What does the “do no harm” principle mean in small business investing?

    Jim Moran

    Small business investing is unique and complicated since each small business has its own history, its own culture, its own processes, and its own ideas about what should be done (and how). As a small business investor, I get to glimpse into these histories and cultures on a regular basis. On the rare occasion that our small private equity firm is lucky enough to invest into a company that aligns with our own values and goals, we operate with a “do no harm” principle in all our small business investing activities.

    Before getting into what this idea means for us, a bit of background will likely be helpful. The phrase “First, do no harm” is attributed to ancient Greek physician Hippocrates and is most commonly heard in reference to the ‘Hippocratic Oath’, a pledge some medical doctors are asked to abide by (this is actually a misconception, the Hippocratic Oath says something similar but does not use these words). In medical terms, the phrase is used to convey the idea that sometimes doing nothing is a superior choice to doing something. And in those situations, a doctor has an obligation to consider inaction as a viable path forward.

    In the small business investing world, I started coming across the idea of “do no harm” practices through other like-minded operators who had similar experiences to ours. I thought that the phrase perfectly embodied our own beliefs and experiences. My thinking on this can best be expressed by starting from the smallest piece – the business – and moving outward to the larger pieces: community and society.

    1. The business – The factors I described above that make each small business unique are real, and they make up real parts of people’s lives and their sense of fulfillment in what they do. If, for example, I have managed sales inquiries in my office for 10 years, that work, and the resulting relationships will have become an important part of who I am both personally and professionally. Every small business has roles, relationships and processes that make up a big part of each team members identity and they need to be respected by anyone stepping into a company from the outside, even if they are the new ‘boss’. When we enter a new company we’ve invested in, we make it clear that we have no intention of disrupting anybody’s schedules anytime soon. Instead, the first 6 months after a small business acquisition is about learning how things work, building relationships, and building trust with our new teammates. If change is necessary down the line it will come from a place of mutual understanding and will be based on evidence everyone can see and relate to. This delicate process for small business investing has served us well and helped us form valuable relationships and friendships with our new colleagues.

    2. The community – Community is an important part of any firm’s investment criteria, but for ValueStreet it is doubly important. As a small business private equity firm whose investments are focused in a relatively small geographical area – San Diego County and adjacent – our relationships with other folks in our area is vital to our success. Adding to that importance is ValueStreet’s small business private equity investment strategy – we invest in companies we believe can be operating 30 years from now, and never intend to sell the companies we invest in. Given our long-term trajectory we know that if we treat our employees, customers, or vendors poorly, our entire small business private equity firm’s future will be at risk. Doing right by our community members and investing in services that bolster the wellbeing of our community are natural choices for us.

    3. Society – We believe that by serving our employees and communities well we can also serve society in a meaningful way through our small business private equity investments. The things we do in our businesses – ensuring our employees are paid fair wages, have good benefits, and real opportunities for advancement – filter through to other portions of the economy and help others live productive and meaningful lives as well. For this reason, it is critical that we make small business private equity investments in sustainable industries and in companies that can grow into the future to continue this virtuous feedback loop.

    At the end of the day, we are small business investors operating in one small corner of a much bigger world that is private equity investing. We did not invent the idea of “do no harm” investing, but we have lived it and evolved our understanding of what it means to us in small business acquisition and operation here in San Diego County. We hope to see you on our journey and learn about what it means to you.