Want to start a PE firm that automates manufacturers and warehouses
I currently help small manufacturers and warehouses with automation. It is amazing how behind most of these places are. Implementing robots profitably is actually very difficult and involves lots of planning, analyzing and changes to business flows. Also, you have to re-train workers.
Also, you have to get software to work with new and faster business flows. This all takes a lot of expertise that most mid-size companies don't have.
I am thinking of a PE firm that basically invests in manufacturers and warehouses with very little automation. Then, I want to implement automation (AI robots, software, etc).
This is a huge market opportunity. People just think of a robot as: you buy and use. But in actuality, AI robots have to be well thought out and integrated into the business process, have to be services, have to be financed, etc.
What do people here think? Thank you so much!
Sorry if I'm being naïve, but can't mid-sized companies hire consultants to assist in automation? Once they get over the initial learning curve, shouldn't it just be some maintenance experience that they can get from an IT guy or something like that? If it truly would reduce expenses that much, it should be profitable even w/ the temporary consultants and IT guy.
I see your point, but if that logic held, why would any company partner with a PE firm at all? A PE firm can only convince sellers to give up their stake by offering a price above their reservation value, which requires the firm to see more potential in the asset than the seller does, usually through some value creation plan. And while many of the typical levers, pricing, procurement, salesforce effectiveness etc, could in theory be outsourced to consultants, that’s not what happens in practice. There must be reasons management teams and sellers prefer partnering with a PE firm over just hiring consultants and holding onto the business.
To me, the most obvious, wrt management teams is stronger alignment of interests (since PE firms actually take on risk) and greater continuity of partnership (given hold periods of ~5 years). Wrt sellers, they probably don’t have a reliable way to size the upside or the discipline to actually pull all the pieces together and see it through.
But I’d be curious to hear other first-principles perspectives on this decision, especially in this "manufacturing automation" context.
Very good perspective.
I believe that most manufacturers don't even know about the benefits of robotics. Also, their are emerging technologies like AI-analysis of videos, that allow tremendous potential. These robotic companies are subsidized by investors, so you can get a very expensive product for cheap (similar to ChatGPT, for example).
Also, robotics involve very high initial capital expenditures, as well as changes to business processes (like cutting off some customers and generating more customers in areas aligned with your robotic systems). This, at least in my view, would make it ideal of a PE firm, as they would be able to provide the initial capital and assist with short-term losses that may result from the change in workflows.
In my experience, if done correctly, robots can easily increase profits by 10-20%. Maybe not enough for an individual manager to justify, but with a PE ownership that can easily work.
It involves a lot of capital expenditure. It also involves a change in workflow. So for example, suppose you implement a new grinding robot. So now you have to change your business to accept new grinding jobs, improve the welding operations too etc. You also have to train workers. You also have to build equipment around the robot (like conveyer belts to run items, etc).
If done correctly it is profitable. However, maybe PE companies already do this? I wonder about that. But I have been to some PE owned plants and they are all basic with 0 robotics.
Yeah no need to setup a GP/LP structure for that, that's just additional headache. Just setup an actual company and do a rollup.
Thank you. How do you get investors and stuff?
Friends & family money > do first acquisition 100% equity > prove that your playbook works > raise from VCs > raise debt
I spent some time looking in this space. There’s a huge opportunity to do roll ups, especially with small manufacturers with no retirement plan
id apply/invest!
Thank you.
Yes, their is huge opportunity. Just go to a local plant and see how it is run, their is huge potential for improvement, especially considering the recent advances in robotic programming. I sent you a DM if you want to talk more.
People saying “well if it makes sense the companies would just do it” probably have never operated and never dealt with truly small businesses. There is definitely a roll up opportunity there. Contract manufacturing in general is a total mess. Workflows are antiquated across the board, not just in the actual manufacturing process, but also in terms of how they interact with customers.
How do you do it? Find a company to buy as a base, raise money to buy it, plus additional capital to roll up from there. You need a very clear plan for how you’ll actually implement the improvements.
I’ve thought about this a decent bit, PM if you want to actually talk about it.
Yes thank you!
I am thinking of purchasing a small machine shop (around 1-2 m) and then implementing robots. Its not just the machine--you have to program it, change the programming, fix bugs and issues, etc.
Basically, it is like you having to purchase a word processor and excel program and editing the program yourself. Would you use it?
And once you implement it, you have to change the labor, orders, organization etc. I am working with a few small shops as a consultant. But their is huge opportunity. So we can have one shop specialize in metal pipe grinding, one do iron rod fabrication etc. Some specialize in aerospace parts for the local airport, local mechanics, etc.
You have to physically go to a small shop to see it. Software may improve the edges, but robots would really boost output. The issue is that robots are capital intensive and complex. So their is a huge opportunity to implement robots and have shops specialize instead of competing on the same thing.
Once solid robot setup can boost output tremendously. Then you have to work with the customers to increase orders, work with trucking companies, and streamline the process.
I will DM you, I know a lot about robotic implementation and I hope to see if anyone might be interested in collaborating! Thank you so much!
Sounds like you should set up a consulting firm to do this
Yes, I am doing that. Thank you!
Another perspective would be to join a PE firm as an operating partner or consultant and try to prove out your thesis. I'm not sure what your current role is, but I'm guessing you don't get the broad exposure of a PE portfolio. If that is successful, you've proved out the plan and can tell investors that you've done it for an investment firm before, which should make your fundraising/investor conversations easier.
Yes, thank you. I was thinking of that too. However, it seems hard to simply email them. So far, no one responded. I currently work as a consultant and help implement this. The technology is extremely new so I believe their is lots of potential.
You just mention about engineering proccess mate. I am Electrical and Electronic Engineer btw. We just build robots and programming then use plc to manage automation process and designing of the whole system in an most efficient way.
Sort of sounds like what Hadrian is doing in A&D manufacturing. Might be worth reading up on some of their activities/rounds which receive good news coverage.
I know a guy who is doing this and has raised $50mm so far. It's a great idea, but you have to know deep tech well and the industries you enter well.
I found a manufacturing plant with 3m revenue but 0 or negative profits. 0 automation even though much of the basic tasks can be automated.
Hey OP - I think this is really cool. I'd like to learn more about this whole thing. Any direction you'd point me in? Eg, have seen some guys on twitter talking about this (blueprintsmb22)
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