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Newsletter: Virtuous Cycle

May 15, 2009 12:37:00 PM / by Tim McCarthy

According to Stewart Kohl, CEO of Riverside, a virtuous circle is what he seeks in his business and his life. He believes it is accomplished by being open to mistakes and willing to correct them; all with the goal of leading a more successful business and fulfilling life. [more]

"A virtuous circle is a complex of events that reinforces itself through a feedback loop. A virtuous circle has favorable results, and a vicious circle has detrimental results. A virtuous circle can transform into a vicious circle if eventual negative feedback is ignored."

That's Wikapedia's definition of a term I'd never heard of until last week.

According to our Business of Good Forum speaker, Stewart Kohl, a virtuous circle is what he seeks in his business and his life. He believes it is accomplished by being open to mistakes and willing to correct them; all with the goal of leading a more successful business and fulfilling life.

Stewart is co-CEO of a $2.7 billion private firm called Riverside. www.riversidecompany.com They are based in New York and Cleveland, have bought and sold over 250 companies in their 20 year history and currently own 70 companies.

I asked Stewart to dialogue with us at the Business of Good Forum to bring a for-profit business person's perspective. Since he is also engaged in many non-profit causes, he was also asked to share his thoughts on giving.

First, let's get a little more on the virtuous circle.

Kohl says that it's actually akin to the concept of karma - the literal "consequence of our actions."

Our intention is to do good, but in business and in life we inevitably falter as humans. If we ignore or even subdue feedback when we fail, we "forget" our mistakes. Therefore, we are sure to make them again. This begins and maintains a vicious cycle.

If instead we are open to feedback, both good and bad, and we act upon it, we begin a virtuous circle.

Pretty esoteric, right? So the forum participants challenged Stewart to explain it more clearly with examples.

Stewart said, "At Riverside, our virtuous circle forces us to pursue the 'long dollar'. That is, we (like all companies and individuals) have plenty of opportunities to get the short dollar.

The main avenue to the 'short dollar' in the private equity business is to 'bait and switch'. That is, tell the owner you'll pay their asking price, then find reasons during due diligence to pay them less.

Because we specialize in only small and mid-market deals, we must buy and sell a lot of companies. So, simply put, we have to attract a lot of business owners who want to sell to us.

If the folks we buy are referring us to their fellow business owners, we buy more good businesses and we win. If they are displeased with how we work with them, or we bait and switch them successfully, they will tell their associates and we lose.

It's pretty simple. If we take the 'short dollar', we eventually create a vicious circle and hurt our reputation and therefore lose referrals. So, we work to create great referrals (a virtuous circle) because the more good companies we can buy, the more we prosper."

To add to Stewart's theory, I brought up our son, Tim, who was present at the Forum.

Tim and his partner, Roy Getz, own and operate five Raising Cane's restaurants in Columbus and the first topic at their monthly partners meeting is always (what they call) Cane's Love.

Cane's Love means coming up with ideas that will make their employees happier that month.

Sometimes it's as simple as going bowling or giving free meals to employee's mothers on Mother's Day. Other times they're trying to get some form of health insurance to their part time workers.

Like Stewart, I believe Tim and Roy do this because it makes them feel good but I also believe they do it because it's good business. Just like Stewart and his partner, Bela Szigethy, they are pursuing a "virtuous circle", not just because it's the right thing to do, but also because it's a better way to do business.

So, here's the question that forever stumps me:

If you can make the companies you buy delighted to be your partner...And if showing love to your employees makes your customers love you...

Why don't all businesses do that?

I am often bemused by people who think I ran WorkPlace Media ethically because I'm some kind of saint. (Those who really know me know better.)

I admit: working to sustain a virtuous circle makes me feel better about myself.

But, as Stewart reminded me last week, it's also just a darn good way to succeed in business.

Tags: Newsletter, Social Business, Continuous Improvement, Inspiration, Life

Tim McCarthy

Written by Tim McCarthy

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