, those are also the people that make great leaders in the business world. And those leaders are the ones that have driven stock prices of many companies much higher over time. And it’s one of the reasons that we look for and enjoy founder-led companies when we’re in making investments again. So yeah, that’s great. So thank you for listening today. And maybe you had someone asking about a founder-led business or just business leadership in general. Well, share this episode with them. We’d be happy if you did that.

Josh Robb:

All right.

Austin Wilson:

Email us any other ideas you may have at hello@theinvesteddads.com. And until next episode, have a good one.

Josh Robb:

All right, talk to you later.

Austin Wilson:

Bye.

Thank you for listening to The Invested Dads Podcast. This episode has ended, but your journey towards a better financial future doesn’t have to. Head over to TheInvestedDads.com to access all the links and resources mentioned in today’s show. If you enjoyed this episode and we had a positive impact on your life, leave us a review, click subscribe, and don’t miss the next episode. Josh Robb and Austin Wilson work for Hixon Zuercher Capital Management. All opinions expressed by Josh, Austin, or any podcast guest are solely their own opinions and do not reflect the opinions of Hixon Zuercher Capital Management.

This podcast is for informational purposes only and should not be relied upon for investment decisions. Clients of Hixon Zuercher Capital Management may maintain positions in the securities discussed in this podcast. There is no guarantee that the statements, opinions, or forecasts provided herein will prove to be correct. Past performance may not be indicative of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns. Securities investing involves risk, including the potential for loss of principle. There is no assurance that any investment plan or strategy will be successful.