Why We Love Owner-Operators



At Bluestone, our thing is entrepreneurs. There can be many different flavors of “entrepreneur,” from the bootstrapping startup to the multi-generational family business, but the flavors that most interest us all have two things in common: meaningful ownership in some sort of enterprise; and meaningful involvement in the day-to-day operations of that enterprise. Which leads us to the term “owner-operators.”


Owner-operators (let’s call them OOs) can exist in any company, public or private. Our advice and service focuses on OOs who own and run private companies. But it’s not surprising that when it comes to investing in public companies (an area where we utilize a small number of carefully selected investment managers), OOs show up frequently amongst the most attractive investment candidates.


This graphic from investment manager Horizon Kinetics highlights the difference between the typical agent-operator model and OOs1:



Or as Bill Nygren (from investment manager Oakmark) says, small businesses don’t have the same governance issues as most public companies: “The owner is usually the operator and can see that maximizing personal wealth is accomplished by maximizing the long-term value of the business.”2 OOs are rare amongst public companies but they can be found.


Horizon Kinetics cites several reasons why OOs are attractive. “We believe owner-operators have a distinct management style that contrasts with that of the typical agent manager and contributes to long-term shareholder wealth creation by these companies.”3 There’s better alignment of interests, as OOs maintain significant common equity holdings. That in turn tends to lead to opportunistic capital allocation with long-term focus. Successful capital allocation over time generates further advantages like access to capital on favorable terms, access to superior opportunities, and a better network of business relationships.


Entrepreneurs who are real OOs represent the audience Bluestone is here to serve. It’s highly rewarding to work with interesting people doing interesting things, who are willing to back themselves, think and act long-term, and build valuable enterprise for themselves and their stakeholders.


Are you an OO? You might be just the kind of entrepreneur we love.

 

1. http://kineticsfunds.com/wpcontent/uploads/2014/08/Owner_Operator_Two-Pager.pdf

2. https://oakmark.com/news-insights/bill-nygren-market-commentary-2q21/

3. http://kineticsfunds.com/wpcontent/uploads/2014/08/Owner_Operator_Two-Pager.pdf