Podcast: MiddleGround Capital’s John Stewart

Manufacturing Excellence is a podcast featuring conversations with leaders pushing industrial businesses forward. Guests include operational experts, capital allocators, and specialists bringing unique insights to navigate the greatest challenges in business.

Today’s guest is John Stewart, an investor using an operational toolkit to outperform.

Listen to the Podcast

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About John

John is the Founding Partner of MiddleGround Capital where he is responsible for the overall management of the firm. MiddleGround is a private equity firm that invests in B2B companies in the industrial and specialty distribution sectors in the lower middle market in North America & Europe with $2.2 billion of Assets Under Management.

John started his career as an hourly line worker at Toyota Motor Corporation and held numerous management and executive positions over an 18-year career. He made the move to private equity in 2007, joining Monomoy Capital Partners as an Operating Partner. He founded MiddleGround Capital with two partners in 2018. 

Top Takeaways

  • Operations needs to be involved at the earliest stages of investment planning. Many businesses can achieve massive leverage by putting the right practices in place. Through operational excellence, MiddleGround creates returns without the need for financial engineering and a high debt load.
  • Manufacturers will need to continue to raise wages to remain competitive. This means they will need to use automation to create higher-skilled jobs. MiddleGround is targeting $25 an hour to be the lowest wage in their portfolio by 2025.
  • Most businesses are making resource allocation decisions from flawed data. They end up prioritizing customers that aren’t creating value for the business. Revenue growth alone is not enough to sustain a business. And revenue growth at the expense of profitability is what will kill a company.

“I can tell you, after 15 years of doing this, I’ve never bought a business where anybody (the owners, the CEO, the CFO), actually knows where they make money. They may have the gross margins, and everybody manages to that, and they have their standard costs. But the company’s not operating to the standards, they haven’t rolled standards, in years, there’s millions of dollars of variances running through the P&L. As long as the outcome at the bottom is acceptable, nobody’s really digging into the weeds.” – John Stewart

November 22, 2022

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