7 Characteristics That Attract Manufacturing Investment

Whether you’re seeking investment in your manufacturing company to facilitate growth or retirement facilitated by the sale of your company, it’s critical to understand the 7 characteristics that attract manufacturing investment.

As a 30+ year veteran of manufacturing mergers and acquisitions, I know the types of companies and leaders that attract multiple investors and those that are avoided like the plague.

It’s About More Than Sales & EBITDA:

What are the characteristics of companies and leaders that consistently attract quality investors? Everyone talks about sales growth and EBITDA.  Most understand if these are on an upward trajectory, it’s easier to attract investment or sell. What I want to cover goes deeper. These things are harder to define, but they can have an equal or greater impact on the type and quantity of investment manufacturers can attract.  If you have strong sales and EBITDA but lack these characteristics, you’ll never get the best deal.

Here Are The 7 Characteristics That Attract Manufacturing Investment, which I’ll discuss in more detail below.

1. An Intentional Approach to Business Growth
2. Owners Who Are Engaged in Personal and Leadership Growth
3. Investment in and Development of the Staff
4. Ongoing Investment into the Business
5. A Company Culture That Values Quality & On-time Delivery
6. A Company Whose Team Learns and Improves from Mistakes
7. A Company That is Proactive About Customer Relationship Development

Let’s look at each of these in more detail. To do so, I’ll ask some critical questions. If you’re seeking investment or acquisition of your manufacturing company, these are questions you will likely face. Even if you’re not seeking investment, addressing these issues will improve your manufacturing business.

An Intentional Approach to Business Growth

To be intentional about business growth, you must accurately understand where you are and where you’re going and have a plan to get there with tracking and accountability. Sustained growth requires intentionality; it’s never an accident. Intentionality requires one to make data-driven decisions. Here are some questions to help you determine if you have an intentional approach to business growth:

1. Do you have annual, five-year, and ten-year goals?
2. Do you have quarterly tasks that, if achieved, will mean you’ve reached your annual goals?
3. Is progress on these tasks and goals tracked weekly?
4. Does each team member have tasks relative to the company’s goals with accountability?
5. Do you have an ERP system to give you complete visibility into every aspect of your company so that you can make data-driven decisions?
6. Do you know your true COGS and profitability on each item you sell?
7. Are any of your products and services going to become obsolete because of new product designs or technologies?
   If so, how will you replace that business?
8. Is your company’s future in danger because of customer concentration?
9. Do you have standard operating procedures that are well documented?
10. If you were incapacitated for a period of time, could your company still run?

Owners Who Are Engaged in Personal and Leadership Growth

The health of companies usually follows the health of their leaders. Those who invest in themselves personally and professionally tend to be more open-minded and know how to future-proof their companies.  Personal and business survival requires the humility to understand you don’t know everything. It also requires an understanding that technology changes how business is done, and as business leaders, we must continue to grow. Consider the following questions:

1. When was the last time you attended a personal or leadership growth conference?
2. How have you improved your trade, business, or communication skills in the last decade?
3. What is one area that, if you improved, would change your business relationships?
4. Are you constantly facing pricing pressure from customers? Could a negotiation course help?
5. How has marketing changed since you’ve been in business? Would a seminar on how manufacturers are using social media help your organization?

Investment in and Development of the Staff

The difference between the success and failure of many manufacturing companies in the next decade will hinge on their ability to attract and keep good workers. The best test of good leadership is whether or not they create leaders. This is a real hot button for those investing in manufacturing companies. A company too dependent on its owner is a risky investment.  The subject of investing in staff also strikes fear into the hearts of business owners. They don’t want to invest in their workers only to have them leave. In this competitive work culture, one thing is certain: if you don’t invest in them, you will lose them anyway. If you do invest, you’ll end up with better workers. Consider the following questions:

1. Do you assess your team’s strengths and weaknesses regularly and provide training to improve where needed?
2. Do you provide opportunities to further develop their specific trade skills?
3. Would your staff consider you a mentor?
4. Would your team consider you a good leader?
5. Do you provide leadership training to your staff?

Ongoing Investment into the Business

The best quality investors and buyers of manufacturing companies want to see that you’ve cared enough to make continual investments in your company. If a large capital investment is needed to raise or maintain competitiveness, you won’t achieve an optimal investment or sale price. Often, investment is sought for exactly this reason. There are new machine tool technologies to help an owner get to the next level, but they don’t have the capital to do it. There’s a big difference between this and someone who has never improved their equipment since establishing their business. Here are some questions a smart investor will ask:

1. If money were not an issue, what would you do to grow your business?
2. Are there newer technologies available that could increase throughput?
3. What do these technologies cost?
4. How would these additional technologies affect your bottom line?
5. Is there a cost/benefit ratio that makes sense for this investment?
6. If we were to acquire new technologies, would there be team members who would know how to operate them?
7. If not, where can we get the training or people needed to make the technology acquisitions meaningfully successful?

A Company Culture That Values Quality & On-time Delivery

Investors will ask about your quality and on-time delivery record. They’ll want to understand the amount of customer refunds or credits that had to be given in the last several years. This goes to the likelihood of the continuation of the customer relationships. Your answers will tell them a lot about your leadership and company culture.

1. Do you have a quality assurance department with documentation of inspection procedures?
2. How many times in the past three years have customers sought a credit, return, or corrective action?
3. What if anything is done to discover how the issue happened and who was responsible?
4. What if anything is done to ensure the problem is not repeated?

A Company Whose Team Learns and Improves from Mistakes

One of the biggest tests of character is how people deal with mistakes. Anybody can do the right thing when everything is going right, but how do you and your team respond when you’ve fallen short of what you promised to your customers? How would you deal with the following situations?

1. How do you deal with an internal escape issue – a manufacturing defect not detected until post-production inspections?
2. How does your staff deal with this exact situation?
3. How do you deal with a customer when a production run will be late, even though you promised it would be on time?
4. What do you say to a customer who demands an order by a certain date, and you know you can’t make that date?

A Company That is Proactive About Customer Relationship Development

Manufacturing B2B Investors want to understand customer relationships, their length and strength, and if there are other opportunities available. Here are the questions you’ll need to answer to attract quality investors:

1. What are your customer’s end markets?
2. What is the cost of the components you provide vs. the overall cost of the products your customer creates?
3. What is the size of your customer’s organization?
4. Are there other company divisions you’re not currently servicing but could?
5. Do you regularly communicate with your customers to understand their needs, both current and future?
6. Do your customers fully understand your capabilities and service offerings?
7. Who are your customer’s competitors, and have you tried to gain other customers in the sector?

Manufacturers are rarely doing all these things right, and you don’t have to be perfect to attract investors. If I had to boil this down to a bumper sticker, it might read,

Another takeaway is that in reviewing all of the above, I realize these issues are all character-based issues. Continual improvement, developing leaders within your organization, and developing a strong company culture and stakeholder relationships require strength of character. It is possible to be temporarily successful without these characteristics. However, sustained growth requires more. In conclusion, while some investors are purely financially driven, the smartest and the best are vetting for your character at every turn. All of the above affect the value of your manufacturing company.

If you’d like to learn more about how a quality investor or an acquirer would view your company today and how you might improve that view, reach out for a confidential consultation HERE.