Podcast: “executive sessions”, Episode 1 – MiddleGround Capital
April 6, 2023

Podcast: “executive sessions”, Episode 1

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Introducing MiddleGround’s first episode of Executive Sessions, where our host, Clayton Gullett, leads discussions with a variety of guests around industrial manufacturing. To kick off the series, Clayton is joined by John Stewart and Scot Duncan, founding Partners of MiddleGround Capital. This first episode covers four primary topics:

  1. Who are John and Scot?
  2. Changing labor markets
  3. The human element of business
  4. Near term challenges


Who are John and Scot?

Between John and Scot, they’d done every operations role a company could have and accrued decades of operational and financial experience. When you pair that experience with ambition and a rock-solid, trusting working relationship, you’re gifted the drive to start a new kind of PE firm. They attribute much of MiddleGround’s success to their shared blue-collar, operations-first roots, which is a huge differentiator in middle market PE.

John Stewart started his career working the night shift on the shop floor at Toyota and eventually working his way up to running European operations over the course of an 18-year career. He moved into private equity in 2007 and eventually started MiddleGround Capital with Scot along with Lauren Mulholland in 2018 because they wanted to focus on industrial manufacturing and have more decision-making power.

Scot Duncan earned his Mechanical Engineering degree from the University of Kentucky and worked at Toyota for 13 years. This is where he met John, who would ultimately recruit Scot into private equity. Scot worked his way up to Director of Operations before leaving his prior firm to found MiddleGround.

John and Scot have built a strong working relationship over their 20+ years working together. This is further proven by their track record. As long as they’ve been managing companies together, they haven’t lost a dime on an industrial investment! Here’s what makes them so compatible:

  • They are opposites. John is a visionary, big-picture thinker while Scot is focused how to bring those ideas to life.
  • Common working styles due to their shared history at Toyota.
    • Toyota’s practices dictated that each person reflect on a project upon completion and point out every error or opportunity for improvement. A culture of continuous improvement is a cornerstone of both their, and MiddleGround’s Operational focus.
    • Toyota’s management was taught that if a problem is a small problem, you can make urgent decisions. But if it’s a large problem, you should always carefully consider the longer-term potential impacts of your solution.
  • They both prioritize solving a problem rather than laying blame. Throughout their careers they’ve both made mistakes, but they’ve come together to solve the problem instead of pointing fingers. They’ve built trust and a “we can fix it” attitude through these trials.


Changing labor markets

COVID has had a long-lasting impact on industrial labor market. The workforce shrank when people realized that their wages barely covered childcare and commuting costs and it didn’t help that McDonalds, Starbucks, and other giants raised wages. It was a no brainer for people to choose the more comfortable, safer jobs in food service and retail rather than factories. There’s two ways to combat this trend: raise wages and improve working conditions.

As a result, MiddleGround implemented a $15 minimum wage initiative setting them apart, and keeping portfolio staffed. But, they didn’t stop there. MiddleGround’s next goal is increasing wages to $25 per hour by 2025. John and Scot believe that if you need skilled labor, wages must reflect that.


On top of poor pay, most factories use outdated technology when there’s much better, more efficient options now. Rather than investing in improvements to increase output, manufacturers tend to supplement with more manual labor.

MiddleGround’s approach is to raise wages and introduce efficient, innovate automation technologies, while improving the facilities. This can be as simple as adding air conditioning to a factory or updating bathrooms to be sanitary for shop-floor employees. These are two different thoughts, and don’t relate to automation. Should this be in the section below?

The human element of business

Because the key differentiator of MiddleGround Capital is first-hand experience in industrial operations, we know the challenges that are facing our companies and equally importantly, we know the challenges that are facing employees. Because of that, we operate our portfolio with empathy and one of our motto’s is that “We don’t want to make money on the backs of other people.” We can treat people well, while keeping commitments to our investors. This is best exemplified by our COVID response, use of automation, and working condition improvements across the portfolio.


When COVID hit, we ordered PPE early, made sure our companies kept extra cash on the balance sheet in case of a lull in production, and made the decision not to cut a single job across the portfolio. We used any down time to improve the shop floor and make the business more efficient. When demand returned, we came back in full force, and fully prepared to produce without the need to rehire labor.

While automation might seem like a mechanism to cut jobs, it actually removes monotonous tasks from a process. Rather than an employee sitting in one spot for 8 hours and doing one task repeatedly, that can be automated and human labor can be redirected to more fulfilling work.


The last aspect of maintaining a human perspective when looking at the portfolio level is ensuring safe working conditions. We’ve seen nightmarish facilities with unfiltered air containing dangerous contaminants, chemicals being squeegeed into the sewage system, cockroaches rampant, shop floors so hot that your shoes melt, and more. We identify these problems and prioritize worker’s safety updates first. We do our best to act as ethical business leaders – addressing issues so that it’s safe for people to come to work without being injured is the baseline. When you have over 150 facilities globally with nearly 75K people working at those facilities, small changes to working conditions make a big impact.

Near term challenges

There are absolutely challenges facing the market. Interest rates are high, which can mean an exorbitant interest expense for a single transaction. We don’t put a high proportion of debt on our companies so we can continue to do transactions when others are stalled, but it still has an impact on us. We focus on paying down expensive debt. With the cost of capital so high, our CEOs also need a sharper view on allocating capital for improvement projects. There’s a need to reset spending expectations.


And finally, labor, freight, and material costs are increasing, and it is essential that each platform understands what those costs are and has honest conversations with their customers. A lot of management teams hesitate to increase prices, but we empower them to have those tough discussions. If you’re honest and show that your customer the numbers, they’ll often understand and give you what you need to continue in operation. And if they don’t, then that’s probably not a customer that you want anyway.

Stay tuned for more of Executive sessions, and don’t forget to follow us on YouTube and LinkedIn for more content like this!