Put Money on Firms With Innovative CEOs

Mitch Free is founder and CEO of MFG.com, a global-sourcing marketplace for manufacturers. He writes about manufacturing, trade, globalization, outsourcing, turning a venture into a global business, angel investing and more. Free has given presentations to the Kellogg School of Business at Northwestern University, Harvard Business School, Wharton and the Society of Manufacturing Engineers.

NEW YORK (TheStreet) -- Henry Ford once said: "If I had asked the market what they wanted, they would have said a faster horse." Asking customers what they want will almost certainly lead to improved iterations of current products and services. But truly great companies surprise us with products that we didn't know we needed or wanted. They don't just iterate. They innovate.

Before Henry Ford's innovations -- Ford's(F) Model T, the modern assembly line -- people didn't know they needed an automobile. Fast forward to the information age, and the market didn't ask Jeff Bezos and Amazon(AMZN) for a Kindle any more than they asked Steve Jobs and Apple(AAPL) for an iPod.

As I was thinking about innovation and how to identify such companies, it occurred to me that the common thread is having a founder of the company still engaged in, and passionate about, product development. Those companies often can perform better than those operated by professional managers.

Entrepreneurial founders have an ability to see around corners and listen to the market in a different way, not for product ideas but rather product opportunities. A founder understands the unique assets and strong points of their company better than anyone. They can look at those assets, emerging technologies and layer in customer needs to create products that surprise and delight.

That phenomenon is the underlying reason why truly innovative companies can become "me too" operations. Specifically, as companies mature and the founders check out, professional managers check in, and they find the path to innovation no longer comes from within, but through acquisitions of young, entrepreneurial companies.