Monthly Archives: March 2013

Going Once, Going Twice … Human Interaction

Tecomet Auction. Bidding on machine with with pizza crust sitting atop

I attended the Auction of Tecomet Wednesday this week in Pleasant Prairie, Wisconsin. It was just the fourth auction I’ve gone to since I started working at Graff-Pinkert almost two years ago. Auctions generally turn out to be a pretty interesting experience for one reason or another. They’re usually pretty grueling, standing on a cement floor all day, subsisting on a few granola bars or the swill they serve in the classic auction “roach coach.” This sale’s auctioneer had been kind enough to cater with Dunkin Donuts in the morning and order pizza for lunch, some crust of which sat on a precision jeweler-type lathe as it was bid upon.

I didn’t plan to buy anything when I went to the sale, although there were a few pretty pieces on the block — a bunch of Citizens from the late 90s to early 2,000s and two Tornos Deco 2000/20 machines. I attended the auction mainly as a reconnaissance mission to watch prices of the CNCs. I also came to network, as it was a good opportunity to mingle with competitors and prospective customers. I wanted to learn from them, and I also just wanted to be seen there.

I roamed the auction for a while with a former auctioneer who was bidding on a few small items that he planned to sell on eBay if he won them. He told me that 10 years ago, before today’s ubiquitous online auction bidding, a sale like Tecomet’s would have attracted 500 live people to the auction site — I estimate Wednesday’s auction drew around 50. He said that auctions used to be grand events, with intense bidding fueled by energy and enthusiasm that can only be created by people bidding in person.

After enduring five boring hours of mostly small-dollar items, the interesting stuff finally got going. The two Deco 2000s were the most expensive items at the sale, and one man onsite bought them both for $105,000 each. I’m pretty sure I remember one other person on the floor who bid $80,000, but the rest of the opposing bids emanated from somewhere in cyberspace. I have to wonder, if Internet bidding had not been available and the sale had 500 people like in the bad ol’ days, would the price of the machines have gone higher?

Today, we consumers live in what I would call an “Auction Age.” It started in the late 90s, when eBay brought auctions to the fingertips of the masses with a user-friendly, un-intimidating platform that was unprecedented in commerce. In the last decade, eBay and Amazon have conditioned consumers to believe that paying retail is for suckers. What’s more, leaving the house to buy stuff is stupid as well.

Online auction bidding has enabled auctioneers to sell capital equipment to people who sit in their offices 2,000 miles from the sale, who can get work done rather than standing all day waiting for other people to bid 40 dollars on shelving. But this convenience comes at a cost, especially for an auction mingler like myself. The atmosphere and energy that comes from community on the auction floor has been eroded. Today, the masses have replaced that venue of community by using virtual connections through email, Facebook, Twitter, Skype and eBay. Every day I communicate with hundreds of people who I never would have had regular contact with 20 years ago. The communication available using the Web is mind boggling, but how powerful are those virtual connections? Even talking on the phone has been widely supplanted by texting, chatting, and emailing. What benefits have these convenient connection mediums robbed me of as they remove my desire for genuine physical contact with other people?

Question:  Has Facebook improved your life?


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Do your clients know who you are?

Guillermo is from Mexico, or maybe it’s El Salvador or the Dominican Republic. Do we care? He pushes a lawn mower, directs a trimmer, and handles a weed-whacker. He’s the guy who comes to my house with a pickup truck, a couple guys and a few bags of Miracle-Gro.

Guillermo’s 20-year-old daughter wrote a letter that put a name to the man who had for 10 years been “that guy who mows our lawn” and sends us a bill.

His daughter told us in the letter that Guillermo took his first real vacation, five days in Orlando, just last year, and wants to do it again this year. He has three daughters. The eldest, Maria, who is in her second year at community college, wrote the letter. His other girls are younger and in school and hope to go to college. His wife cleans hotel rooms. Guillermo saved up to buy his truck and if he acquires a few more regular clients he will buy another and help his brother start a landscaping business.

I’m writing this piece not just because Guillermo is good at what he does, but because he now has a name and a face to me and I’m more likely to ask him to bid on bigger projects for me because I finally feel like I know him. But even more important, he taught me something I had forgotten in the rush to hit my numbers goals.

“People like to buy from people.”

You may think your banker just looks at figures when he does your line of credit. I doubt it. You think the purchasing folks only care about prices down to the decimal point. Perhaps, but how do you get on the ‘A’ list to bid a project?

The handwritten thank you note, the box of candy for the receptionist, the email of congrats to your client because his son won the league wrestling title at 128 pounds – the personal stuff is still crucial.

But the surprise is that other people care about you. Through the years so many people have queried me about my heart surgery or my wife’s Taekwondo awards. People want to connect, they want to feel, they want a peek into your life – but it has to be real. People smell a fake like an onion in a bag of potatoes.

I gave Guillermo extra money at Christmas for the first time this year. He had done good work, but he always had. But now he had a face. He had kids. He had a story.

He was a person – not just a lawn mower.

Question: Do you care if your doctor is a jerk?

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A Hopeless Sports Romantic

Bill Bradley, former Senator and college basketball star

I am a hopeless sports romantic, so these next few weeks will be glorious for me.

Major League Baseball season starts in less than two weeks, and the World Baseball Classic just finished in San Francisco with the Dominican Republic taking the title for the first time. You missed some terrific games if you ignored this event. The atmosphere in every game was as intense as in a playoff series.

The NCAA Basketball Tournament starts this week. I know that there are no great teams this year, but so what? It will be a fantastic event and an unknown school like Belmont or Butler will make a run and might even get to the Final Four. I’ve loved the Tournament since going to cover it for The Michigan Daily in 1965 in Portland, Oregon. That year, UCLA beat the Michigan Wolverines behind Gail Goodrich’s 42 points. The left-handed Goodrich was on fire that game, but the real star of the Tournament was future U.S. Senator Bill Bradley of Princeton, who scored 56 in the runner-up game. I sat behind the Princeton bench and kept announcing Bill’s amazing point totals to the coach, Butch van Breda Kolff. Every time Bradley scored I gave him a tally and would tell him how close he was to the record. I kept telling him, “Give the ball to Bill.” The coach would then shout, “Give the ball to Bill!” Ah, the power of suggestion. I’ve always felt my name was worthy of a footnote in the NCAA record book.

And then April 11, the Masters golf tournament in Augusta begins. I love the Masters because of the silly tradition of the Green Jacket and the history of the tournament going back to Bobby Jones.

Jim Nantz of CBS is an amazing professional broadcaster and he adores the Masters like no other. He will go from Atlanta, where he will do the NCAA Championship Game on Monday, April 8, on to Augusta for the Masters, which starts on April 11. Nantz did the Super Bowl in February. This will be his 23rd Final Four and 24th Masters. With makeup I can’t even see his wrinkles or gray hair. He looks like he’s 35 on TV (though he’s really 53). Nantz’s true greatness is that he never makes himself the story. Unlike a Harry Carey, who dominated the game with his personality, Nantz is the inspired observer, helping us to enjoy the game without injecting his personality very much. That’s one reason CBS pays him $7 million a year. There is a place for both styles. Marv Albert, who has probably done 50,000 basketball games, combines personality and professionalism, somewhat like the remarkable Vin Scully of the Dodgers, who is still doing baseball games at 85.

I would have made a great sports commentator on TV or radio. Maybe I’m ready for a career change.

Question: Do you prefer NBA or College Basketball?

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It’s the Accountant’s Fault

Sometimes the absurdity of trying to do business and make money and then pay the appropriate taxes to the Feds and State just about knocks me over.

I’m currently doing the annual ritual of getting my taxes and financial statements in order. I am using a good accountant – conscientious and smart – and we are struggling to come up with documents that are consistent with accepted practices and have at least a distant relationship with “Truth, Justice, and the American Way,” as they used to say in Superman intros. After many many years of being involved in this process I am convinced it is almost impossible for my business to do this correctly – and probably yours, too. But I must, and I will, so my accountant and I will collaborate and come up with a plausible fiction that a banker can show to other baffled bankers and then lend money on with some confidence that it will be repaid with interest, on time.

I am a complete skeptic about accounting. On a huge scale, can anybody believe that companies like General Electric or Berkshire Hathaway can be understood by reading their annual report? If my small firm is opaque even to me, how can anybody grasp what is going on at a Citibank or BP? I certainly doubt the officers really have a clue what the numbers mean, except in a broad sense of momentum and liquidity.

I have come to the conclusion that “earnings per share” for a public firm are a fabrication concocted by financial analysts to confuse stockholders and make a bonus.

After years of dealing with accountants who are more concerned with their own bottom line than the accuracy of their clients’ books, I have concluded that there are just a few things that have real importance. The most important item is liquidity. How much cash do you have available to spend? How much do you really owe versus that cash amount or solid receivables?

Second, how big are your real margins? It is not so important to make a lot on each transaction if you have a lot of transactions like Amazon or Costco, but at the end of the month or quarter, did you make a real profit by generating fresh cash?

Overhead is important. But this is where the accountants get to have their fun and obfuscate reality. They can usually flummox the most astute layman by how they allocate expenses and indirect costs, like “depreciation,” or “freight” or even “inventory.” Can you imagine trying to put an appropriate number on the value of GE’s inventory? Impossible.

So at the end of every year, I sweat the “results” of my year and worry about government and lenders doubting my accounting fiction, which I think is better than most trashy fiction offered up to the clueless consumers of accounting fairy tales.

Question: Should rich people pay more?

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Life After the Breakup

Lloyd Graff, Rex Magagnotti, Noah Graff in front of INDEX MS32C

I bought out my brother Jim’s interest in my family machinery business six months ago. I promised him that I would not write about the breakup, but I want to take a few lines to describe how the post breakup is going for me.

The day after our deal closed I was vacationing with my wife, my sister and brother-in-law at the Chautauqua Institution near Jamestown, New York. (We had planned this trip a while before with my sister. That the breakup with Jim culminated at the same time was an odd coincidence.) The four of us were having lunch on the grounds when my iPhone rang and Jim’s name came up. I gulped, walked outside and took the call.

Jim quickly got to the point. There was a deal available with Wickmans and Hydromats. He had already looked at it. He wanted to know if I was interested in buying it. My head spun. Was this déjà vu? Was it 2012 or 2011? We had just broken up a 40-year relationship and now he was calling me to work on a deal?

“Well, uh, yes,” I stammered back. “Sure.” It was a pretty short conversation. This was not exactly how I expected my first day of solo ownership of the family business to go.

I relayed the conversation with Jim to my wife Risa and sister Susan.

They were more perplexed by the timing of the call than I was. There was definitely a business logic to Jim’s call, but the timing was weird after months of negotiating the company’s breakup.

But as I talked about it with my family, my close associate Rex Magagnotti, and son and employee Noah Graff, the new reality of my brother Jim being an “other,” a competitor, but still my brother, who knew me better than most people, started to come into focus.

My company, Graff-Pinkert, ultimately bought the five Wickmans in the deal and sold one of them to Jim. We did not get the plums in the package, the Hydromat rotary transfer machines. But this was my inauguration into the post-split era, where I own the family business, solo, Jim is my competitor, and Rex and Noah are my peers. I used to see Jim most days, now I rarely see him. We talk occasionally, text once in a while, and still deal with our common lawyer on details of the transaction. Actually, business is going quite nicely for me. I will not speculate on how it is for him.

I wish I could say I had a grand plan for the new Graff-Pinkert, post split, but I did not. Long range planning is not my strength. But I knew I wanted to develop Rex and Noah so they would have a more complete grasp of the business and have the confidence to do deals they believed in, while improving the collaborative, creative culture of the company. Without Jim they would have to do more traveling and cultivate their own relationships with clients, suppliers and other members of our team.

After almost dying of heart failure four years earlier, living with impaired vision that was not going to improve and advancing to the age of 68, I knew I was betting on my health and sharpness to be able to make the business successful without Jim. My colleagues seemed to have full faith that we could pull it off – or at least they faked it very nicely.

I made two significant decisions soon after the deal closed with Jim. Rex would go to Australia to bid on several Index multi-spindle lathes, the crème de la crème of screw machines, and Noah would go to the Syndicat International du Décolletage conference in Switzerland, where owners of many of the best screw machine shops in Europe and the U.S. meet and tour the elite shops in the hosting country.

Rex and Noah both understood the potential value of these trips even if they resulted in no tangible business. They both sacrificed their Labor Day plans, seemingly happily, and headed across the oceans.

Australia was the big gamble, because we had never bought an Index multi of the quality and sophistication of the Australian machines. The dismantling and freight costs would be horrific and I had a rather mushy endorsement from my banker on the notion of schlepping to the moon to buy an exotic used machine. I knew the timing was awkward, because I had just done the buyout, but I also knew the timing was perfect to send a message to our clients and our competitors that Graff-Pinkert was pushing ahead aggressively under my leadership and we had the money to do so.

At the exact time Rex was in Melbourne sizing up the Indexes, Noah was talking to many people in Switzerland who ran the machines. The feedback he got in Berne confirmed my belief that we should go all out to buy the machines in Australia.

Rex did his usual thorough job of inspecting the six Index multis, and we decided to bid several hundred thousand dollars for each machine. Despite our large bids, five of the six machines still went for more than we had planned to pay, as they were bought by an Australian user. But when the sixth machine came up, the user decided he had bought all that he needed, enabling us to buy the machine for just slightly more than our intended price. It was a 2007 MS32C, the newest machine at the sale.

I was thrilled. I was scared. Now I had to tell the banker what I had done. I felt exhilarated. I felt alone. I talked to Risa, Rex, Noah and myself about the buy. So this is what it was all about – this being by yourself in business. That was when it really hit me.

A couple of weeks later, my banker told me, “Lloyd, we want to keep a closer eye on you, and we think you are near the limit we want to lend you.” My heart sank. He had arbitrarily cut my credit line almost in half. I was furious and powerless. But we played the game on his terms and finessed our way through the next several months.

We recently sold the Index for a nice profit, despite staggering freight costs to ship it to Chicago from Australia.

I have been more engaged in the machine tool business over the last several months than I have been in a decade. The business has done well. Rex and Noah have grown and developed a close relationship. It has not been smooth. But it never is.

Question: Would you rather be a boss or a highly paid employee?

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Sequester Semester

TSA workers on break, smoking in front of a “No Smoking” sign

Lloyd and I meet for breakfast most Saturday mornings, and while we are eating we solve many of the world’s problems. Last Saturday, the topic was the sequester. How does the government cut a couple percent from spending without the collapse of Western Civilization? When viewed from the Pancake House in Oak Forest, IL, it should be very easy.

The situation reminds me of my former employer, Amoco Oil, just after being acquired by BP. I had retired a few months earlier, and like many retired old men became an energy industry consultant. I kept in touch with the people at Amoco who I had relied upon when I was still lobbying in Washington and several state capitals. In every large bureaucracy (government or corporate) there is an 80/20 rule. Eighty percent of the work is done by 20% of the people. The rest are pretty much superfluous. A year or so after BP acquired Amoco, the company had laid off about 80% of the former Amoco people. Interestingly, all the people that I had formerly relied upon were still there. BP figured out who had made up the superfluous 80% and terminated them, then everything went along fairly well.

The same 80/20 rule should apply to the government. The President has played the usual political hoax and warned that the government will soon start laying off firemen and TSA inspectors. He said that waiting time at the airports will increase by two hours. Interestingly, every time I fly I have a habit of counting all the TSA agents. About 20-25% are always standing around doing nothing but visiting with each other. The sequestration will reduce TSA agents by about 2-5%. In an ideal world, this should only reduce their visiting time.

My fear is that in the real world, the two hour delay will become a reality if the union institutes a “slowdown” strike. Has the President signaled the union to target a two hour slowdown? Thirty years ago we had an air traffic controller slowdown and strike, but we had a different President who successfully managed that situation.

But let’s get back to where rational cuts in government expenditures could be made. In March 2011, the U.S. Government Accountability Office (U.S. GAO) published a report entitled “Opportunities to Reduce Potential Duplication in Government, Save Tax Dollars, and Enhance Revenue.” They identified 81 areas for consideration. The programs highlighted by the report cost taxpayers between $100 and $200 billion annually. A 10% improvement in efficiency for those programs could cover nearly half of this year’s sequester, and not lay off one fireman.

Obama says food inspections are a potential problem area to cut. The GAO pointed out both the FDA and USDA are responsible for food inspections, with a lot of overlap and duplication. The FDA inspects all seafood, with the exception of catfish, which is the bailiwick of the USDA. Similarly, the FDA is responsible for eggs while in the shell, but once the shell is cracked, the USDA is in charge. Each organization has its own cadre of regulation writers, inspectors, enforcement lawyers, etc.

There are 82 programs spread throughout several government agencies all designed to improve teacher quality. Each agency has a separate department to administer these programs, and I suspect many of the programs are inconsistent with one another. 

The report also points out that addressing duplicative federal efforts to increase fuel ethanol production could reduce revenue loss by $5.7 billion annually. The report goes on and on and on. And still without laying off any firemen! 

To save money the GAO report did not even recommend that the U.S. General Services Administration (GSA) should stop more multimillion dollar retreats to Las Vegas—with or without strippers. Excuse me, the strippers were with the Secret Service.

Finally, I read that the Defense budget is being cut back to the level it was in 2007, when we were actively fighting two wars with a couple of hundred thousand troops in the field. Now we are essentially out of Iraq and are winding down in Afghanistan, but spending more. It would seem there is some room to save.

In the short term, the sequester will not hurt the U.S. economy. It is a rather dumb blunt instrument to try to instill some fiscal discipline. I am truly saddened by how dysfunctional our government has become.

A far wiser strategy would be to foster economic growth. The country could accelerate energy development, which has not been a government priority but has been happening wholly outside the governmental sphere. In the meantime, it would be great if the political leaders could come together to begin addressing the sequester, the budget and tax reform, and right the economy before the sequester does get scary.

Question: Should American military spending be cut dramatically?

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Handcuffed by Lawyers

I’ve been doing business for a long time, but I am still shocked by the appalling clumsiness of big organizations.

After decades of Lean and Six Sigma, ISO 9000 and all the other baloney foisted upon us by consultants, the big organizations have capitulated to the sloth of the manual. The playbook keeps getting thicker and more clogged with sticky, obfuscating bubble gum. Decision making is becoming decision avoidance. Only after a disaster strikes will companies decide to buy a generator. If a crisis is sitting in the lobby, big companies ask it to leave because they have a meeting.

One of today’s leading operational impediments is SAFETY. Whether it is the threat of OSHA, insurance inspectors, over zealous lawyers or just “Six Sigmasizing,” I do not know, but the safety bureaucrats seem to have gained veto power in big companies.

I know big metal cutting machines can be dangerous, but they are not hot air balloons with a smoking pilot. Put a fire suppression system in, a good mist collector, proper guards, clear signage and go make parts.

Unfortunately, what I see today is safety becoming the excuse to slow down production and productivity growth.

Legal strictures on safety and many other issues seem to be vaulting onto the shop floor. The creative productive folks who produce things chafe under the 15 page legal scrolls tying their wrists when they want to make something good happen — like trying to buy a piece of capital equipment or institute an innovative process. The “cover your behind” epidemic has certainly taken root on the shop floor. The poor folks who work for big companies, governments, or schools live in fear of “Legal,” which is shorthand for mindless bureaucratic obstruction.

Large organizations are inherently conservative and lethargic, but the slow-as-molassesness seems to be getting worse these days. Banks blame Dodd-Frankenstein for their slowness, but why does a loan agreement have be 59 unreadable pages and a mortgage take six months to obtain? Government blames government. Companies call it CORPORATE. It all spells slowwwww.

We can blame Congress, lobbyists, Obama or George Clooney, but ultimately the fault lies within ourselves for allowing life by bureaucracy. It’s probably why Amazon and Netflix are so successful. These companies reroute us around delay and inertia with their efficient processes.

The bureaucratic, legal obstructionism bodes well for small and medium sized job shops who can help the clumsies stand up when their own inept practices push them toward collapse.

Question: Are lawyers the problem or the solution?

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