Stewart Kohl is the co-CEO of The Riverside Company, a global investment firm focused on being one of the leading private capital options for investors, business owners and employees at the smaller end of the middle market by seeking to fuel transformative growth and creating lasting value.
Stewart Kohl has been actively involved in a variety of community and philanthropic organizations, serving as an Honorary Trustee of Oberlin College and Co-Chair of the Museum of Contemporary Art Cleveland. He is also on the Board of Trustees of Cleveland Clinic and Co-Chairs its $2 billion Power of Every One Capital Centennial Campaign.
One of Stewart’s proudest accomplishments is helping to serve as a founder of VeloSano, a cycling-related charity that has raised more than $21 million to fund cancer research at the Cleveland Clinic since its start in 2014. This year, because of the COVID-19 health crisis, VeloSano will be hosting a virtual “Bike to Cure” weekend in July.
We recently had the opportunity to speak to Stewart and learn a little more about how The Riverside Company evaluates a new investment, and about some of the unique opportunities available to owners and entrepreneurs when partnering with a private equity company.
What kind of management does Riverside look for when considering an investment?
We’re looking for a certain level of industry expertise for sure. We can complement and supplement it, and we do, both by hiring other people out of the industry and, importantly, by putting on the boards of all of our companies two outside board directors who are typically chosen for being deep industry experts.
We’re looking for their level of commitment to the business. Sometimes that’s evidenced by longevity. Sometimes it’s evidenced by their ownership or their willingness to invest even a modest, absolute amount of money but a meaningful amount in terms of relative to their net worth, that level of commitment.
Then their desire to grow the business. To make our returns, we’re going to want to double or triple the size of the business over our five years. That typically means doing some add-on acquisitions as well as trying to super-charge organic growth, like by creating this marketing arm for the Shaker business I referenced. They have to be all in. They have to want to work that hard, make that commitment, be a part of that. Often people will self-select. It becomes clear they don’t want to do that.
We’re going to professionalize the business. We’re going to put in a new management information system. Odds are it doesn’t have one today, and many of the businesses we invest in don’t. Any of you have put in an MIF system, though, it’s not for the faint of heart. We need to know that we have folks that are committed to doing these things, and, again, I hope it’s not zero sum. We’re not just saying, work your ass off and we’ll make a bunch of money. We’re saying we’re going to align the interests. You’re going to invest a little bit. You’re going to get stock options. When we’re successful, we’re all going to share in the success and we’re going to celebrate that success.
In terms of improving it along the way, we do a lot of training. We have something called Riverside University. Its flagship program is the Riverside Leadership Summit, which provides hard skills training as well as team building and strategic planning, a regular program of webinars and the like. Then finally, almost always, even at our best companies, we’re typically adding to the management team.
It’s very rare that the companies we invest in have what I would describe as a chief revenue officer. Odds are during our period of ownership, we’re going to invest in somebody who can then take a look at how it handles its pricing, sales force composition and compensation. We’re going to make real fundamental important improvements in these areas using what we call the Riverside Toolkit, which is a proven way of achieving that. Odds are when we go to sell the business, there’s going to be two or three new faces on that management team.
How do you deal with difficult founders and owners?
There’s any number of sellers we’ve met with over the years where, ultimately, we and they concluded that there was not a fit between their objectives and our objectives. But I want to be very careful to say that at Riverside we recognize that some of the same traits that make founders successful in their companies, that willingness to take risks, that willingness to work harder, to persevere, the grit, sometimes that comes with some other issues. Maybe they’re a little more stubborn. Maybe they have a little ‘sharper’ elbows. Maybe they have a little chip on their shoulder.
I’ve been quoted as saying, “Sometimes people with chips on their shoulder and something to prove, do that, they prove it.” We’ve successfully partnered with any number of them. I think the key to it is, is for everybody to be very clear about what we’re doing and what the ground rules are, what’s inviolate and what’s not. I think as long as there’s a clear understanding of that, as long as you’re very transparent about it, then I think we can still partner successfully with that individual. But if it’s somebody who’s just, it’s all about me and it’s not about anybody else in the company and it’s never going to be about anyone else, and this company’s never going to be anything without me, that’s very self-limiting for them, and that likely means that it’s not going to work for us.
Any advice for entrepreneurs and owners when considering private equity capital?
For those of you who have started businesses, have grown businesses, I celebrate you. You make the world go ‘round. Private equity gets a lot of attention maybe because it’s perceived as being a little bit sexy or romantic. Maybe not romantic.
But really the hard work of creating businesses, starting businesses, driving businesses, is done by business owners. At Riverside, we understand that. We respect that. Our job is to help you achieve your objectives. Don’t put us in a box. Don’t put us in the corner. Think of us as a source of capital that can help you achieve a wide variety of objectives. If you have an idea for your company or a company that you work closely with if you’re an advisor, a banker, a lawyer, in any role, please think of us more broadly as the provider of capital, intellectual and financial, to help these companies achieve their objective.
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