Creating Value When Investing in Industrial Businesses

On this episode of the Private Equity Value Creation Podcast, Shiv Narayanan interviews Paul Swaney, Managing Director at Swaney Group Capital .

Shiv and Paul discuss how to create value when investing in industrial and manufacturing industries, and how that differs from B2B tech and software investments. Learn how Paul and his team increase capacity by looking at production lines, the impact of workplace safety and how to increase product demand. 

Unlocking Hidden Factory Capacity Without More Capex

Many middle-market manufacturers face the same question: how can we increase production without investing in new factories or machinery? While it may seem like capacity expansion requires heavy capital expenditures, the reality is often quite different. Most businesses are sitting on a goldmine of latent capacity—they just don’t realize it.

At world-class manufacturers like Procter & Gamble, production lines often run at around 85% Overall Equipment Effectiveness (OEE). However, in the middle market, it's rare to find a business operating at even 50% OEE. This means there’s often at least 30% untapped capacity already sitting within existing facilities.

Among all the inefficiencies, long changeover times consistently emerge as one of the largest drivers of lost capacity. In many facilities, teams avoid frequent changeovers because of the time and complexity involved. Reducing changeover times not only frees up capacity but also allows for greater flexibility and responsiveness in production scheduling.

Beyond changeovers, countless micro losses quietly erode efficiency. These include minor equipment issues like worn suction cups on packaging lines—small details that become significant over time, especially as speed increases wear. Left unaddressed, these inefficiencies silently drain capacity from the system.

Improving OEE from 40% to 50% can take 6 to 12 months. While this journey requires operational discipline and some increased operating expenses, the reward is substantial: a 25% increase in available factory capacity—with no capital expenditure required.

Why Capacity Alone Won’t Drive Growth

When discussing manufacturing businesses, it’s easy to focus solely on operations: improving efficiency, increasing capacity and reducing waste. But there’s a critical truth that often gets overlooked—you need to build demand as well as capacity.

Many middle-market manufacturers struggle not because they can't produce more, but because they lack the commercial engine to drive demand for what they already make. Unlocking supply-side efficiency is only half the battle.

This is a recurring theme, especially in founder-led manufacturing businesses. Often times, these companies are started by engineers, not salespeople. The founders were typically technical experts who built something, found a few customers and then focused on perfecting the product and the production process. Sales and marketing were rarely part of the core DNA.

As a result:

• Outbound sales efforts are often non-existant.
• New product introductions are sporadic or reactive.
• Marketing functions, if they exist at all, are typically underdeveloped.

Some founders reach a stage where they’re comfortable, drawing dividends and unwilling to reinvest in building a sales organization or entering new markets. These moments create opportunities for new ownership or leadership to step in and professionalize the commercial side of the business.

Culture’s Silent Impact on Performance

The experience of the people working on the factory floor—the operators, technicians and supervisors—is rarely given the attention it deserves. In many manufacturing businesses, culture isn’t discussed nearly as much as it is in industries like tech or financial services. But this lack of attention comes at a cost.

You can take two identical factories—same machines, same headcount, same cost base—and see vastly different outcomes. The plant with a positive culture, a strong safety track record and an engaged workforce can often produce twice as much output as its peer. The difference isn’t technology or investment; it’s how people show up to work, how they solve problems, and how much they care about the outcomes.

But culture in manufacturing isn’t about free snacks or trendy perks. In environments where people work with complex machinery—sometimes equipment that can seriously harm them—culture is about safety, accountability, respect and empowerment. It's about building a workplace where people are motivated to do things the right way, not just the fast way.

Why Cost Structure in Industrial Businesses Demands a Different Playbook

In software, your primary expenses revolve around talent—developers, engineers and marketing teams—alongside digital acquisition costs like paid media. There’s no inventory to carry, no physical supply chain to manage and no complex logistics to coordinate.

In manufacturing, the cost stack is far more tangible and intricate. It’s tied directly to physical inputs, operational efficiencies and supply chain discipline. That creates both more opportunities and more risks when it comes to driving margin improvement.

Breaking the Habit of Single-Sourcing

A common theme in founder-led manufacturing businesses is loyalty to long-standing suppliers. Whether it’s chemicals, steel or other raw materials, founders often resist changing vendors out of caution or relationships. This leads to single-sourced supply chains that are rarely re-bid, leaving the company vulnerable to creeping cost increases.

One of the most immediate cost opportunities lies in simply reassessing and re-bidding supplier relationships. Given identical specifications, there’s often meaningful savings to capture.

Outsource Non-Core, Protect Core

Another overlooked area is functions like HR, benefits administration and payroll. In smaller businesses, these tasks are often handled by a handful of overburdened staff. This can be inefficient and error-prone, especially when scale doesn’t justify in-house resources. Moving these functions to platforms like ADP or other third-party providers is typically more cost-effective and delivers higher service levels.

Ultimately, the nature of costs in manufacturing makes margin expansion more complex but also more controllable through disciplined execution. Unlike in B2B software, where expenses scale with headcount and ad spend, industrial businesses can fundamentally change their cost structure through smarter operations and sharper procurement. For investors and operators who understand this nuance, it’s a rich area for value creation.

Want More Insights?

Check out the full conversation with Paul👇

Private Equity Value Creation is a podcast about the innovative approaches leading investors, operators, advisors and bankers employ to drive sustainable growth and create enterprise value. Hosted by Shiv Narayanan.

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