Why Aziz backs founder-driven businesses

AZIZ HAMZAOGULLARI: Founders not only have a vision but also a very clear understanding of actualizing that vision into commercialization of their products and services. And they do this in a way that is very unique, and the evidence is whatever they do, people catch up to it much, much later. One of the key things we look at as part of quality in any business-- and we look at 4 key drivers in quality. 

First, we always ask the question, what is unique about this business in terms of, if you had time and capital, can you replicate it? How is this company positioned within its global value chain? Are they one or the best position-- one of the best positioned companies in the value chain? 

Then we look at the financial strand of the business. Is it a self-sufficient business? Then we look at the management. And when we are looking at management, roughly half of our companies are founder-driven. 

The founders are still involved. What these founders, I believe, provide is a very unique vision or understanding of their businesses that's different than 99.99% of the population. In other words, if I were to give an ad to any place and say, I want to look at a professional CEO who will come and manage these different businesses that we own, I think it would be very difficult to find those managers that will have had the founders' understanding of the core businesses. 

With Oracle, with Larry Ellison, who started Oracle many, many decades ago, his first big insight into his business was the architecture of the database that Oracle created, which was very different than what was in marketplace back then, other players like IBM and others. He basically understood the unique advantages of the architecture of a database that was not similar to mainframe but focused on a distributed computing platform. 

And that big insight, which may seem simple, was so unique that it took others, like Microsoft and IBM, more than a decade to catch up and understand, wow, this is truly very different and unique. But by the time your competitors wake up, you do not wait for your competitors to come and catch up with you. You add into that innovation, and it is the really uniqueness of these quality businesses where time becomes your friend, so meaning because you have that head start with this clear, differentiated view that you create this business that over time compounds its advantages. 

So from there, he built the applications in terms of the stack for what he was offering to his clients. Then on top of that, he added cloud services. And now we are seeing that Oracle is also involved in this building AI infrastructure. So that's an example of a founder that over many decades continuously made his core business stronger but added all these adjacent businesses that are as strong and as attractive in terms of differentiation and also in terms of growth. 

Similarly, Jeff Bezos started with e-commerce and then added the Amazon Web Services, then the logistics, and then advertising. But it started with this very strong core business that was very difficult to replicate. And with the cash that the business was generating, the founder had this vision and understanding of where he wants to take their core business but also build upon it. 

And so not only these founders have a clear vision, but also, they have very, I would say, simple but insightful principles. And they really narrow it down to being very, very selective. So they don't go after every opportunity. They go after only those opportunities that fit to their principles. 

So in case of Jeff Bezos, he clearly laid out in his annual report back in 2006, when we first invested in the business, where he said how he would choose to invest in a business. First, he said, whatever business I go into, I want to offer something truly differentiated, different than how others are doing, some value that I am providing that would be very difficult to replicate it. That's a competitive advantage. 

Second, he said, whatever I'm going after, I want it to be really big so that it can provide the growth opportunity for me, but also, it's worth my while to invest in that business. Third, he said, I want these businesses to generate really strong cash flow and good return on capital. So these simple principles are very difficult to implement for many because they're not disciplined or they don't have that vision. 

As a result of that, he was able to build these strong businesses. You look at Google. I mean, Google started with 1 product. Today, they have 15 products with at least half a billion people on it, some of which have more than 2 billion users, like Search, Android, Chrome, Gmail, Google Pay, Maps, Search, and YouTube. So all of these businesses are an extension of their core business. 

When Google invested in YouTube, many thought that wasn't a smart idea, buying a company for billions of dollars where there was no revenue. But the founders understood where Search is going, where media is going, where advertising is going. And with that multi-decade look into the future, they took this business with almost no revenue and created today a business, if it was a standalone business, it will be one of the most valued companies out there because it's the highest view place, YouTube. It's even higher than actually Netflix, which is another great business that we own.