Playing Like a Battleship at Speedboat Scale: PE Value Creation with Rick Brawn

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THE ALLIED ADVISORS PODCAST
Playing Like a Battleship at Speedboat Scale: PE Value Creation with Rick Brawn

Guest: Rick Brawn, Operating Partner, MiddleGround Capital
Host: Justin Goethe

EPISODE OVERVIEW

Rick Brawn has a manufacturing dream resume: he came up through the most disciplined corners of aerospace at Pratt & Whitney and Rolls-Royce, then carried that operational rigor into private equity — first at LFM Capital, and today as an operating partner at MiddleGround Capital. In this conversation, Rick and Justin dig into what actually transfers from large-cap OEMs down to the mid-market, how value-creation plans get built and bought into after a deal closes, and why the biggest wins often live across a portfolio rather than inside any single plant.

Along the way: a $130M portfolio-wide freight play, a masterclass in change management that boils down to "people are people," and a candid look at how MiddleGround is putting Claude and AI to work — while double-checking every answer.

WHAT YOU'LL LEARN

• Which aerospace best practices copy-and-paste into the mid-market — and where they break down
• Why founders skip process documentation (hint: it's a values gap, not a cost gap)
• How MiddleGround builds a Value Creation Plan (VCP) and earns management buy-in from day one
• The portfolio-scale freight play: finding $26M in savings no single plant could reach
• How to run league tables, Kaizen boot camps, and cross-selling to force best-practice adoption
• A practical, no-hype way for a standalone manufacturer to use AI for spend and cost visibility

TOPICS & TIMESTAMPS

00:00 — Introduction: Rick's path from Pratt & Whitney and Rolls-Royce to LFM and MiddleGround Capital
02:00 — Aerospace to the mid-market: what copies down from large-cap OEMs, and where resources and documentation break down
03:30 — Cost vs. values: why small and mid-market firms under-invest in process creation
05:30 — The PE stigma: why the "they just bring money" perception is unearned in industrials
08:00 — The Value Creation Plan (VCP): sharing the plan post-close and opening the canvas to build buy-in
10:30 — Culture integration: PE-owned vs. first-time founder companies; the Lindsay Precast success story
13:30 — People are people: change management from the shop floor to the boardroom, and the red hose lesson
17:00 — Portfolio-wide value creation: the $130M freight spend across 200+ factories and a 20% / $26M target
20:00 — Hidden leaks beyond freight: insurance, tax, tariff recovery, and consolidating renewal dates
24:00 — AI & Claude in the real world: plugging into ERP/AP data for spend visibility — and double-checking the work
29:00 — Capturing tribal knowledge: the 30-year toolmaker's drawings fed into an LLM for the next generation
31:00 — League tables & conferences: OpEx, Sales & Purchasing, and CEO/CFO conferences that drive healthy competition
35:00 — Kaizen boot camps & cross-selling: quarterly week-long events with tracked takeaways; keeping business "in the family"
38:00 — Strategy deployment: portfolio- and fund-level planning, three-to-five years out
42:00 — Closing thoughts: "MiddleGround is Bosch" — delivering value at scale

KEY TAKEAWAYS

• Operations boils down to the basics. Continuous improvement, pricing methodology, and margin analysis transfer to any manufacturer, regardless of what they make.
• Process documentation is a values gap, not a cost gap. Founders often don't see the value in writing down processes — the unlock large-cap OEMs and PE both understand is that documentation is what makes a business scalable.
• Buy-in beats mandates. Sharing the VCP and inviting the management team to add to it produces a more complete plan and far more ownership.
• Scale creates value single plants can't see. Aggregating spend across 200+ factories — freight, insurance, tax, benefits — surfaces savings no individual company could find alone.
• AI lowers the barrier to that same analysis. A standalone manufacturer can feed AP and PO data to an LLM and get spend-vs-market insight that used to require a corporate team — as long as the output is verified.
• Competition drives adoption. League tables, awards, and tracked Kaizen takeaways turn best practices into implemented change — a discipline any multi-site manufacturer can copy across its own plants.

NOTABLE QUOTES

"Operations really does boil down to some of the basics when you look at it, no matter what you manufacture."

"We're basically coaches on the sideline. We're not the players on the field — and to coach effectively, you've got to understand what they're looking for."

"Nobody was looking at it in aggregate. Just shipping product out the door from our 200-plus factories is about $130 million in spend."

"You don't need me to teach you how to use AI. AI will teach you how to use AI — just start using it. The challenge is you've got to double-check its work."

"If MiddleGround companies knew what MiddleGround companies know, you would be unstoppable."

RESOURCES & MENTIONS

• MiddleGround Capital — operationally focused PE firm founded in 2018; ~15 portfolio companies, 200+ factories
• Rick Brawn on LinkedIn — https://www.linkedin.com/in/operatingpartner/
• Lindsay Precast (Gainesville, FL) — precast concrete manufacturer and MiddleGround exit; founder Ron Lindsay
• Prior episode — Bill Maroney, Freight Think (freight cost and logistics)
• Prior episode — Steve Cook, LFM Capital
• Referenced concepts: United Technologies / Raytheon "ACE" (Achieving Competitive Excellence); Toyota Production System; league tables; Kaizen boot camps

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Transcript

SPEAKER_00 0:03

Welcome back, everybody, to another episode of the Allied Advisors Podcast, the podcast from mid-market manufacturers looking to scale operations and improve that Ever Infort. Bottom line. Today's guest is Rick Braun of Middle Ground Capital. Rick's career is a bit of a manufacturing dream resume. He came up through the most disciplined corners of aerospace at Pratt and Whitney and Rolls-Royce, and then took that operational rigor into the world of private equity. First at LFM Capital, and now is part of the operating team at Middle Ground, where he spends his weeks in the flants driving real value creation across their portfolio. What I love about Rick's perspective is that he works both levels of the game, the hands-on operational improvements inside a single portfolio company right after a deal closes, and the big picture for portfolio-wide plays where scale unlocks millions that no single plant could ever find on its own. He's exactly the kind of guest our audience can learn from, whether you're a family-owned shop or a PE back operator. Rick, really appreciate you carving out the time. Thank you so much for coming on the show.

SPEAKER_01 1:09

Thank you, Justin. I'm very humbled by that introduction. Very, very pleased about uh being a part of this show and happy to share as much as I can for you and the audience.

SPEAKER_00 1:19

Yeah, no, the pleasure is all ours. Uh, you know, it's always such a joy to have people with your background and your experience and your knowledge that you can bring to the show and and really and are willing to share with others. I mean, that is it's huge. So thank you so much.

SPEAKER_01 1:36

You got it. There was a mentor of mine that did the same for me when I got started in private equity 10 years ago. So happy to return.

SPEAKER_00 1:43

Yeah, well, we well, we really, really appreciate it. But Rick, jumping into it, you know, your career runs from Pratt and Whitney and Rolls-Royce, some of the most disciplined manufacturing on the planet. Uh, and now you're in private equity. First you were at LFM and now, of course, middle ground. A lot of mid-market manufacturers think of themselves as fundamentally different from those large calf OEMs. When you walk into a portfolio company, how much of what you learn in aerospace actually copies and pastes down to the mid-market? And where do you think it breaks down?

SPEAKER_01 2:14

Yeah, I'll start with the breakdown. I guess obviously, working for large fortune or so it's E100 companies like Pratt and Rolls, they have a ton of resources. They have a lot of policies and processes that have been well documented and well trained. Um, and so obviously working in the small to mid market for private equity and looking at smaller companies, manufacturing companies, they don't have that many resources, Justin. They don't have those well-documented processes, procedures, and armies of people to do training. So that's where it kind of breaks down. But where you see a lot of overlap, and what I really appreciated coming from Pratt and Rules was that I was able to bring a lot of best practices into those, you know, small to mid-cap manufacturing companies. So whether it's a continuous improvement program or just a pricing methodology, or whether it could be how to analyze your, your, your margins and really get into it, there's a lot of basic tools and best practices you could bring from those companies into any manufacturing company because operations really does boil down to some of the basics when you look at it, no matter what you manufacture.

SPEAKER_00 3:21

You know, what do you think? I see the same thing, right? The big unlock, or at least in my opinion, that large cap OEMs recognize that maybe their small and mid-sized cousins don't is the value of process creation and implementation, right? Large cap manufacturers invest in industrial engineering resources. Their sole focus is documenting their processes and then a commitment to improving them across time. And I don't know that I don't know that the reason for the small and mid-market companies not investing in that skill set is necessarily a resource constraint. In other words, I don't think it's cost. I really think it's value, values, right? They don't see that as a valuable skill set. Do you agree with that or do you have maybe a different opinion on it?

SPEAKER_01 4:14

Interesting. Um yeah, I think there was a lot of um founder-owner operator-led companies, Justin, that we've bought. Um, and just for your knowledge, before LFM, I worked five years at Gen X360 Capital Partners too as an operating partner. So I've worked for three different PE firms with these manufacturing companies. And when we bought founder owner-operator-led companies, it was really interesting to your point. They didn't see the value into documenting their processes, into writing procedures. You're you're off to trying to grow the business. You're trying to figure out how to kind of keep your key people and maybe, you know, acquire a new customer. Kind of the if you're an operator like an entrepreneur, that's really what you spend most of your time doing. And they don't, to your credit, see the value of why why would what am I going to get out of documenting this process? And so when you try to scale the way private equity does, um, and I was very blessed too. I'll talk about some of the acquisitions that Pratt and Whitney did, the, the, the parent company United Technologies, now Raytheon Technologies did. I was very blessed, Justin, to have done like five integration roles across five different countries while I worked in aerospace. So they were buying like these small manufacturing companies. And it was for that reason you just said, you know, we knew the value of coming in, buying kind of a scrappy shop, but it got us into new markets, new customers, new products, new territories. And then we were able to put in our what we called an uh an ACE system and achieving competitive excellence. That's what ACE stands for, system back in the day. And it really did all that process, you know, documentation, training, quality, continuous improvement. And we were able to take those acquisitions and make them very accretive. So I think it's it's a it's a great way to say PE private equity does a lot of good stuff out there for these smaller and mid-cap companies. I kind of smile a little bit because sometimes private equity doesn't get all the best uh perception out there in the world. But that's that's where I came from, at least.

SPEAKER_00 6:21

Yeah, I I know what you mean about there's some uh stigma that comes across from private equity. I really don't think that that stigma is earned at all in the industrial space. I mean, maybe there's other industries where you could whatever, but but in the industrial space, I see the same thing. I see private equity when they get involved, they're bringing in a different skill set to help um to help these companies scale and grow. Because I think a lot of people, when they hear, oh, well, they got involved by private equity, in their head, they think, well, the only thing they're bringing to the table is money. They're just bringing money. And that's not true. What private equity brings to the table is the same thing that you know the the large cap OEMs bring when they buy out uh a smaller company. They bring a skill set that they understand is the unlock for scalability.

SPEAKER_01 7:10

That's right. Especially that's why I was so thankful for where I got to work because Gen X360, LFM, Middle Ground, you know, these companies were founded by operators, by engineers, by manufacturing leaders, by CEOs who've ran businesses. And so, you know, we Middleground particularly is a firm that's very operationally focused and led. You know, our two founders came from Toyota just up the road, putting bumpers on cars. So we do bring that skill set to these companies that we buy to help them grow and scale because you can't necessarily just double the number of people or machines when you want to double the business. You want to do that with some skill and some leverage, right?

SPEAKER_00 7:51

I had the privilege of talking to, I think, one of your former colleagues, uh Steve Cook with LFM a couple months ago. And great guy. Man, that's one of those guys where you sit down and you start talking, you realize really quickly just how stupid you are compared to somebody like Steve. Like, wow, such a smart guy who brings so much to the table and is so willing to freely share his knowledge, which obviously on this show we we really appreciate.

SPEAKER_01 8:14

Yep. Yeah, no, Steve's a great guy.

SPEAKER_00 8:17

Yep. But you know, jumping back into it, so when the deal starts, you mentioned you've got a standard playbook for value creation, but every company also has its own unique opportunities. Right after you close on a new portfolio company and you're ticking off that whole period, what are the first few things you're looking at to find value? And how do you tell the standard playbook moves apart from the company-specific ones?

SPEAKER_01 8:40

Yep. Um, so on the first question, you know, we share our value creation plan, our VCP, Justin, with the management team right after acquisition to say, look, during our due diligence process, we did a lot of research, we met with y'all, we stuck our nose in the data room, all that stuff. But we defined a VCP and we want to share that with you to kind of get your take on it. And I always find it interesting, Justin. Some of them, they're like, Yep, I can see that, Rick. That's a good one. That's great. We can drive, you know, cost out, EBITDA growth, revenue growth, cash improvement. But then sometimes you get, mmm, you can see their body language and a little bit of a concern, and I'll say, What's up? And they'll say, Well, I don't think we're going to be able to do that. And I'll ask why. And then they kind of share their reasons. So then we kind of then step back and say, okay, look, we just looked at your business through diligence. What do you think? And we open the canvas a little more to see where they think we can drive e-bitter growth, cash flow improvement, et cetera. And all of a sudden we get a few more, you know, notches on the belt, Justin, to say, oh, we didn't see that. Let's add that to the BCP. So now we have like a more comprehensive value creation plan that's got a little more buy-in too from the management team. And then we go off to the races and run with it. So, I mean, all of us in the manufacturing and industrial space will find ways to drive labor efficiency, material improvements, you know, pricing discipline, um, cash flow improvements. There's always opportunities to drive improvements just in in working capital, whether that's on inventory or your payables or receivables. But um then you got to look at the business, you know, in its own unique way. Each one will have other areas for driving new product development. And that may be applicable in some manufacturing companies and not as much in others. So we we work closely in a very collaborative style with our management teams to kind of agree on that VCP right up front, and then we're off to the races going executing it.

SPEAKER_00 10:42

Do you ever struggle with that the culture uh integrations, right? I mean, you're you're buying this company that has a culture and has had a culture, and now you're coming in as middle ground and you also have a culture, and we're gonna talk a little bit more about that in a second. Is there ever a struggle with trying to mesh those two or to align, you know, the new acquisition in the middle ground? And how do you how do you approach that? Kind of how do you handle it?

SPEAKER_01 11:04

Yeah, um, I'm smiling because you get, I've been doing this for a decade. You get all shapes and sizes, right? So if a if one of the companies we are we're buying just in has already been owned by a private equity firm, they're pretty used to the pace, the reporting, the style, the board meetings. Those are the easier ones, the shorter puts. But then, like I mentioned earlier, sometimes we'll buy a founder, owner, operator-led company. And it's just his or her first time, you know, working in a in a private equity-owned culture. So that's when we take a little more time to kind of work with them and explain this is our process, this is why we're doing things. So it takes a little bit more time and resource up front to bring them in the fold. But look, um, one of the best success success stories I can share is uh with Lindsay Precast. It's a pre-cont pre-cast concrete manufacturing business, um, headquartered in Gainesville, Florida, with nine sites across the country. And that was a founder that stayed with us, Ron Lindsay, and we helped him in professionalizing his whole company. And he was very much bought into the whole idea. Like you said, we're not just bringing capital to his company. Um and we exited last year with huge success. Um, but he he was one of those individuals, Justin, that really rose to the occasion to allow us to help him, you know, prepare for board meetings and even create the board presentation and work with him on all of this stuff, professionalizing the leadership team below him, too, to make sure he has the resources to be able to work with a private equity firm that has a lot more reporting requirements, especially on the financial side. And it it was just, it was like perfect. It was really, really nice. You don't always get that. I've had a few founder, owners, operators that didn't really want to move in that direction and unfortunately, you know, ended up with making a change, which happens on occasion because they can't let go of the baby or they still want to do things their old way. But um, you know, you give them that chance to kind of work with you and you try to make a go of it because they have a lot of experience and talent you want to retain.

SPEAKER_00 13:12

You know, that sounds so much like just standard change management on the shop floor, right? You you take the time to explain the why to the people. Hey, here's why we're doing it, here's what we're doing, and then you coach, and you know, hopefully they get on board and buy into the vision and start rolling in that direction. If they don't, you know, you gotta you gotta make a change. So it's just the one thing that always stands out to me is people are people, and I don't care at what level you meet them, right? They they're all have their own quirks that you gotta work through.

SPEAKER_01 13:43

That's right. It's funny you say that because it it reminds me of my days back when I was like a manufacturer manufacturing engineer on a shop floor trying to, you know, drive some continuous improvement and we're gonna use some new tooling and what have you. And man, you'd get a lot of resistance from the operators saying, Oh no, Rick, you don't know what you're talking about. I worked here 25 years, this fixture spine. I know all the kinks and how to tweak the machine and operate. Oh man. And you're like, look, I just want to get better statistical process control. I want to drive like more throughput with less cost and less scrap. And it is, it always boils down to people or people, and you got to help drive that like um change, but in a way that you bring them with you. And you know, it's like you gotta scratch their back for them to scratch yours, and you gotta help them with things that they may be frustrated with, right? I remember distinctly, uh, last quick story, the machine was leaking on some of the lubricant. They're like, this thing is just a mess, Rick. So I fixed that, which had nothing to do with changing the tools, but then in the end, it worked out where, you know, I'm fixing some things that he wanted, and the operator then took on some of the changes that I wanted to see as well. So it's typical, you know, human beings, just me being able to work together.

SPEAKER_00 14:59

You know, I think that's a big thing. I I heard somewhere, I don't remember, all conflict is just someone trying to be understood, right? You know, whether that's conflict between you and your spouse or business or friends, you know, it all stems from somebody seeking to be understood and feeling like they're not, right? That that that extends to the shop floor, trying to take into consideration their wants, their needs, their desires. It's it certainly gets you there a whole lot faster. I'm always blown away. I had a mentor one time, he he took me aside and he said, Look, Justin, you know, I was a plant manager, and every Friday morning I would go on a walk through the plant with my um operations manager, and we would stop and talk to associates. And if an associate came up to me and said, You know, Joe, I want this hose right here, it's clear. I think it would be better if it was red. I would look at him and say, No problem, we'll change that hose, not an issue. And we'd walk off, and my operations manager would look at me and go, what difference does it make if that hose is clear or red? And I would tell him, none, none at all. It's still gonna function the exact same way, but it's gonna make him happy. So change the hose. It's not that big of a deal. You know, and I think you know, people, if they're willing to hear the other side and and and engage with them on a good faith, it you're like you said, it really gets the buy-in for what you want, right? And if they feel heard on some things they want, it helps you get get further along, which more people would be better off if they understood it.

SPEAKER_01 16:35

Oh man, I think that's the heart of being an operating partner, a good operating partner is exactly what you just summed up, you know, because we're basically coaches on the sideline, we're not the players on the field. And to be able to coach effectively, you gotta be able to understand what they're looking for as well, and not just, you know, obviously the goal is very clear and the but figuring out what plays you want to run, you know, they may want to run a different play than what you want to run with. So you got to kind of work together just the way you described very well. Absolutely.

SPEAKER_00 17:07

You know, one of the things that we talked about in the pre-meeting, most people think of value creation at one company, you know, one company at a time, but you talked about something bigger, creating value across the whole portfolio once you have scale. You don't you gave me the example of the $130 million in shipping across your factories and taking 20% out of that? You know, walk us through how that works. How do you find that, you know, 25 million or whatever that no single plant could deliver? How do you find that uh across the entire portfolio? Because it sounds a lot to me like the approach we used to have back in my Bosch days, right? We had corporate teams that they're trying to aggregate some of that that spend uh to drive savings. And I love that that you guys are taking a similar approach.

SPEAKER_01 17:51

Oh, 100%. Yeah. Middle ground's been a fast-growing young private equity firm. You know, we were founded in 2018, but today uh we have 15 portfolio companies. Um, our average sweet spot, just in roughly, you know, is about a four to five hundred million dollar revenue business, give or take. We got some bigger, some smaller. And so when you look across our 200 plus factories, there's a lot of scale there, right? So just on shipping product alone, it's about starting off with looking at your spend and then digging deeper into areas that might be hidden. And so you look at your operating costs and you say, okay, these are part of your cost of goods sold, but all of a sudden freight stands out. And I'm looking at freight costs just going through the roof at one particular portco, which then I'm a very curious individual. I'm a very open-minded, like, hey, what's happening then with all the other portfolio companies? And obviously, inflation, cost of fuel, everything else is going up. And I was shocked when I got the data to say, oh my goodness, just on shipping product out the door alone from our 200 plus factories is about $130 million in spend. And I thought, well, who's looking at this in aggregate and trying to pool that together, leverage that, try to see which carriers are going to give us the best rate if they're going to get all that kind of business, let alone nobody was thinking about doing milk runs or figuring out where we should have warehouses and distribution centers to, you know, optimize the footprint in terms of all this. Can a can a truck go by one portfolio company, stop at another before they get to their final destination and optimize the cost? Because there's hundreds of ways to like reduce that spend. And yeah, I'll target 20% off the bat and say, look, nobody's looked at this. I want 26 million off and I want to get it done in the next 12 to 18 months, right? Um, so we work with special um advisors that are really experts in this space. I don't have like a freight specialist on my team, but um some sometimes I do. Like we have a really great automation team in-house, so I don't need to go to an advisor, but in this case, Justin, I needed to go to a freight specialist. So I looked at a bunch, kind of did a little bake-off, and then selected one, and we started with that not too long ago.

SPEAKER_00 20:10

Yeah, we interviewed Bill Moroney uh with FreightThink for the podcast a couple months back, and you know, they were talking about the same thing as you know, people just don't freight is a funny thing. Uh, it's easy to ignore, right? It's easy. We talk about the leaky boat analogy. Freight is one of those leaks that are really easy for it to deplete that that bottom line margin, and you not even realize where it's going, right? It's just you just pay the bills.

SPEAKER_01 20:38

Yep. Yeah. And then you find out, hey, are they really passing this cost on to the customer? You know, you got to do both. You got to first of all take your ownership of improving the efficiency of your freight costs. But then at the same time, if you're doing your part and freight still goes up, are they actually then telling the customer, look, freight used to be X, now it's X plus Y? You got to have that price, you know, match that cost increase as well. So you're not losing your margin. So there's a ton of stuff that goes into it. And quite frankly, I've been looking at things even outside of most people's wheelhouse, whether that's insurance, yeah, tax. Oh, yeah. I mean, yeah, no, I mean, I we spend, you know, really big dollar figures. It could be 50 million plus on all types of insurance or tax. And so once we get that kind of data and then we start to peel back the onion, you start to say, wait a minute, there actually is stuff I can do here. You got to pay your taxes. I get it. But then who's looking at optimizing whether it's tariff recovery or tax credits, or I can go on and on. So it's interesting, it's exciting because we have the scale at middle ground and kind of gives me something new to work on to drive value across the portfolio.

SPEAKER_00 21:54

That's what I was gonna say, too. Once you have the scale, you know, you even your health insurance plans, right? I mean, you can buy that. For the whole portfolio instead of just one individual company. So obviously you get Pratt and Whitney and Bosch rates instead of Joe Schmoe manufacturing rates. Wait.

SPEAKER_01 22:09

And I learned all sorts of stuff. I'm like, why are all of my portfolio companies renewing on different dates? We should renew on the same date for the market as one, like you just said, and kind of replicate the Bosch or Pratt and Whitney model and get a much better rate. Plus, you know, you can actually avoid, I don't want any of these costs getting passed on to the employees who work for us, Justin. I'm like, I want the portfolio companies to have lower costs and the carriers to get, you know, less of our money. So we're not impacting employee benefits. Absolutely.

SPEAKER_00 22:43

Is that connection between a private equity portfolio and a large cap manufacturer, is that is that a well-understood connection in the in the private equity space? Do do do a lot of your colleagues um see that as, you know what, these individual companies, yeah, they're not a Bosch, but but we kind of play like a Bosch at our scale. Or is that something that you think is some people get it and some people don't?

SPEAKER_01 23:08

I think it's some people get it, some people don't. I think people who don't get it might think, oh, you know, Rick's a large public, you know, multi-billion dollar large cap guy. He he won't understand the speed and pace that we move at in the private equity, you know, small to mid-cap world. That's true. Like it took me a little while to make that adjustment when I first became an operating partner 10 years ago for Gen X360 Capital. So like it does, you got to really be able to make that transition, which not all people do, quite frankly. They they're too used to having resources and processes and procedures, and they might not move as quickly as private equity does. But um, I think once you can make that transition to your credit, Justin, there's just so many analogies that you're right. There, you could bring a lot of uh best practices to the table, tool kits, and just really help smaller companies grow and improve their margins without much difficulty because you've learned that these great companies, Bosch is a great company, right? I think of Danaher, Toyota, names that come to mind that have great operating systems that these small companies would really benefit from.

SPEAKER_00 24:23

Yeah, and you know, it's you can roll that out across the whole portfolio and not disrupt anything, right? It's not like the operating system from Bosch is that different than the operating system from Toyota, right? It's the same operating system. We're just applying it in a different um activity, but it's the same philosophy, let's say. That's exactly right. Um, but you know, we talk about, I don't think you can have a podcast in 2026 and not mention AI because I think every discussion has to include it. No. But in our free meeting, you made a comment that stuck with me that that pulling all this data together, you know, in terms of the freight spin, that used to be really, really challenging. You almost had to have a team of people like, you know, the Bosch or the Pratt and Whitney's to be able to do it. But now that's that's that's changing. Um now you can plug into a company's ERP system, pull the PO data, the accounts payable data, and suddenly you know exactly what everyone's spending. For a mid-market manufacturer listening who doesn't have a private equity parent doing this type of work for them, you know, what does that AI-driven approach to spend and cost visibility actually look like? And is it something they could start doing for themselves?

SPEAKER_01 25:31

You're talking, when you say they, you're talking about the portfolio company individuals, or who did you refer to there?

SPEAKER_00 25:36

So like the individual portfolio company, let's let's say that they're not a part of a private equity group that has the resources to commit to it. It's just, you know, maybe a founder and he's doing his thing, but you know, now he's saying, hey, I'm got Claude, and if I plug Claude into my or if I feed Claude my you know freight spin, it can look at and try to find opportunities here. You know, how did how would they go about doing that? What does that look like on an individual company level?

SPEAKER_01 26:05

Yeah, it's um it's a good shout. I totally agree with your um example there, where uh an entrepreneur who built up a great manufacturing company but is not owned by a private equity firm can still use the the knowledge that these large language models are gathering, whether it's Claude or anyone else. And if you know it to first of all, it takes practice. You know, I'm an older dog who's learning new tricks still about how to use Claude and asking all these questions, once you get past that, right? You start feeding it the data, just like you said, accounts payable data, purchase order data. And that that entrepreneur, founder, owner, or CEO can say, right, hey Claude, you know, tell me how does my freight cost compare to market rates in my territory for my type of transportation? It might be flatbed for this mode, for this length, et cetera. And Claude will give you an answer. The challenge with AI, though, is you got to double check its work. So, you know, we do that all the time here at Middle Ground. You we use Claude relentlessly, but we're also double checking its work. And so once you then teach it and you then verify, hey, Claude, that was a good answer or not, now you're building that model to be more accurate. Um, yeah, those guys outside of a private equity firm may not have that benefit. So you got to just help make sure that what you get out of AI is actually accurate.

SPEAKER_00 27:27

Yeah. The one thing I would say with AI though is I I have people reach out to me sometimes and they're like, hey, can you teach me how to use AI? And I'm like, you don't need AI will teach you how to use AI. Like, you don't need me to teach you how to use it. Just start talking to it like you would talk to me, right? Ask it questions, get its feedback, review it, discuss, you know, think about it, like fact check it. But I think that's the great thing about Claude is you don't have to know anything to make it a useful tool. You just have to start using it. That's it. And you'll you'll make it useful. It'll help you make it useful.

SPEAKER_01 28:04

That's right. Now it was interesting. Probably just over a year ago, um, our top managing partner, John Stewart, he was just jumping on that a long time ago and started telling all the employees just exactly what you said, Justin. Just start using it. Ask it to teach you. Um, so we got we all got this like enterprise-wide version of Claude now working on every computer, and we everybody's using it so that we're getting more comfortable with it, but then we're learning how to check fact-check it, like you said. We're also feeding it more information, and then we're kind of containing our models within middle ground to have that accuracy and that, you know, intelligence. It's fascinating and it's really helping us um create more value in a faster period of time. It's really exciting.

SPEAKER_00 28:55

You know, one of the most valuable things that I believe companies have that they don't realize is transcripts of their calls, right? If you record your meetings and then feed those recordings into a large language model over the course of time where it learns your business, it you know, it understands what you do, it's so, so incredibly valuable. I had I had a uh a client we were talking the other day, and and they had a toolmaker, and the toolmaker has worked there for 30 years, right? And he's got all these drawings with all these handwritten notes, and all of the knowledge is between his ears, and and the client saying, you know, when he retires, I'm gonna be in a in a tough spot, right? I mean, there's no replacing 30 years of experience, yeah. But then he took those drawings, it just had handwritten notes all over them, and he took pictures of them and fed it into a large language model, and then he told the younger toolmakers, hey, ask, ask your question here. And and the answers they were getting back were pretty spot on. That's crazy. You know, that same approach can apply in every aspect of the business. If you record the conversation and you feed the data to Claude, you know, AI can take that data that you're giving it and then cross-reference it against publicly related information to even make it better. So there's so much potential there. It it's terrifying and exciting all at the same time.

SPEAKER_01 30:22

Yeah, I find it more exciting than terrifying.

SPEAKER_00 30:25

Me too.

SPEAKER_01 30:27

As much change as quickly as we can. Um that I think the question I always ask myself, Justin, is like, where's the biggest opportunity for me to create value? Right? Am I marking up the wrong tree and maybe looking at a portfolio-wide program that's yeah, I'll get some savings, but not as much as if I looked over there. So I think AI can help take in a lot of data quickly, analyze it, and give you back at least a little bit of an idea. Hey, look how much juice there is worth to squeeze if you go down this, you know, program of work. Then you can say, Oh, that's probably not enough. I'm gonna park that to one side and then maybe open your canvas to look elsewhere to create value. So that's a simple way I'm using AI for now.

SPEAKER_00 31:14

I mean, that that sounds like a super valuable way to use AI. But, you know, Rick, you and I talked a little bit before. Middle ground runs a sales and purchasing conference and an operational excellence conference every year. You know, you get your CEOs and plant heads in a room, they share best practices, and they're expected to go home and implement. You know, that's the fast follower model I grew up with at Bosch. So much strategy dies in the boardroom in the mid-market because there's really no mechanism to deploy it. Yeah, how do you build that accountability, getting a best practice from one plant actually implemented in another? And how could a standalone mid-market manufacturer replicate that discipline without a portfolio behind them?

SPEAKER_01 31:54

Good point. Um, so I'll add one more conference. We have a third one too, Justin. I'm sorry I failed to uh mention that in our pre-conference. Was um we have a CEO CFO conference as well. So um, but let's just pick the first one because that happens at the earlier part of the year is the operational excellence one. We um we get all the COOs together every year. And one of the ways to actually drive like um improvement is having all of us have that natural competitive edge. We want to be the best. So I like to use league tables. So if I just pick a KPI and I could pick anything, right? I could pick uh, you know, your gross margin or percentage of scrap or what have you, and just throw it up on a wall and say, hey, here are the 15 companies. This is how y'all are doing on scrap percentage or gross margin. And everybody will have their defense mechanism and say, well, I'm a different business, so I'm special. But we try to say, look, um, why don't you you guys talk to each other to see what's he or she is doing over there to drive that higher gross margin or that that lower scrap rate or whatever it might be, lower cost of maintenance, you know, maintenance can be a very big cost for a manufacturing and industrial company. So I like league tables, putting it all up on the wall and just saying, hey, here's the data, um, especially for us that have that natural competitive edge. But then to your other question, if you're that mid-market manufacturing company out there and you're not part of a private equity firm, just look at your own plants and use the same tool. Like I'm assuming you're gonna have a multi-site business. And so if you've got plant A versus B versus C, you know, just put those three plants together and say, hey, who's doing the best on areas that you want to talk about? It might be lead time or on-time delivery, it might be cost related. So it could be safety related. Whatever change you're trying to drive, get those three plant managers to look at the same screen. And that drives a lot of uh, I think, natural healthy tension, as I like to call it. Um, and we do that in every conference. We do that with sales and purchasing, who's growing the sales, the top line the most, who's driving purchase price variants the most. And again, you got that natural group of leaders that are competitive just by nature of their backgrounds. Um, and similarly, CEOs and CFOs. We we give awards as well. So we recognize the best in all three of our conferences, OpEx Sales and Purchasing and CEO, CFO. Um, so they like to get that little attaboy pat on the back and that recognition. Our managing partners will hand out the awards, shake their hands, or other partners in the firm and they like that as well. Get to take an award back and share it with their teams.

SPEAKER_00 34:45

Everybody likes being recognized. You know, what do you think about uh benchmarking trips? Do you guys send, you know, employees from company A to company B to take a look at, you know, if they're doing something exceptionally well, do you send other people to take a look at it?

SPEAKER_01 34:59

Well, I like to be more specific. Um, so in the past, I'll be honest, Justin, we did try that. It turned into a little bit more of a boondoggle and it wasn't a lot of accountability to come back and drive change. Um, but there are two quick ones I could share with you that are working well. So once a quarter, uh, we hold what's called a boot camp or what others refer to as a kaizan event, and it will be a week long, and we require each portfolio company to send one of their employees to that week-long boot camp. Port code, you know, number five, let's say. So they're they're already committing an employee's time for a week, they the the travel to get there, but that employee has to go back just into their home portfolio company and implement at least three things that they took away during the week from that Kaizan event. And we track that. So we we have a good tracker for all that. But the second one that I like that um that also works well is we have a specific initiative at middle ground to sell products within the family. Like, hey, why is port code number four um purchasing this material from outside the middle ground family when they could buy it from a middle ground company? And so we then, of course, we got to look at all the costs, payment terms, lead times. But assuming things are pretty much square, we'll say, why don't we keep it in the family? And then we will send people, like you suggested, Justin, from that portfolio company to the other to say, hey, we want you to buy from them. So go take a look at their factory. They have actually a really good shop with a lot of great capabilities and tenured welders and machinists. So they get that confidence to know, hey, this middle ground company could be a very good supplier to me, and vice versa. We also promote them to try to sell their their services and components to each other. So that cross-selling program has been something we've been driving from the top, and that that helps um accelerate a lot of people traveling from one portco to the other with a very specific initiative.

SPEAKER_00 37:07

Yeah, I love that week long Kaizen example you gave. You know, when I was at Vosch, we used to do the same thing. We had we had a TPS for executives class, which we would bring in people from all the different Bosch plants in North America, and they would, you know, we would do go through the TPS. That class, you would actually go out on the shop floor, and the challenge was to make like 450 improvements in one cell during the course of the week. I remember and we did it, every group did it. Um, you know, it's just amazing if you stand out there long enough to see all the little improvements, but they we would bring in folks from all over the nation to do that. You know, we had a um what was called a Jeshukan, and it was I think it went multiple weeks. It was a bigger project, bigger scope. But again, we would bring folks in from all over and we would send folks to other plants to do the same thing. And yeah, it's just it's good knowledge sharing, best practice sharing. Because I, you know, I mentioned this in the pre-meeting. I had a plant manager one time that used to say, you know, if Vosh knew what Vosh knows, we would be unstoppable. And I really think that applies in the private equity space as well. You know, if if middle ground companies knew what middle ground companies know, man, you would be unstoppable.

SPEAKER_01 38:22

100%. No, a hundred percent. And and I think the art of that trick is figuring out where to focus.

SPEAKER_02 38:28

Okay.

SPEAKER_01 38:29

Like, are we gonna focus on revenue growth? Okay, well, then let's get, you know, some of the sales guys in there with the engineers. It's not just the sales guys, you know, it could be a operational issue, it could be an engineering issue, but that's the focus, you know. Let's come in together to say, hey, how can we grow this business faster? And um and compare notes on that. So once you have a little bit of a direction, I think it's great when you get people together like that to drive that improvement.

SPEAKER_00 38:56

Do you not have a, you know, I know you do strategy development at the individual at the port co level, but do you do strategy development at the portfolio level that then you have?

SPEAKER_01 39:06

Yes, sir. Yep.

SPEAKER_00 39:07

Okay.

SPEAKER_01 39:08

Do it, we do that annually. Um, we we do it both at the portfolio level, but then we also look at it across like um all of the funds, and we're projecting it from like where does middle ground want to be in three five years? So we even have like a middle ground strategic deployment plan once a year to think about, you know, how much capital do we want to raise, how much do we want to return, um, what kind of returns are we looking for from the portfolio companies next year and three years and five years, and then what resources are needed, whether it's tools, people, capital. And so we do that every year at the top and kind of then do it down at the portfolio level and then at the portco level.

SPEAKER_00 39:53

But do you but do you the strategy do you go into like the operations? Hey, we want to deploy um hub and spoke freight models across the portfolio. We want to deploy uh RFID, whatever movements across the portfolio, like on the operational side. Do you look at it that way, or is it just on the let's say the financial piece?

SPEAKER_01 40:16

It usually starts with the financial piece. Um, because look, I mean, we're serving our limited partners, our LP, right? They're looking for great returns in a short amount of time. And how we get there, they leave that to us to figure out. So then we say, okay, let's get our leadership team off site. We do our strategic planning and figure out, right, how do we get there next year, three years, five years, and where do we want to go? Sometimes you have to figure out which portfolio companies you really want to focus on, or which territory, which um like which end markets do you want to get into when you deploy capital and invest in new companies? So we do that every year, Justin, to kind of figure out big picture first. Where do we want to go? Then out of that, we might find, hey, in order to serve that um, let's say return capital X dollars by Y timeframe, one of the avenues might be, like you said, the freight and logistics, hey, uh $130 million program. Yeah, let's let's approve that project and run faster with it and put more resources on it.

SPEAKER_00 41:26

Yeah, super interesting. I mean, the more I think about it, the more I'm like, the more I think Middle Ground is is Bosch, right? It it it's different, but but but that's essentially what it is. It's the same. It it you could take the same things that we did with a huge conglomerate like Bosch and apply those same strategies, those same techniques into a company like Middleground because it's they're trying to deliver value across at a large scale, right? So, how do you do that and how do you take advantage of the resources you have to drive that?

SPEAKER_01 41:56

Exactly right. It reminds me very much of my days at United Technologies Corporation, now Raytheon Technologies, but it's funny, Justin. Like my first days in private equity were 10 years ago with Gen X360, and they were founded by a bunch of guys from GE. I never worked for General Electric, but those boys were kind of cut from the same cloth as I was, and as you were. And it is it's very much driving that that operational excellence, that whole idea of how can I, you know, do more with less, work smarter, not harder, and go ahead and drive growth, margin improvement, shorter lead times, better safety, improving the quality of people's lives at work, you know. So it's it's fascinating. You can think of it very much like at a fund level or portfolio level, that it's very, very similar to those big companies.

SPEAKER_00 42:48

Yeah, that's that's a super interesting thought, and all the implications and all the possibilities. And anyway, I'm sure we could talk about it for for forever. But Rick, I really I want to say again how much I appreciate you carving out the time to come on the show. Um, it's not every day we get to talk to somebody with your expertise and your experience. So thank you so much for sharing some for being so willing to share your knowledge with our audience.

SPEAKER_01 43:10

No, you're welcome. Thank you for having me on the show, Justin. I appreciated it a lot. I'm sure I learned a lot, and I'll keep watching some more episodes and keep gaining a lot of insight from some of the other guys and gals on your podcast. So thank you again for having me.

SPEAKER_00 43:22

Well, we really appreciate it. And folks, if you enjoyed this conversation with Rick, please like and subscribe, share the podcast with a friend. We obviously want to get out there, share more information, and help others get better at driving value within their business. So, anyway, until next time, see ya.