Monthly Archives: March 2015

Industry Scuttlebutt

By Lloyd Graff

Carbon3D’s Printer Printing an Eiffel Tower with Continuous Liquid Interface Production technology (CLIP).

Assorted thoughts while waiting for the Sweet 16 to unfold.

In our business world, 3D printing is the technology the lathe and mill guys pooh-pooh, but we should not be so complacent. The latest refinement substitutes layer by layer printing with a liquidy glop that is potentially much faster. The day is coming when shops will have both additive and machining technologies available and will offer the best option to a client. This will also be a tremendous marketing approach – offering both.

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I wish I’ve seen a team that could beat Kentucky in the first two rounds, but I have not. I’m rooting for Wisconsin, but they do not have enough athleticism to beat the Caliparians. Kentucky’s depth and brute athleticism trumps Duke’s fabulous shooting. Gonzaga just isn’t quite good enough either in the front court or backcourt. Michigan State is peaking and probably makes the Final Four, but they do not shoot well enough to beat Kentucky. What people do not realize about Kentucky is that they play well together and they are young, but not that young. The Harrison twins are sophomores and play with maturity and total confidence. Willie Cawley-Stein is an upperclassman who plays with wild animal ferocity. He scares me – even on TV. I wish I could say it ain’t so, but Kentucky in a walk.

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The data shows that American business is not investing in heavy duty capital equipment with a 15 year or more usable life. On the face of it this sounds like very disturbing news in the machining world, but I think we need to understand this statistic in context. Consider electric utilities. Utility companies used to build new plants every year or two. Same with oil refineries. Competition and environmental hounding have forced companies to get more efficient rather than build more plants and add more turbines.

Think about how you can produce more with less today. Capital gravitates to where it is more productive. Monster factories are rare today. If battery technology progresses the way Elon Musk and others think it will, we will be moth-balling oil refineries and traditional electric generating facilities, not building more.

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March 24 was the day the Iran nuclear talks were supposed to end. I expect they will grind on as the Persians continue to play the Obama administration for the fool. If there is a deal, it is highly unlikely to be ratified by Congress. For Iran, it’s heads we win, tails we win. The Saudis and the shale drillers are playing the best card against the Ayatollahs by depressing crude oil prices.

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I applaud Howard Schultz, Chairman of Starbucks, for attempting to initiate discussions about race relations in his cafes. The Starbucks I frequent in Homewood, Illinois, has 60-40 black to white clientele. Through the years I have made black friends there and had many great conversations with people who have darker skin than mine. I have written about struggling with my own racism in other columns, but I have used Starbucks as a safe haven for talking race. Starbucks is America’s meeting place. Thank you, Mr. Schultz.

Questions:

Do you think you will use 3D printing in your shop anytime soon?

Who do you like in the NCAA Tournament?

Carbon3D’s Printer Printing an Eiffel Tower with Continuous Liquid Interface Production technology (CLIP)

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Work Hard, Play Hard

By Noah Graff

Noah Graff in front of the Alps, Switzerland, March 2015

Two weeks ago, I had the incredible opportunity to travel to Zurich, Switzerland — a beautiful, unique, and expensive place that is probably hard to fathom for those who haven’t visited there. I believe when most people think of Switzerland what first comes to mind are watches, army knives, chocolate, scenery, military neutrality and bank accounts. All definitely have a significant presence in the country, but how do those things affect Switzerland’s inhabitants? How does it feel to walk the streets of an old European city boasting the highest per capita of Porsches in the world, a city that remained pristine during World War II while so many other European cities were obliterated? I was blessed to get a taste of this exotic place, as I was sent by Graff-Pinkert to meet with several machining industry customers nearby. The following account is little peak into my experience during a weekend in Zurich.

Predictably, on Friday night I had to try out the Latin dancing scene of Zurich, as I do in just about every place I travel. Catholics find the church, Jews find the synagogue and I always look for the salsa bar. Contrary to what one might think, the salsa scene in Zurich is serious. That night, a venue called X-TRA Club, about a 25 minute walk from my hotel, hosted a huge salsa night. The music was an excellent variety of Puerto Rican and Cuban hits, and the diversity of dancers was great. I met dancers from Germany, Austria, Ukraine, Cuba, and Peru, all expatriates who had immigrated to Switzerland to find prosperity.

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Noah Graff salsa dancing in Zurich, March 2015

I got to know two Swiss girls while dancing, Katerina a tall elegant woman of Russian descent with with gorgeous shoulder length dirty blond hair, who had traveled to the club about an hour from Lucern, and Juliette, a cute petite woman with curly brunette hair in her late 30s living near the center of Zurich. Both women, like many Swiss salsa dancers, usually dance Cuban style salsa. I’m not very good at Cuban salsa so I taught them to dance my Puerto Rican style, which is much more common in the United States. They raved that I was a good teacher and we danced quite a lot as the evening progressed. Juliette and I definitely had chemistry on and off the dance floor — at least in my opinion. We bought each other several drinks, but she insisted upon buying a lot more rounds than me, partly because I’m only allowed to have one alcoholic beverage per evening do to a health condition. At the club, a glass of carbonated water cost 6 francs (the franc and dollar are virtually equal in value), a skinny can of Fanta cost 10 francs, and a cocktail such as a mojito (containing plenty of ice) was 15 francs, so you better not spill it.

When you talk with somebody about Switzerland, particularly in a city like Zurich or Geneva, it is almost a given that one of the first topics of conversation will be how damn expensive the place is. When you are trying to predict how much food will cost, just guess a very high number and then add a bunch more on top of it. A “reasonable” meal at a restaurant is 30 or 40 francs per person. I went to a casual Thai restaurant one evening and ordered soup, an entree, and a drink and it cost 45 or 50 francs. That same meal in Chicago would have cost $15 to $20. I will definitely have to explain this price disparity to our office manager when I finally turn in receipts from the trip.

At about 3:00 a.m. I left the club with Juliette, her friend Joanna, and Juan, a successful chef from Peru who Juliette works for part time as a caterer. We wandered over to an after hours bar called Mambo Cafe. The night’s activities at that point are a bit of a blur. A few final dances, me humoring a drunk Peruvian who insisted that he was “more American than I was,” and trying to rekindle any “chemistry” I could with Juliette. We all finally wrapped up our night at about 4:30 a.m. Google Maps on my iPhone guided me back to my hotel in about 30 minutes. It was a little eerie walking through the beautiful old city so late. The streets were quiet, with just a few folks walking around. Everybody assured me that it was about as safe a place in the world that one could wander late, so I felt pretty secure. After sauntering into my small hotel I recounted my evening to the 23-year-old front desk attendant who kindly brought me a croissant from the upcoming morning’s breakfast. He was a little surprised to hear about me getting to know some real Swiss people so quickly. The women I had met that night had bragged that they were more outgoing than most of their Swiss peers. Perhaps my experiences that evening were an anomaly, but I can only judge based on what I encountered. I told the front desk guy about the crazy prices of drinks at the club and he said they were par for Zurich. He said that his salary as a part-time front desk attendant at a small three star hotel was $30 per hour, and that the income taxes in Switzerland are minuscule compared to other countries. Of course, you can buy a beer in the U.S. for $3, rather than $15.

Question: Do you enjoy traveling for work?

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To Rent or Buy?

By Lloyd Graff

The U.S. stock market has been acting like a yoyo. Up and down, up and down. The reason is understandable. Higher interest rates orchestrated by the Fed are perceived to justify lower stock prices, at least in the short run. The Fed Chairman, Janet Yellen, has signaled rather opaquely that interest rates are eventually going up, but she has been deliberately vague about when that might happen.

Wall Street traders are generally believing rates will go up within six months, but the statistics are so inconsistent it is leaving the markets terribly confused.

Unemployment seems to be plummeting, it’s currently at 5.5%, but wage growth is still sluggish. The income gap between rich and poor is growing. Huge numbers of people are incarcerated in America and when they get out of jail it is very tough for them to get jobs.

A large number of people have chosen not to work, many because their skills won’t earn them enough to live better than they are living on the various government subsidies available. So unemployment statistics are not a slam dunk for the Fed to raise rates to combat its bogeyman, INFLATION.

The markets keep asking – where’s inflation? It’s harder to find than Waldo.

Oil prices have been cut by more than half over a few months. The dollar has risen 30% versus the euro and the yen. Europe and Japan have cut their interest rates to almost zero, and some countries like Germany and Switzerland, below zero. So money leaps out of Europe and Japan to America with its strong currency and low rates but still better than zero interest rates.

The oversupply of almost every commodity except brains is pushing prices in the United States down, not up. Toyota has a lot of room to haggle on a Camry with the yen at 120 to the dollar and costs figured at 90 yen to the dollar. China is so glutted with steel it is stabbing Nucor and every other American mill in the gut by lowering prices. I know the specialty mills are holding up prices of bar-stock at the moment, but one wonders for how long. Corn is cheap, gasoline and natural gas are up from the lows, but $2 gas appears to be coming soon. Many of the jobs produced over the last five years have been from the presently waning shale boom.

So the Fed looks around and wonders why it should push up rates when American consumers are socking away money and Millennials are paying off college debt and not buying big houses in the burbs for kids they don’t have.

And the stock market yoyos. I get it.

An equally intriguing issue for folks in the machining world is, how do we play this new world of no inflation that may become disinflation and heaven forbid, DEFLATION.

Gary Shilling, the brilliant American economist, has correctly predicted the economy for decades. He thinks oil could go to $10 a barrel, at least for a little while, because of huge overproduction and lack of storage facilities.

What if everybody’s house lost 25% of its value, mortgages dropped to 2% for 15 years, and car prices dropped by 30%? It could happen.

I think there is a persuasive argument to be made today that we should be renters of capital equipment and real estate. This possibility scares me as a buyer and seller of capital equipment and a home owner, but I see the logic of being a renter today, if long term assets may deflate in value.

I know young people seem to prefer renting over buying these days, and not just because they cannot raise a down payment. It may be an important trend.

Renting capital equipment still seems to be the exception in my world, but if you are looking at a 3D printer, where technology is bringing prices down rapidly, it seems to make perfect sense to rent.

If I step back, the tug of war in the equities and bond market is fascinating, but for people making big bets on machinery and property every day, it is scary.

Which side are you on? Brian Beaulieu, who I wrote about 10 days ago, is confident that the big spending by Governments will keep the economy buoyant for two more decades.

Gary Shilling, also a great predictor, sees a deflationary trend, though he’s not buying a generator and waiting for the apocalypse. Is it a time to rent or a time to buy? To everything, there is a season.

Question: Is it better to rent or buy today?

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Confessions of a Happy Man

By Lloyd Graff

George Baily from “It’s a Wonderful Life”

I am celebrating today for no good reason – except the best reason, I’m alive to celebrate 2140 days after my crucial heart artery, the left anterior descending (LAD), was completely obstructed. That should have ended my life, but it didn’t because a Muslim doctor in a Catholic hospital inserted a stent into a 63-year-old Jewish guy who’s Greek Orthodox physician personally wheeled him into the Emergency room. Only in America.

Every day since then I give thanks for the gift of living another day. I wish I could say I was joyful every day, but I’m not. I let trivial crap annoy me. I worry about the business and making money. I get irritated by the aches and pains of 70 years and not seeing and hearing like I did 30 years ago.

My grateful happy self kicks my negative grouchy self in the butt as my dual psyche wobbles on the balance beam of life.

I am thrilled to be alive each day and yet, still pissed off that every day is emotionally turbulent.

I feel incredibly blessed just to wake up and kiss my wonderful life partner, Risa. And then, a few minutes later, I’m struggling in bed with business problems and girding myself for a painful post knee replacement workout. And then I remind myself, “you’re alive, Lloyd, you’re loved and you love, get real, and I pull myself out of bed. I’m a happy guy. But I wonder why I’m not happier. Is this the blessing and curse of surviving till you have to start cashing in your IRA?

As a younger man I didn’t worry all that much. My parents were both big worriers and I used to think I was absolved from worrying because they were too good at it. When they died at 70 and 77 I think I unconsciously believed it was my duty to become a worrier. It was almost an unconscious worry transfer that I couldn’t wash or wish away.

I am not debilitated by my wrestling match of gratitude and fear, but it does make for a tiring day. I live with constant double vision because of seven retina surgeries. My two eyes don’t work together. It’s another part of my daily internal battle – good sight and near blindness. Sometimes I block the one bad eye with an eye patch, but usually I allow both eyes to work it out. Maybe I prefer the struggle because it’s reassuring to have two eyes, even if one doesn’t see very well.

I often make the emotional connection with Jimmy Stewart’s character, George Baily, in It’s a Wonderful Life, even when it isn’t Christmas. The strands of joy and depression ran through George. Most of the time he held off the fear, but it was a constant presence in his life. Ultimately, it took an aspiring angel to help him vanquish his internal demons that the hated villain Potter kept abetting.

The title of the film, with all its irony, feels like my story. My life has been wonderful. It is wonderful, I am so grateful. Why can’t I feel that way all of the time?

Question: Are you happy?

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When Students Run a Business

By Paul Nicolaus

Craig Cegielski assists student Scott Bloom with a project at Cardinal Manufacturing.

With unemployment at 5.5% and baby boomers starting to retire it is vital for manufacturing to tap into the high schools and colleges for fresh talent. I believe making things and getting paid to do it is starting to resonate with young people in some communities. In Northern Wisconsin it is definitely catching on. -Lloyd Graff

At first glance it might seem odd that a business run and operated by high school students recently reeled in the Iron County 2014 Business of The Year award, but take a closer look and it becomes clear that Northwoods Manufacturing isn’t your average school program.

Based out of Hurley High School in the northern tip of Wisconsin, Northwoods Manufacturing has quickly evolved into a money-making venture that teaches advanced machining on metal and wood, develops professionalism, and increases students’ awareness of the manufacturing careers available to them following graduation.

Along the way, it gives students real-world manufacturing experience within a traditional school setting. Students can progress through the technology education program, create a resume and cover letter, and then interview for a job.

Once accepted into the student-run business, they are given positions ranging from welders and machinists to engineers and marketers, and related labor is performed using work orders and timecards in order to handle projects for local companies.

The jumpstart that made this unique setup possible came in the form of financial support from the Hurley Board of Education, the Hurley Education Foundation, local industry, and other community supporters, which produced over $80,000 in initial funds.

In addition to donated equipment, this pool of money led to the purchase of three new Miller 252 MIG welders, three Miller Sycrowave 210 Tig Welders, three Miller Thunderbolt Stick welders, a Clausing Lathe, Shopbot wood CNC, Sharp 3-axis metal CNC, and other tools.

“It’s really exciting to be in it from the ground floor and to see the enthusiasm from the kids,” says Mark Manzanares, tool room manager at Ironwood Plastics, who notes just how quickly the program has taken off. “When we first started to work with the school we had a three year plan,” he says. “I think in the first year we exceeded that three-year plan and we’re just continuing to grow with them.”

And thanks to field trips that have included tours of area companies and events like career day, which pairs students with local professionals, students are seeing local industry up-close and interacting with those who are currently working in fields they might just choose to enter.

“It’s amazing how much pride they have in their shop,” Manzanares adds. “The program not only teaches them about industry but also teaches them about the soft skills as well. You need to clean up your work area, you need to show up on time, you have deadlines to meet, and it’s really exciting to see them buy into that.”

The dynamic that has evolved is a win-win, notes Jacob Hostettler, metals instructor at Hurley High School. “By helping us, they’re helping themselves fill the jobs that they have in this area,” he says. “It works out for the schools, the students, and eventually down the line it will help the industry that is helping the schools.”

The success noticed early on in Hurley can be attributed at least in part to Hostetler’s student teaching experience at Eleva-Strum Central High School in the western portion of the state, which has an established student-run machine shop business called Cardinal Manufacturing.

“Once you bring relevance to the classroom all of a sudden the kids want to learn and it’s more exciting – it’s not just a project to get done, get a grade, and throw away,” says instructor Craig Cegielski, who initiated the program back in 2007. “Now there’s some real deadlines, some real quality issues, real customers and real money.”

Cegielski estimates that Cardinal Manufacturing will bring in roughly $150,000 this year, allowing the program to remain self-sufficient. This aspect may be heartening to other local schools who would like to run a similar program but simply cannot afford it. “We’re kind of solving that financial problem at a high school level and by doing this we’re producing more trained students that are choosing technical careers,” he adds.

With an estimated 10 to 20 percent of its graduating class heading on to manufacturing careers, Eleva-Strum Central High School is helping create a pipeline of well-trained, well-prepared students who are ready to head into the field or onto further education.

And it’s easy to see how a greater number of schools doing similar things could help tackle a larger issue. “Right now in the state of Wisconsin and the United States there is a big demand for the skilled trades,” he explains. “There’s all this talk about a skills gap. Nobody can find enough machinists, welders, or fabricators.”

Cegielski is eager to share what he’s learned along the way in order to address this skills gap. The creation of a detailed guide will soon be posted on Cardinal Manufacturing’s website, for example, thanks to a grant from the Wisconsin Economic Development Corporation (WEDC). The document will outline steps his program has taken in the hopes of making it easier for other interested school districts to hit the ground running.

Even though the model developed at Eleva-Strum Central High School is becoming increasingly sought after, Cegielski says there’s a realization that the program can continue to evolve, grow and improve moving forward. “We’re certainly happy where we’re at,” he says, “but we have lots of ideas on how this place can be so much better five years from now.”

Question: Would you want your kids to make manufacturing their career?

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Be Happy, The Economy is Good

By Lloyd Graff

Brian Beaulieu led off the Precision Machined Products Association (PMPA) San Antonio conclave last Friday morning. I have heard Brian and his twin brother Alan speak several times. His appearance was one of the primary reasons I decided to spend the winter weekend in Texas.

He has a remarkable record for predicting the economic future. I have bet on his predictions in my business and personal financial decisions and they have worked out.

This year Brian is very optimistic about the U.S. economy. He sees good business until 2019 at which point he envisions a short recession. For machining companies he sees the continual resurgence of the auto industry in the United States and Mexico. He acknowledged that many U.S. business executives don’t like or are afraid of going to Mexico. He recommended that they either get over it or find somebody else to go.

Brian Beaulieu says interest rates will go up 3% over the next three years, but he is not worried it will kill the economy. We will adjust to higher rates without much indigestion. But he is adamant that we should take advantage of the current low rates by refinancing home loans, buying cars or buying real estate.

He is worried about the stock market. He thinks there is a possibility of a greater than 15% drop that sticks around though he is not sure if or when it will happen. He would short the market with a  part of your savings to protect yourself from a prolonged downturn, but does not advocate getting out of stocks.

One of Beaulieu’s basic tenets is that we must  take advantage of the next three years of benign economic times to invest in change, develop new markets, get better at what we are doing, and improve our workforce. When the next recession comes in 2019 we have to be ready. If we are not going to prepare we should get out of the game. If we do not prepare to play a better hand by the next recession, we can survive by getting very lean and remembering the survival tactics of 2008-2009, but his preferred course is to develop a fresh part of the business that will be resistant to the 2019 downturn.

He repeatedly alerted us to the aging of the world population. The downside is the tremendous burden healthcare costs will exert on the economy. The opportunity is in taking advantage of the demands of aging. Medical products are big today, but they will really be growing 5-10 years from now. Orthopedic implants (I just had a knee replacement) are going to grow even faster than today.

I don’t know how many of you are getting into 3D printing, but it strikes me as a viable option to offer machining clients. We have been great at removing metal. I am sure we can add additive technologies to our bag of tricks. Just being able to tell a customer you are prepared to help them find the best method to make their product, even if it is not traditional machining, will enhance your image in the marketplace.

The message of Brian Beaulieu at the PMPA meeting was to be realistic about the economy and take advantage of it. Inflation is coming. Interest rates are low. Therefore, buy real estate and invest in a business. These are the two best ways to take advantage of what’s going on. Do not be timid. Be less concerned with pricing and more cognizant of quality and deliveries. Invest in people. If you cannot hire enough skills, build the skills in the best people you can find. Pay is going up. No worry. The issue is to get more value from the people in your organization.

Beaulieu has proved to be amazingly prescient in the past. I don’t think he has lost his touch. We have a wonderful opportunity to grow in the next 3-4 years, but it will be tough to find the courage and the people to do it.

Question: Are you optimistic about your job situation or your business prospects over the next 3 years?

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Start-up Nation: The Story of Israel’s Economic Miracle

By Jerry Levine

How can Israel — a country of only 7 million, with no natural resources, enemies on every border, and in a constant state of war, produce more start up companies then Japan, India, Korea, Canada, and the UK? In Start-up Nation Dan Senor and Saul Singer describe how Israel’s adversity-driven culture does it — how they foster their unique combination of innovation and entrepreneurial spirit.

The short, partial answer is: Israelis put chutzpah first! But more in-depth: their policies on immigration, R&D, and military service have spurred the country’s rise. For the US and others there has never been a better time to look at this remarkable and resilient country for some impressive and surprising lessons.

Israel is most noted for its high-tech developments, and ties to the likes of Google, Intel, Microsoft, and Cisco; but their real start began 80-100 years ago in the low tech battle against the desert. In 1869 the “tourist,” Mark Twain, described the area as a desolate land — infertile and lacking water. But this infertile land eventually yielded to invention and technology, and more and more is now covered with agricultural fields and forests. Over two hundred and fifty million trees have been planted.

The IDE seawater desalination plant in Ashkelon produces 120 million cubic meters of water annually.

It started with smart water management. The first great innovation was trickle irrigation combined with water recycle and desalination. These techniques have now grown worldwide. On a recent trip to Ecuador, I was impressed to visit a huge rose farm with big signs out front indicating that it was operating on Israeli irrigation technology. Israel also leads the world in recycling of waste water; over 70% is recycled which is three times the percentage recycled in Spain, the second leading country.

When water wells were drilled in the desert, the water came up warm and salty — bad for irrigation, but ideal for fish farming! That technology has spread to the US Midwest, home to several huge talapia farms. In Israel they are called St. Peters fish. Here they are called talapia — different names for different markets, but the same technology and the same fish.

Not only was the environment hostile, so were their so-called friends and neighbors. Facetiously, the two real fathers of Israeli high-tech were the Arab Boycott and Charles DeGaulle. They forced the need for secure home-grown industry. Israel’s industry developed out of Israeli traits of tenacity, constant  questioning of authority, determined informality, and unique attitudes toward failure, teamwork, mission, and cross-disciplinary creativity.

Many Israeli start-ups fail, but their attitude is to bring failed entrepreneurs back into the system, use their experience and try again. By contrast, in the Far East, loss of face inhibits risk taking. This is not an Israeli characteristic.

Israelis, in addition to their unique attitude toward failure, constantly question authority. Their focus is on the mission, and their stress is on teamwork and cross disciplinary creativity. The authors relate a story at Intel where there was a great internal debate about the future of chip design. The Israeli workers argued for a different direction from their US supervisors. The Israelis persevered, and moved the company in a totally new, but winning direction. To the Israelis the fight wasn’t about winning the battle inside Intel, rather it was about winning the war outside, against the competition. This story epitomizes so many US union/management fights, where the union’s adversary is their management. Obviously, the focus for both sides ought to be uniting to win the war over the competition. But this doesn’t always happen.

Collaborative behavior comes from the military training, which essentially all Israelis — male and female alike — undertake. The Israeli Defense Force (IDF) stresses a downward delegation of authority. The army has very few colonels and an abundance of lieutenants. The ratio of senior officers to combat troops in the IDF is 1 to 9. In the US army, it is 1 to 5. This culture generates more maturity and better judgement at lower levels of the organization. The authors doubt there is any other country in the world where the creative types all have done (and continue to do) national service. When hiring, Israeli businesses still look for private sector experience, but the crucial metric is the applicant’s military service — what unit was he or she with.

The authors draw an analogy to the 1967 Six Day War where the combined militaries of Egypt, Jordan and Syria (probably 10 times the size of Israel) boasted they were about to destroy Israel and drive all the Jews into the sea. At that time Israel did not have strong world-wide support. President Johnson counselled against a preemptive strike. He suggested they wait to be attacked first, and suffer some losses to garner world sympathy. Israel told the President “no,” struck first, destroyed the Egyptian air force on the ground, and won the war.

So, what is the answer? What makes Israel so innovative and entrepreneurial? The conclusion is a set of contradictions: 1) aggressiveness yet team orientation, 2) isolation yet connectedness, and 3) being small yet aiming big. Also, it’s OK to try and fail. Success is better, but failure is not a stigma.

Many worry that Silicon Valley may be losing its creative mojo. I don’t know if that’s true, but I suspect managements worldwide are studying the Israeli model for guidance.

Question: Do you have faith that Obama can make a good deal with Iran on nuclear weapons?

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