#131: Stewart Kohl (The Riverside Company)

Stewart Kohl (The Riverside Company) [00:00:00]:

I am a strong proponent of growth. I recognize the two edged sword nature of it. But I believe that lack of growth is a one edged sword and it's only going to hurt you. I believe that organizations and maybe people, because organizations are, after all, made up of people, are either growing or dying. It's kind of one or the other. Maybe there's a few people that can just get it perfectly stasis, but I don't think so. So I know at Riverside we want to grow. I know our companies want to grow. And our job, actually, is to become stewards of good growth. Productive growth. Constructive growth.

Jeffrey Stern [00:00:47]:

Let's discover what people are building in the greater Cleveland community. We are telling the stories of Northeast Ohio's entrepreneurs, builders, land, those supporting them. Welcome to the Lay of the Land podcast, where we are exploring what people are building in Cleveland and throughout Northeast Ohio. I am your host Jeffrey Stern, and today I had the absolute pleasure of speaking with Stuart Cole, the co CEO of the Riverside Company, with headquarters here in Terminal Tower in Tower City. Riverside is a global private equity firm founded to invest in premier companies at the smaller end of the middle market land. Since 1988, Riverside has invested in more than 960 companies globally, growing assets under management from $1 billion in 2004 to as much as $14 billion today. Under management, employing more than 300 people in offices across North America, Europe and the Asia Pacific region. Prior to his work at Riverside, Stewart was a vice president of Citicorp Venture Capital, the private equity arm of Citibank. And in addition to his work with Riverside, Stewart serves as an honorary trustee of Oberlin College and of the Cleveland Museum of Contemporary Art. He is on the board of directors of the Cleveland Clinic and cochairs its $2 billion Power of Every One Capital centennial campaign. Additionally, after spending 16 years as a heavy hitter participant in the Pan Mass Challenge bicycle fundraiser, stewart founded VeloSano, a similar event that has raised more than $20 million to fund cancer research since 2014, and kicking off the 2023 Bike to Cure event on September 8 and 9th. This was truly an insightful conversation, unpacking what Stewart's learned building an iconic investing franchise over the last few decades, spanning Riverside's tremendous growth, how to evaluate companies, helping companies grow, conscious capitalism and the positive power of private equity, managing LP relationships, Stewart's charitable pursuits and Cleveland overall. So please enjoy my conversation with Stuart Cole after a brief message from our sponsor. Lay of the Land is brought to you by Impact Architects and by 90 as we share the stories of entrepreneurs building incredible organizations in Cleveland and throughout Northeast Ohio. Impact Architects has helped hundreds of those leaders, many of whom we have heard from as guests on this very podcast, realize their own visions and build these great organizations. I believe in Impact Architects and the people behind it so much that I have actually joined them personally in their mission to help leaders gain focus, align together, and thrive by doing what they love. If you two are trying to build great, impact Architects is offering to sit down with you for a free consultation or provide a free trial through 90, the software platform that helps teams build great companies. If you are interested in learning more about partnering with Impact Architects or by leveraging 90 to power your own business, please go to IA layoftheland FM. The link will also be in our show notes. I was thinking about where the best place to start might be, and I used to work out of Tower City in the heart of downtown Land. There was a co working space there and an accelerator on the second floor of Terminal Tower. So I came across Riverside, I think, pretty early on into my own Cleveland journey, passively hearing about the firm in the lobby of the building. But I don't think candidly fully understanding what it was that you were doing, nor aware of the formidable and sheer scale at which you guys were operating and the incredible growth of the firm over time. But now that I am, I'm quite excited to learn more about Riverside, your own journey. So thank you for joining us.

Stewart Kohl (The Riverside Company) [00:04:50]:

Thanks for inviting me. I appreciate the interest. I love to tell the story.

Jeffrey Stern [00:04:54]:

Yeah. So with that said, for those who may not be currently familiar with Riverside and what it is that you do, what is Riverside and what does the company look like?

Stewart Kohl (The Riverside Company) [00:05:06]:

Yeah, jeff, you all start at the highest level for your listeners, which is that we are a private capital firm. Many of them, I think, probably deeply understand what that means. But for those who maybe are new to the world, when we read the financial press, when we listen to the financial news, the stories are overwhelmingly about the biggest, most important public companies. And they are big and important, but behind them, beneath them everywhere, are the private companies. It's an extremely large portion of the economy. I'm a little biased, but I tend to think it's the most innovative part of the economy. Land Your own personal Journey demonstrates some of that. And kind of by definition, every public company was a private company once upon a time. So firms like Riverside and it's a big world today. It wasn't 35 years ago when we started, but today it's truly an industry. Private capital firms exist to provide capital in many forms to the many different types of private companies, usually to help them grow, sometimes to help them turn around or fix a problem. But mostly it's forms of growth capital. And it's called private capital because the companies we invest in are private and the funds we use to invest in the are raised in private offerings from individual land, institutional investors.

Jeffrey Stern [00:06:33]:

And so if we turn back the clock. Land go back those 35 years or so. How is it that you came to find yourself pursuing this opportunity and kind of work?

Stewart Kohl (The Riverside Company) [00:06:45]:

Yeah, I would describe it as dumb luck, and I would urge your listeners not to try this at home, but I was reading The Wall Street Journal, which I've done pretty much every day since college and would encourage folks to do. I was reading about these things. They used to be called leverage buyouts. This was around the same time that people like Gordon Gecko and Greed Is Good was coming out in the movies. Land pretty Woman with Richard Gere and Julia. And I thought that world sounded really interesting. I thought, I would love to be a part of it. Mind you, I had never taken a finance course. I obviously didn't have an MBA. I never had studied accounting. And I'm not exaggerating here. I could not spell EBITDA, which is a commonly used term in my world, but that didn't deter me from wanting to get involved in it. And through tremendous good fortune, dumb luck, I was able to find a route in in the way that Citicorp hired me in 1987, sent me through a training program that was a seven month program in New York, almost like a mini MBA, and then posted me here in Cleveland, Ohio, to begin to work on these types of deals. So it was an incredible blessing.

Jeffrey Stern [00:08:05]:

So knowing that the firm today operates on a scale of billions of dollars under management and knowing that when you started, it was orders of magnitude less. If you think about the exponential growth that had to have occurred for you to produce that kind of trajectory I'd love to go towards the bottom left of that graph and understand before it truly takes off what were the origin of that period of the company and the kind of deals you were working on. What was your mindset? What was your goal? Did you have a sense for what the firm would become today?

Stewart Kohl (The Riverside Company) [00:08:47]:

I promised to answer that question, but only after I point out that I don't view our growth as exponential. I view it as very kind of measured. Land logical, the magic of compounding. When you have 35 years to compound, even a ten to 15% annual growth rate leads to a pretty good outcome. And we're much more the tortoise than the hare. So let me answer your question, which was, I went to work at Citicorp, 1987. I was hired I started in 88. Seven months training in New York, posted to Cleveland, spent five great years at Citicorp, learning the business, flying my trade, with a huge advantage of having that Citicorp logo on my business cards, which opened many, many doors. During that period of time, I was in close communication with a gentleman named Bayla Sigathy Bayla. And I had gone to each had grown up in New Jersey in the we each had gone to Oberlin College in the we actually each worked at Citicorp in the 80s. But in 1988, Bayla courageously left a real job and at his dining room table overlooking the Hudson River and Riverside Drive in Manhattan, founded the Riverside Company. So he's truly our founder, and perhaps you should be interviewing him, not me. But he's in New York and I'm here in Cleveland. Almost from the beginning, we talked about joining forces, but as I said, I had a great gig at City. But City struggled in the early 90s after the pro Skull Four recession and particularly some real estate issues. Long story short, they closed down the Cleveland office. So my options with City would have been in New York or Chicago. And strangely enough, I didn't want to leave Cleveland. So bail land, I agreed to join forces. In addition to being courageous, he's magnanimous. So he said, Come and be my partner. We'll be 50 50 partners, even though he had been toiling in the fields already for almost five years and had already done a couple of deals, one very successful deal, but that began the partnership in 1993. So for the last 30 years, we have been co CEOs and 50 50 partners. When Baylor started the firm, he didn't have any real money, so he did small deals. When I left Citicorp, I didn't have any real money, so I continued to do those small deals together through the decade of the 90s. We did about 30 of these little deals, a combination of platforms and add ons. And for those of your listeners who are old enough to remember the 90s, it was a great decade. Our guilds worked. And by the way, just about everybody's guilds worked in the 90s. It was a very easy time to make money. And by the end of the 90s, we had established ourselves in a place where we could have that kind of long term growth. Up land to the right that you were suggesting. But those were the early days, and they were exciting and heady and fun and scary and risky, and there was a lot more dumb luck and a lot of great good fortune and a lot of ways in which it might not have worked. And I'm mindful of that almost every day.

Jeffrey Stern [00:11:59]:

Tell us a little bit more about the co CEO model there and how you've made that work effectively and at different stages of the company's lifecycle.

Stewart Kohl (The Riverside Company) [00:12:10]:

I'll start out by saying it's been a blessing for me. What I find so interesting about it is my answer would be that I'm both happier and wealthier because of it. And if you were to do the podcast with Bayla again, which you should, he, I think, would give the same answer. And the reason I like to focus on that is because it points out something that we believe strongly and we believe in many ways at the heart of riverside which is that we don't believe in zero sum games. We believe in virtuous circles. We believe in everybody can. We love win wins and always try to find those opportunities. We particularly hate lose lose, loses. So the co CEO component, the 50 50 being 50 50 partners that Bayla offered was in retrospect brilliant because it means we're truly aligned and kind of forced to agree. The co CEO part really speaks to governance. And what I would say is that it requires a high degree of communication between the two of us. We don't always agree at first although we do a high percentage of the time. And when we don't, we just keep talking about it. Eventually, almost always, we end up agreeing. And in those rare instances where we don't then we figure out a way to make the decision. You could do paper stone rock. You could do roll the dice. We have a kind of view that who knows more about that particular subject or topic or question who cares more about it? And if we really tried to agree and we still don't agree then whoever knows more and cares more should make the decision and we should both live with it as if it was a unanimous decision. So that has worked well. It's interesting in private capital firms like Riverside there's a fairly significant number of cos co CEOs. I'm not familiar with it existing well in many other industries and I often think about why that might be. I think part of it is because the firms tend to start very small, very organic and it makes sense to grow up together. But I also think it's because the nature of our work is all about judgment. What company do we buy and how much we pay for it? Who should run it? What should the strategy be? When should we sell it? There are no clearly right or wrong answers. It's all judgment. So having more than one person to judge is likely to lead to a better judgment. And I think other firms have found that too. So to pick on a firm like KKR that is extremely well recognized in our industry. Hundreds of billions of dollars of assets under management. The KKR founders are now executive chairs. They no longer run the firm day to day but they've been succeeded by two people scott Nuttle and Josephi who each started at the firm at the same time grew up together. It's almost another partnership founding story that is very much fits the culture understanding.

Jeffrey Stern [00:15:42]:

There are no right or wrong answers. And it's an exercise of judgment when you think about evaluation criteria the ingredients that actually make for the best Riverside prospective opportunity. Hypothetically. If I had every single eligible, let's say, company on the smaller end of the middle market your strike zone in the world together in one room and I wanted to arrange them in this room from lowest quality to highest quality. They're not all created equal. So if you think about the spectrum from bad to good to great, how is that spectrum itself defined? What is an ideal company from your perspective? The qualities boiled down that are most critical when you're evaluating a business.

Stewart Kohl (The Riverside Company) [00:16:32]:

Yeah. Land it's hard because everything matters, but I think there are some things that matter more than others. Look, we always start with what I call efficacy. It's not always exactly the right word, but it's this company providing a product or a service that works for its customers, works for the broader world. If it doesn't, it might have some success for a period of time, but it's not likely to be long term sustainable. Second, does the company exhibit good values? We have observed over the 35 years and soon to be thousand companies we've invested in that there is a direct correlation between the value systems of the company we invest in and the success of the investment, which is really interesting to me because the word values and valuation have the same root. Somebody figured that out a long time ago. So we care a lot about values. And the most extreme and ugliest form of poor values is getting defrauded, which has happened to us a handful of times. And out of a thousand that people maybe don't like to hear this, but there are bad actors and fraud exists everywhere in the world to some degree, hopefully not much, and we've gotten pretty good at sniffing it out. The market in which the company operates in not just the big market, but the subsector it operates in, becomes critical. And here we have a bit of attention because being a small, I love the fact that you use small end of the middle market. That's how we describe our strike zone, those companies. We only want to invest in companies of that size, but we want them to be very important in their industry. And there's an inherent contradiction between those two things. So by definition, we're looking for niches. But if it's just a small niche that has no growth potential, if there are no adjacencies, if you're not going to have a strong tailwind, then you're going to buy a small company and sell a slightly less small company. And that's not a recipe for success. We want to buy a small company and sell a medium to big size company. So we're looking for a strong tailwind, we're looking for a big enough area, but we still want to matter. At the beginning in our little world, then you get into just a lot of analysis. Financials well, I should say before that, equality of management. We have hired so many C suite executives that you could say, don't worry about it, because company doesn't have the right management, you'll hire them. But that, I think, ignored the reality that if you're buying a company that doesn't have at least the beginnings of a strong team. It's a long journey to get there. The beginnings could be a strong CEO that needs people around her. The beginnings could be some very good people on a team and a CEO that did a good job to this point but isn't the right person to take it to the next next level. But there has to be some amount of management first. And then you get into does it have the right systems and data? Land people below the C suite, land all the financial analysis we do and all that terribly important, but didn't get those first ingredients right. It's going to be really hard to make it up with everything else.

Jeffrey Stern [00:20:17]:

It makes a ton of sense. It brings me at least to think about the inverse. What would be I'm not sure exactly what you call it, but the negative screening list you mentioned things you would sniff out, right. So if you've given us these characteristics that you look for, could you touch on some of the things that would be red flags and maybe it's entire industries or styles of company, but what gives you pause?

Stewart Kohl (The Riverside Company) [00:20:43]:

So there are industries that we just won't touch for sort of principled reasons. So tobacco and firearms, gambling, but that's a very small subset. There are other industries we won't touch because we touched them and it was like a hot stove didn't feel very good.

Jeffrey Stern [00:21:03]:

Lessons learned.

Stewart Kohl (The Riverside Company) [00:21:05]:

And we avoid those. We also have had situations. Concentrations in any form are risky. So the most obvious one is a customer concentration, where one customer is too high a percentage of sales. We've been burned when that customer changed its mind. Even one vendor being too high a percentage of your sales creates a dependency that we don't like. So that's important. On the positive side, we love recurring revenue. I grew up the son of a salesman, so my father would go out every day and if he sold something, he came home in a good mood and we had a nice dinner and life was good. If he came home, didn't sell anything, not so much. So when we began investing and started to stumble on businesses that have genuinely recurring revenue and I'll list some in a moment, for me it was like an epiphany. Even if we didn't sell anything today, we're going to get a bunch of revenue tomorrow. That's amazing. And it turns out that recurring revenue exists in many forms. And the entrepreneurs listening to this podcast are likely thinking about business models that bring recurring revenue. The most obvious one in today's world would be SaaS businesses, software businesses with their beautiful monthly recurring revenue. We love franchisors with a franchisee pay as a royalty. We love online forms of training, particularly where it's required to get a job, keep a job, get a promotion, get a raise, land you pay for a subscription to get that type of training. That's a form of recurring revenue. So again, it exists in a lot of ways in a lot of places. Land when you find it put simply, those companies are more valuable than companies that don't have recurring revenue. So just giving you some ideas of some pros and cons things of beauty and less beauty that we look for.

Jeffrey Stern [00:23:13]:

So once you've worked through a formal partnership with the company, they've met the bar for your evaluation criteria and you're opting to work with them. I feel like most of the work might come from there. After you vetted them and have this alignment. What does the rest of the process look like when you think about unlocking value within these companies?

Stewart Kohl (The Riverside Company) [00:23:37]:

Obviously from the time we think this is a good opportunity to the time we actually wire the funds and close, there's a whole complicated process there which we can talk about. But put simply, that's what our folks do brilliantly. We have excellent processes because we've done it almost 1000 times successfully. I'm very proud of the way we go about that. And then even before we close, we start to transition to think about what we're going to be doing with this business post close and how can we hit the ground running, how can we get a quick start. And most importantly in that is our add on acquisitions. It's very typical that one of our platforms will do one, two, four, even ten or 20 add ons during our period of ownership. When I talked about us buying small companies and wanting to sell less small companies, add ons is an important way that we achieve that. So we have an incredible global origination team, 20 people whose full time job at Riverside all day, every day is to go out and find our deals. The last year found 5000 opportunities for us. They're already going to start looking now for companies which might be an add on to the next platform we're going to close. Meanwhile, we have identified an operating partner from a stable of about 70 that we have working with Riverside who's going to be the key point person on a day to day basis. Our view of the world is that the folks who are really good at all the things we've been talking about so far are not necessarily the best people once you close and now you need to run a real business. I used to do it when I was at Citicorp the day after we closed and I was responsible for that investment. And I used to call it playing store because I would be trying to tell management what they should do in difficult situations even though I had never really done it. Now we hire these 70 folks and they come from industry. They've run companies of the size and elk we invest in. And they don't want to be the CEO, but they want to make the CEO highly successful. And they're compensated for doing just that. So that's a key part of what we do. We've developed a wide variety of alpha tools. If your listeners are familiar with the concept of alpha versus beta, this is sort of the unique ways that we can add value to an investment. It includes everything from a pooled purchasing program where we buy paperclips and FedEx and healthcare as a whole, rather than individually saving over $10 million a year doing that. It includes Riverside University, which is a training program that we put together for the C suites of leaders of our companies. It includes some remarkably detailed and effective approaches to growing revenue. Organically, which is the other side of how we go from being small to less small is by trying to juice up the organic growth rate, which anybody who started a business, run a business, grown a business, knows is extremely challenging, but almost always involves the need to hire more salespeople, come up with better approaches to compensating them, offering them better technology and systems to track leads and to find the next customer. Developing the personas and the sales pitches and the scripts and on and on. It's detailed, day to day heavy lifting. It's work. That's why I don't do it. But we have people that have spent their careers doing that and bring that expertise to the companies that we invest in.

Jeffrey Stern [00:27:38]:

So with that foundation kind of laid for the focus of Riverside and the work it is you're doing, if you think more holistically about it, what does success mean to you? Where are you trying to take this organization both personally and professionally? What is the impact that you're hoping to have here in retrospect?

Stewart Kohl (The Riverside Company) [00:28:01]:

Yeah. So it starts with delighting our investors because they are our most important customers. And if we don't delight them, they won't invest in our next fund. And if they don't invest in our next fund, we're going to be on a slow descent. So that means delivering consistently good returns and finding ways to make distributions even in difficult markets. And we're keenly aware of they are our bosses, but I don't think that's enough. I think it's also very important that the companies we invest in feel like we are great partners, that we've helped them to grow and succeed. And when we do, and there's particularly, say, an exit and provides tremendous returns to the management team, to the community they operate in. That's something we celebrate and it's something we're very proud of. We spend a lot of time thinking about what kind of career we can offer to our own folks. Bale and I feel like we've had this amazing 35 year run and we'd love to believe that Riverside might be around for 35 years more. We might not be. But what kind of opportunities is it going to present to folks we hired 15, 2025 years ago? We're still many of them still there. But also what opportunity is going to be for the person we hired last Tuesday. I'd like to believe that I don't know that they're going to have the opportunity to become co CEO, but I'd like to believe they're going to have the opportunity to have a great career and spend it at Riverside if that's what they would like to do. And again, we just love the fact that so many people have chosen to invest their careers with Riverside. That's a big decision. They work for us from 25 to 50 or beyond. They're not going to be 25 again. They're not going to be 35 again. They gave us some precious time and would like to believe they felt they made a great decision in doing that. Sometimes the communities benefit too, and that's very pleasing to us. Even though Bale and I went to Oberlin College, we kind of died in the world capitalists. We believe free enterprise is a good thing. It's lifted billions out of poverty, and I'm not exaggerating, those are the facts. It's far from perfect. It has a lot of imperfections, in fact, and we'd like to see it become more perfect. But it really does work. And when it works, everybody should benefit. Goes back to that concept of win wins. We worry a lot about ESG environments, environmental, social and governance, if folks are familiar with that. People often refer to it as sustainability. That's very important to us as well. And we recently became part of an organization that could almost become a movement that's called Ownership Works. And it was started by somebody out of KKR, the firm I mentioned before doing big, successful deals and thought there was an opportunity to make capitalism even better and generate better returns by giving more of the employees, or, ideally, all of the employees of the companies they invest in a stake and a piece of the ownership. He's had success with that. Pete Stavros is his name. He's promoting that across our industry. And we're very proud to be one of the founding organizations and to be working now towards having our first companies that would follow this model. And Bale and I hope it proves that it creates that bigger win win win. We added one more win to that.

Jeffrey Stern [00:31:59]:

I mean, that's like an ideal way to align incentives, land, implement the actual mechanism to realize positive sum practices.

Stewart Kohl (The Riverside Company) [00:32:08]:

Exactly.

Jeffrey Stern [00:32:09]:

I definitely want to circle back to the point about investors as your stakeholders and the point about growth on the company side, but in the spirit of how it is that you think about your own success. Holistically in this positive sum mentality, I'd love to hear about VeloSano, and if you could share a little bit about the work that you're doing there, the founding story, if you know how it is that you came to be interested in that and ultimately starting it.

Stewart Kohl (The Riverside Company) [00:32:38]:

Thank you, Jeffrey, for asking. And if this was a videocast, not a podcast, you would. Be seeing me smile broadly.

Jeffrey Stern [00:32:44]:

Now, I can confirm that.

Stewart Kohl (The Riverside Company) [00:32:47]:

Land you would say to yourself, why in the world would you smile when you're talking about cancer? So let me try to explain. All of us, I say confidently, have been or are touched by cancer. That's the euphemism. We're touched by it. Nobody gets touched by cancer. You get clobbered by it. It's something that we all worry about. So we go for the annual mammography every five year colonoscopy or we try to manage our exercise and our diet. We're always playing defense, and we're always living in fear of it. Velocino started as an event. We call it Bike to cure. It's growing beyond just being an event towards being a cause or a movement, which is to raise money to do cutting edge, life saving cancer research. Now here in Cleveland, funding the brilliant doctors, land scientists we have at the Cleveland Clinic and other organizations locally. And it's something that we started ten years ago with tremendous support from the Cleveland Clinic and has grown to be, I believe, a truly community wide event. This year we'll have, hopefully, 2500 riders, and last year we had close to that number and raised $6.9 million. So I hope we'll raise even more in this, our 10th anniversary. And the most significant part of Elsano is the Bike to Cure weekend. That will be September Eigth and 9th. We'll leave from right downtown in Mall B on Saturday the 9th. On Friday evening, the Eigth, there's a fantastic kickoff party, tremendous energy and spirit, great music and food, a lot of fun as we watch the sunset over Lake Erie and think about the cause that we're a part of. On ride day, people can ride anywhere from 6 miles to 100 miles. The go out to their friends and family and ask for pledges, and people are very generous. Land will ultimately have 30,000 or more donors contributing to that $6.9 million or more. And the work that we're doing is finding Cures. It's finding pieces. I like to think of them as pieces of the world's largest, most complicated, most challenging, most difficult jigsaw puzzle ever. And every time we fund a research study that comes up with a finding, it might be one more piece of that puzzle. And if you've done jigsaw puzzles, every time you find the corners and find the borders and start to fill in the middle, it goes slowly at first, but each piece generally leads to, oh, now I see where that goes. And by the end, you almost can't put down the pieces fast enough. And that's what I believe is going to happen with cancer research. We're just going to keep finding these pieces, and each one will unlock the next ones. Land when the story of how cancer was conquered and that doesn't necessarily may not be the polio model where we all take a sugar cube and it goes away, but it's no longer a death sentence when we reach that day. And we have in some areas already, I hope Cleveland and Velosana will be a small chapter in the book of how that occurred and that would be something I would be very proud of. Meanwhile, I love to ride. So that's why I'm smiling. I'm having a ton of fun and I would say that if you join us, and I hope you will on September 8 and 9th land interview the people that are part of this. They would tell you it's one of the most fun weekends of the year.

Jeffrey Stern [00:36:33]:

Well, that's amazing. That's really inspiring work and I hope it's part of that history of how we conquer this thing.

Stewart Kohl (The Riverside Company) [00:36:42]:

Yeah, well, thanks for helping to promote it.

Jeffrey Stern [00:36:44]:

Absolutely. I'll circle back to and I do want to touch on both of those but let's talk about growth for a little bit. So obviously these tend to be more mature businesses or at least they've been around for a little while and a little bit lower growth relative to the kind of world that I'm operating in with these high flying, venture backed, early stage startups. And I think people tend to think about growth as a good thing, all else equal. But I know, and I'm sure you do as well, that it can create challenges, land problems along the way. And so I'd love to just hear your perspective on growth as an idea.

Stewart Kohl (The Riverside Company) [00:37:23]:

So I am a strong proponent of growth. I recognize the two edged sword nature of it. But I believe that lack of growth is a one edged sword and it's only going to hurt you. I believe that organizations and maybe people, because organizations are after all made up of people, are either growing or dying. It's kind of one or the other. Maybe there's a few people that can just get it perfectly stasis, but I don't think so. So I know at Riverside we want to grow. I know our companies want to grow and our job actually is to become stewards of good growth, productive growth, constructive growth. And mostly we're successful at that. We're mindful of the challenges of growth and mindful of not becoming a victim of your own success in a way. But when we go back and analyze our successful deals and we do a lot of introspection at Riverside, all of our successful deals always have in common the fact that we were successful growing the company.

Jeffrey Stern [00:38:39]:

Is there a single change that you've made to a business after investing in it that stands out in memory as just outsizedly impactful?

Stewart Kohl (The Riverside Company) [00:38:50]:

So I mentioned that we hire a lot of people over the history of Riverside. There's a lot of examples of companies that were doing well before but did extraordinarily after we hired somebody, the right somebody, maybe more starkly. There are companies that were going the wrong direction and were turned around when we hired the right somebody or somebody one of my mentors was a chap named Mort. Mandel is a Cleveland best known with his brothers Jack and Joseph, founding Premier Industrial, highly successful company, and ultimately Endowing Parkwood and the Mandel Foundation that does so much good. And he wrote a little book. He was fond of saying, it's all about the who. That's the title of his book. It's a very easy read. It's kind of a memorable read. And I agree with him. Those are the most important things that we do at the companies. I talked about some of the systems we helped to implement, and then I talked about those add on acquisitions, and we've turned what would have been okay deals or good deals into extraordinary deals with the right add on acquisitions.

Jeffrey Stern [00:40:05]:

If you had to pick one company that you've encountered in this whole journey, and I just got to give you the keys to it, I'm curious, what business just holistically do you love the most that in perpetuity you would want to own and run that you are aware of?

Stewart Kohl (The Riverside Company) [00:40:23]:

First of all, I have to say I love all of our companies equal. They're all beautiful in their own ways. But two companies stand out over our years, and I think you'll quickly see why. One of them is a company that's now called Neighborly. When we met it, it was called the Dwyer Group. It's a franchiseeur of home repair, home maintenance businesses. You wouldn't have heard of the holding company Neighborly, but hopefully you might have heard of its brands. Mr. Electric, Mr. Ruder. Sure.

Jeffrey Stern [00:40:55]:

They've helped me with my plumbing before.

Stewart Kohl (The Riverside Company) [00:40:57]:

There we go. Perfect. So millions of times a year, one of the employees of one of the franchisees goes into somebody's home and fixes or maintains something, and when they do, we get a piece of that from the royalty stream. So it's a beautiful business model. We had the privilege of being investors in Neighborly from when we met. The company was a small, publicly traded company. We partnered with the family and management team to take it private. We grew it through two successful holes as a controlling investor and then one more as a minority investor. And not too long ago, after about 20 years, gave up all of our ownership, but still remain huge fans and close to the folks at that company. And we saw how a company could go from being valued at under 100 million to being valued in the multiple billions, and how it had created so much good along the way for its own management team, for its franchisees, for the communities it operates in. And going back to our discussion of values, that company had one of the strongest codes of value that we had ever come across. Land it translated into tremendous valuation. A little closer to home, not too far from where I'm sitting right now, there's a business called N, two Y, and it's in the business of providing digitally online curricula that special education teachers would use. And I'll simply say, God bless special education teachers. It takes a special person, kind of a saint to do it and be good at it and they need all the help they can get. And one of them, a special education teacher, came up with the brilliant idea of creating this online curriculum that they all could use. And we'd be happy to talk at greater length about it, but it took off because it's a better solution. We met the company when it was still being run by the founder, but we're part of the process through two whole periods of transitioning. It from being a founder run to being run by the daughter of the founder and with significant family participation, to ultimately being run by purely professional management and growing every year, every step of the way and making a lot of children more functional, making a lot of teachers more effective and making our investors.

Jeffrey Stern [00:43:36]:

A lot of money.

Stewart Kohl (The Riverside Company) [00:43:37]:

As the company went from a valuation of around 100 million to over a billion, that company is a wonderful Northeast Ohio success story and I would love to see more of those types of great success stories.

Jeffrey Stern [00:43:54]:

So I'll pull on the investor thread know we've talked a lot about on the business and investing land operating side of it, but obviously the providers of capital are key here too. They're kind of essentially the fuel to doing the work that you do. So with that, what have you learned about building and managing those kind of great relationships? I'm sure over the course of Riverside's history there's been good ones, challenging ones, a whole spectrum of relationships with LPs. What do you think about the ones that worked really well, where they've been more challenging? What is your perspective on managing the LP relationship?

Stewart Kohl (The Riverside Company) [00:44:38]:

Yeah, it's an important part of what we do, of what I do. We have a team of folks that have investor relations in their titles, but in some sense every one of Riverside's 350 plus folks are in the investor relations business. And Jeffrey, I would say it simply comes down to trust and communication. The LPs need to trust us and some people trust easily and some people are skeptical. And I think there's by nature a correlation between investors, great investors and skepticism because everybody's coming and pitching them all the time how great their investment is going to be. Nobody ever comes in and says, this could be a pretty bad investment. So you have to really be skeptical. So we have to earn their trust. Trust is earned kind of just a drop of water at a time and it's lost by the bucket, full by missteps. And then that's where communication is so important. If we're telling investors what we're doing, why we're doing it, how we're doing it, we're doing it truthfully, they're going to accept the fact that not everything we do works because they're good investors and they know not everything works. But if they feel they've been misled or lied to or God forbid, that's not acceptable. And now we're in a world of hurt. So that communication just becomes so very important. Along the way we've developed some remarkable friendships with our investors. We've found ways, other ways to succeed together. And I value that too. And I treasure some of those relationships. But for the most of them it really just simply comes down to they've been pleased with the returns. They trust us land they feel like the communication is open and candid. The word of the day today is transparent. I try not to use that word because it's kind of lost all meaning. But they want to believe that they're hearing the good news. Yes, but they're hearing the bad news even faster.

Jeffrey Stern [00:46:53]:

On a related note, I think one of the great features of what it is that you're doing is it is a double opt in process. You can't just hit buy. Right? Someone also has to hit sell at the same time. And so negotiation and sales become far more important in your world than they would be in public equities where you can just acquire ownership. And so I'm curious what you've learned about those two things, negotiation and sales. You mentioned the firm has done over 1000 transactions of this nature so I'm sure the lessons are many.

Stewart Kohl (The Riverside Company) [00:47:32]:

Well, we'll soon do our thousands. So we're just about there.

Jeffrey Stern [00:47:35]:

Almost there.

Stewart Kohl (The Riverside Company) [00:47:36]:

Yeah. There are some commonalities with investors. Again, there's levels of trust land communication that need to be established. Land established pretty quickly. You don't have years. Every now and then we find a company, we meet the owner, we keep in touch for years and eventually invest. But mostly it happens over a 6912 month type of period. So you don't have as long a period of time to build trust. But it is equally important in these relationships. I think it comes back to what I talked about with Win Win. So you're right. It takes two to tango. The seller has to want to sell, the buyer has to want to buy. The price has to clear for each of them. So are you willing and able land open to listening land, finding ways to get to yes, ways to find the win wins. Because if you don't it's going to be very hard. Anybody can do a deal or two. But if you want to do this on a regular, on a serial basis, if you want to go from it being a hobby to a business, then you have to become skilled at that. That is the work that's typically done by our partners. And these are folks who have been at Riverside generally for over ten years, in some cases over 15 or 20 years. And this is something they've gotten really good at. They've gotten really good at not just the ability to identify which deals are going to be the winners but then winning those deals. And that sometimes means winning the hearts and minds of the sellers who love these businesses like their own children in many cases. In fact, I think I've seen a few cases where they love them more than their own children. So it becomes a really critical skill set and you're going back to investors. One thing I want to give is maybe a tangible example. Years ago, decades ago at our annual investors conference, we started the tradition of having a segment called Lessons from the Loo. Loo is British word for bathroom. And if you at a Riverside office, you'll see a little poster hanging up in the bathroom and we'll have a list of deals that didn't work and why they didn't work. We call them lessons from the lewin. If you work at Riverside, you'd prefer not to have your deals hanging in the wall of a bathroom. I've got a couple I wish I didn't. So it turns out investors love that we're there with them all day telling them about how the funds are doing. And we made you this much money on that deal and this much on that deal and the we have this little segment of ten or 15 minutes. We just talk about Lessons from the Loo. Sometimes we call it what were we Thinking? And people like that segment more than all the other segments, even though we're telling them how we lost their money. So I think that's an example of communication and.

Jeffrey Stern [00:50:38]:

I think it makes a ton of sense. I'm curious, from those Lessons from the Loo, are there particular mistakes that stand out in Memory Land? How do you think about the Aphorism avoiding the same mistakes twice and kind of reincorporating the learnings back into the DNA, if you will, of Riverside?

Stewart Kohl (The Riverside Company) [00:50:59]:

I think it's a lot like the way tribes work. They tell stories. We don't have children in our meetings. We're very opposed to child labor anywhere in the world. But we do have young people that might be just out of college or new to this industry and we promote that same candid talk about what went wrong and we try to help have the find new and creative ways to lose money, not to fall trapped to the old tired ways that we did. Again, being very doing a lot of introspection, being very candid, telling those stories, I think is the most important part of a culture that promotes low turnover, maximizes the likelihood that somebody will say, wait a minute, I saw that movie before and it didn't end very well.

Jeffrey Stern [00:51:51]:

Throughout the conversation you have, I think, mentioned what I would bucket under mentors and inspiration for yourself and for the firm in the form of other firms and people in your life. How do you think about mentorship? And maybe a fun addendum to that question is if you had to give all your capital in the world to another investor who does not work at Riverside and never worked at Riverside. Who would you give it to and why?

Stewart Kohl (The Riverside Company) [00:52:21]:

Yeah, I've been usually blessed by mentors. I mentioned Mort, but he was just one. I mentioned Veila, my partner, and I certainly have learned so much from him. Chapman Harvey Siegelbaum, who I've known for over 40 years. Chapman named Graham Hearns, a wonderful Cleveland I work with and so many other people I work with every day and have learned from. To me, mentorship is a very natural product of the world. And we all have been mentored, and we all should want to mentor others. There are some formal organizations that I think do fantastic work in the area of mentorship. Land particularly in providing mentorship to people that come out of communities and with backgrounds where they wouldn't otherwise have access to those resources. Land if people have the time and inclination to get involved in that, I think it's an incredible blessing, incredible mitzvah to be able to do that. But I'm also just talking about the normal mentorship that happens in ways big and small every day in life, and I think it's a great thing. In terms of my money, I'll give you an answer that hopefully is true to the spirit of what you're asking, even if it's not to the letter, which is obviously I've had to make provisions and think about what happens after I'm no longer able to be at Riverside. My plan is my money would continue to invest with Riverside because I believe very much in the people and the machine and the processes that we invest with. And I literally can't think of there's certainly not one I know as well. But I also can't think of one that I would be more confident of its ability over the long term to produce some good or great results.

Jeffrey Stern [00:54:22]:

I love that answer. Actually, I have one more question, and then we'll close it out here again, something that you've brought up, I think, if not implicitly throughout the conversation, which is private capital as a force for good. One of the proverbial narratives is private equity, let's say, doesn't always get the best reputation with regards to what happens to companies after the transaction closes. Maybe control ownership, cost cutting. And I think you've again introduced the ingredients here with positive sum thinking and kind of win win situations. Land even the concept of conscious capitalism and alignment of incentives. But how do you think about PE as a force for good, and how do you combat that kind of narrative?

Stewart Kohl (The Riverside Company) [00:55:15]:

Yeah, unfortunately, private equity does not enjoy the best reputation, and some of that is probably earned by bad behavior. And I certainly am aware that there's been some bad behavior. For me, most of that was decades ago. I believe that the marketplace has mostly rooted out the bad actors and the people in private equity today, even if they're not by nature inclined, they've realized that their reputation will precede them. So if they lie or cheat or steal, the word is going to get out very quickly. And guess what? Nobody's going to want to invest with them. Nobody's going to work for them. Nobody's going to want to sell their.

Jeffrey Stern [00:55:57]:

Companies to the to your point about trust lost in buckets.

Stewart Kohl (The Riverside Company) [00:56:02]:

Exactly. But Bale and I, and I dare say most or all of us at Riverside have seen that. We have seen with our own two eyes the good work of private equity. We've seen it grow and create jobs and innovate land, help companies to succeed beyond their imaginations. Not every time, not perfectly, not every day. Nothing works that way. But over time and for the most part and with some spectacular outcomes. So that leads all of us to really be big believers in the power of it through things like ownership works. I would like to believe that when we look at private equity, private capital, ten years from now, it will be even more clear how we are doing this. And I would like to in particular, do it in ways that would lead some of public policymakers, some public opinion makers who seem to be stuck in the 70s or 80s or ninety s to see the good work that is being done. In fact, I'm fond of saying that if we didn't have private capital, I could imagine people standing up in the wells of Congress saying, let's use government money to create some pools of capital to invest in companies and help them grow. Which is exactly what we're doing. But we're doing with 100% private capital with no need for a government subsidy. And by the way, I think a lot of those calls wouldn't be coming from the right side of the aisle, they'd be coming from the left side of the aisle. It's a very interesting situation. I view myself as being progressive in a sense, and I truly believe that there's no contradiction between that and the good work that we are doing at Riverside and more broadly in private capital.

Jeffrey Stern [00:58:07]:

That's awesome. Well, with that, I'll ask you our traditional closing question, which is for your favorite hidden gem in the area, something that other folks may not know about, but perhaps they should.

Stewart Kohl (The Riverside Company) [00:58:19]:

Yeah. So, boy, I love Cleveland, and it's hard to pick one if you're a cyclist. The cycling is amazing, so I have to cite the Metro parks, but I also do stand up paddleboarding. And if your folks have not been on the Cuyahoga or Lake Erie recently, get out there, fall in your skin, won't get a rash. You won't get sick. It's amazing. And then the food scene here is really people compare us favorably to some of the really cutting edge cities. If you're a foodie, we're really lucky that way.

Jeffrey Stern [00:58:56]:

And on the food thread, I realize didn't get to talk about it, but I do want to publicly, on the record, say that I am a huge fan of Tates, so I am grateful for your work there.

Stewart Kohl (The Riverside Company) [00:59:06]:

Yeah, we no longer own the company. We're very proud of the role we played there. The woman that founded it, Kathleen, was a wonderful entreprenuership, an incredible baker, and together we created an important company that continues to just excel.

Jeffrey Stern [00:59:22]:

Well, Stuart, I just want to thank you again for taking the time to come on and share more about your story, Riverside story, Felicano and all the work that you're doing.

Stewart Kohl (The Riverside Company) [00:59:33]:

Jeffrey, thank you. Really a pleasure.

Jeffrey Stern [00:59:35]:

If people had anything they wanted to follow up with about volunteering, investing, otherwise, what's the best way for them to do so?

Stewart Kohl (The Riverside Company) [00:59:43]:

Yes. So on Riverside, www.riversidecompany.com, we have a place you can submit your thoughts and we will respond to them. Maybe more to the point, because there's some urgency. A month from today, we'll be kicking off VeloSano Ten, and that is www.velosano.org velosano.org. Literally, everybody can participate. You can ride, you can be a virtual rider, you can volunteer or donate, and it doesn't matter whether you live in Cleveland or Northeast Ohio or Ohio or the USA or overseas. Our 30,000 donors come from everywhere. We're building a movement to play offense against cancer.

Jeffrey Stern [01:00:33]:

Amazing. Well, thank you again.

Stewart Kohl (The Riverside Company) [01:00:35]:

Thank you.

Jeffrey Stern [01:00:37]:

That's all for this week. Thank you for listening. We'd love to hear your thoughts on today's show, so if you have any feedback, please send over an email to Jeffrey at layoftheland FM or find us on Twitter at @podlayoftheland or at @sternjefe. J-E-F-E. If you or someone you know would make a good guest for our show, please reach out as well and let us know. And if you enjoy the podcast, please subscribe and leave a review on itunes or on your preferred podcast player. Your support goes a long way to help us spread the word and continue to bring the Cleveland founders and builders we love having on the show. We'll be back here next week at the same time to map more of the land.