Stewart Kohl’s job is so much fun he doesn’t consider it work. As co-CEO of the Riverside Co., which invests in growing small and midsize firms, Kohl looks under the hoods and kicks the tires of emerging businesses all over the world.
Riverside, headquartered in the Terminal Tower, makes deals with 40 to 50 businesses a year, but researches about 3,000 firms to get there. That’s a lot of information gathering, but Kohl and his team love it.
“I’m a corporate voyeur,” Kohl told about 100 local businesspeople late last year at the Greater Cleveland Partnership office downtown. “I get to walk around, stare in the windows of companies and learn all sorts of things about them. It’s incredibly stimulating.”
It’s also been effective. Since its founding in 1988, Riverside has invested in more than 480 firms across the globe, and today manages more than $5.5 billion in assets, according to the company’s website. It has offices in Europe and the Asia-Pacific region and works with all types of clients, including firms specializing in software, health care, technology, beauty products, baked goods and even matchmaking.
Kohl joined Riverside in 1993 after working at Citicorp Venture Capital Ltd., the private-equity arm of Citibank. Today, he leads Riverside with co-CEO Bela Szigethy; is co-chairperson of the Museum of Contemporary Art Cleveland board of trustees; a member of Cleveland Clinic’s board of trustees; and co-chair of the Clinic’s capital campaign. He also started VeloSano, a charity bicycling event that, since 2014, has raised more than $8 million for cancer research.
Kohl’s talk downtown was part of Greater Cleveland Partnership’s ongoing series of breakfast presentations by business leaders, politicians and industry experts. The event was hosted by Joe Roman, CEO and president of Greater Cleveland Partnership, who interviewed Kohl before opening the floor to the audience.
Roman asked Kohl to discuss Riverside’s success and advise small and midsize companies on how they can prepare for growth.
Kohl told Roman that Riverside has prospered by helping on-the-grow companies reach their objectives. He said that’s the most rewarding part of his job.
“When these deals work, there’s kind of a cascading effect of success,” Kohl said.
Here are five pieces of advice Kohl gave to businesses seeking investments from private-equity firms like Riverside:
Have a good product or service. Kohl said this is the most important factor Riverside considers when deciding whether to invest in a company.
For example, Riverside partnered with a startup called LILLEbaby in Boulder, Colorado. The owner had invented a new type of baby carrier because existing carriers were straining her back. The product made sense, and the story behind the product was authentic.
“If it’s not a better product, we don’t want to own it,” Kohl said. “First, because we’re not going to be really proud to tell folks that we own it, and partially because it’s probably not going to be a good investment over an extended period of time.”
For Riverside to take notice, a company must show specialness or leadership within its niche market. Kohl said LILLEbaby is number three in its product category and growing significantly faster than its competitors.
Demonstrate growth potential and solid management. Kohl said it’s a myth that investment firms buy companies on the cheap, break them up and sell the parts for profit. Riverside has never worked that way and always invests in middle-market companies to make them bigger and better, he said.
To that end, a company seeking growth needs at least the seed of a good management team. Managers need industry expertise, a commitment to their business and a willingness to double or triple the size of their company.
“They have to be all-in and want to work that hard,” Kohl said.
Accept intellectual help. Riverside brings expertise to a firm, not just cash. It mentors businesses like n2y in Huron. The owner, a speech pathologist, established the company because she was unable to find good curriculum for pupils with learning disabilities. Riverside bought out n2y, but the founder is still CEO.
“It’s going to be a tremendous success,” Kohl said.
Riverside professionalizes a firm by adding industry expertise, introducing management information systems and expanding the management team, he said, adding that most companies in which Riverside invests don’t have chief revenue officers, so Riverside recruits one.
“Don’t put us in a box and in the corner,” Kohl advised. “We have a source of capital that can help you achieve a wide variety of objectives.”
Know your long-term objectives. Business owners must ask themselves if they are willing and able to sell, or if they want to work until retirement age and pass the company on to their children.
“That may sound obvious to you, but you’d be amazed how many sellers we spend time with hadn’t thought that through,” Kohl said.
Some personality traits — independence, for example — that might have helped entrepreneurs establish and run a thriving business might not serve them well if they are thinking about sharing control with a private-equity firm.
Small and midsize businesses need advice and guidance from good lawyers, good accountants and good tax advisers.
Consider Cleveland as a thriving business location. Kohl is sold on Cleveland. He’s a New Jersey native who came here in the 1970s to attend Oberlin College. It was a rough decade for Cleveland, so, when Kohl left the area after graduation, he never thought he would return.
But Kohl came back to Cleveland in the mid-1980s to work for Citibank. By that time, Cleveland had revitalized, and he decided to stay.
Kohl said Cleveland’s top-rate educational institutions, like Case Western Reserve and Cleveland State universities and Cuyahoga Community College, attract people from all around the world and produce young talent. Cleveland’s comparatively affordable housing is another draw.
Kohl said Cleveland must work to keep large company headquarters here because they provide the best chances for advancement as workers age.
“I’m fundamentally optimistic now about the progress in Cleveland in my 30-plus years of living in the region,” Kohl said. “I think we have a lot going for us.”