Category Archives: Current Events

Swarfcast Ep. 47 – Bo Burlingham on Successfully Exiting a Business

By Lloyd Graff

Bo Burlingham has spent much of his career writing about the lives of entrepreneurs. I recently interviewed him at his home in the rustic hills of Oakland, California.

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We talked about the need to plan for a strong and successful conclusion to a business career, as described in his recent book, Finish Big. Bo discussed seven factors that characterized owners who had happy exits:

(10:55) You must know who you are, what you want and why.

(11:44) You have to build a sellable business—a business that you could sell when you wanted, to whom you wanted, for an amount you considered fair.

(11:20) You have to give yourself enough time. Most people don’t start thinking about exiting early enough. You need to find a successor, and it takes a long to time to get that right.

(13:15) You have to get the right advice from others who have exited their own businesses in the past.

(13:50) You have to become very clear in your own mind about what you want to have happen to the people in the company for you to feel at peace afterwards.

(14:20) You must do as much do diligence on the buyer as the buyer is going to do on you. You want to find out why they really want to own the company. Otherwise you are in for some bad surprises.

(14:44) You have to figure out what you are going to to do after the exit, who you are going to serve. Bo found that many people after they leave their company don’t know who they are anymore. They no longer know what their purpose is in life.

Question: What will you do after you are finished with your current work?

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At the Track Every Day

By Lloyd Graff

Trading in used machinery is sophisticated gambling. Some people find it strange that I am utterly indifferent about sports gambling.  It has no allure for me. I once lost $25 playing 21 at a casino in Vegas and felt stupid – not for losing, but just for walking into the smoke-filled room.  Yeah, it was a long time ago.

And now, after such a long, long time in the screw machine trading and refurbishing business, we have the exhilarating and scary opportunity to reinvent a new business by finding a new cohort of machines to gamble on.  I’m finding it exciting, even enthralling at times, and pretty damn scary, too.

A very smart guy once told me that “if you don’t feel ‘it’ in the pit of your stomach, you aren’t bidding enough to get a deal.”  He was right, but that doesn’t mean fear guarantees your success. It only guarantees doubt and restless sleep.

In our machinery business, we are confronted with the wrenching reality that our traditional customers are not very interested in buying what we’ve always sold.  It’s a bit like a car dealer specializing in sedans and convertibles in a pickup truck and SUV world. Not much action. The obvious path is to switch to pickups and SUVs, but the downside is that almost everybody else has done the same thing.  For a used machinery dealer, the analog is to jump into the used Haas lathe and vertical machining center market. But that is awfully boring and terribly competitive. There is an auction every Tuesday and Thursday with Haases in it. The only sleepers are in sofa beds.

Our strategy has been to go to Outer Mongolia searching for bargains and hauling them back to civilization.  My son Noah likes to travel to Outer and Inner Mongolia so he wants to try this approach.

I also want to search for the guavas and jackfruit in the produce department, the exotics that only the people with weird tastes dare to inhabit?  This is a long jaunt from the Acmes and New Britains of my youth that we once sold by the truckload.

Our real niche seems to be in the European descendants of the Acmes and New Britains, the CNC multi-spindles like Index and Schutte that are so darn complicated and daunting that they confuse even people who have grown up with their simpler, now often discarded, cousins.

When you place bets on machinery you don’t know like family, you are going to lose some of the time.  Try to tell your banker, “Well, I bought that washer, that robot, that Hydromat thing, to experiment.”  They may get the intellectual gambit, but they get rather annoyed about losses. They think you are always supposed to win in business.  This is when resilience and being part of a team that understands the value of defeat as an educational tool, one that realizes that business is a continuum, are so vital.  To succeed in the long game of business you have to build in defeat cushions. If you are going to gamble you are going to lose. If losing is “unacceptable,” which seems to be the position of football coaches like Urban Meyer and Jim Harbaugh, you are going to end up desperately needing a shrink or a sabbatical.

I hate losing or being wrong, but I also love the action of being in business and trying really hard to win every day, knowing that setbacks are inevitable, and dealing with change is maddening.  

I think about the option of leaving the game.  Noah often asks me, “Dad, was it always this hard?”

Honestly, I can’t even remember, Noah.  Let’s just get it on.

Question: Do you view business as gambling?

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Better With Age?

By Lloyd Graff

I watched one of the greatest tennis matches ever played on Sunday.  I suppose you are thinking, who cares about tennis on the TMW site, but give me a chance on this.

Roger Federer, perhaps the greatest tennis player of all time with 20 Grand Slam titles, dueled Novak Djokovic, perhaps the greatest tennis player of all time with 15 Grand Slam titles (at the time).  It was Wimbledon, in London, England, the biggest tournament of the year, perfect weather, playing on a grass court.  Both players had their parents attending.  Federer’s wife and their four kids were in the family box seats, and Djokovic’s parents were with his son.

It had all the ingredients of a classic.  These guys have played each other almost fifty times.  They respect each other, but they don’t really like each other.  They are lions in the tennis jungle.  The biggest of rivals, these matches are what they live for.  They are wars.  The winners have the most endurance, focus, and luck.

Sunday they played 5 sets and were tied 12 games each in the 5th when a newly installed tiebreaker rule went into effect.  Federer and Djokovic are old men as singles tennis players go.  They are 70 years old between the two men.  Federer has been playing major tournaments for 20 years, Djokovic 15 years.

The point is that age is overrated today.  In business, the arts, politics, sports, talent is what counts.  If you can do it, you do it.  If you can’t, get out, but don’t let “them” tell you when you are finished.

The crowd Sunday was almost entirely for “Rah Jah, Rah Jah,” as they indicated by chanting between many of the points.  Novak said after the match that he attempted to hear the crowd chants as “No Vak, No Vak.”  He said it worked most of the time.  Djokovic is used to being the hated favorite and has learned how to use it for himself rather than an excuse to lose.  There is a lesson for us all in his toughmindedness in the biggest matches with everybody against him.  He would glance at his family box to see his parents, sometimes holding his young son, cheering avidly for him.

These men are “all in” regarding training, fitness, nutrition, and the mental game.  They know their bodies.   Between matches they use intravenous hyperalimentation to get the extra nutrients to recover from the previous match and be in top shape for the next one.  Sunday, after five hours of the most grueling exertion, they were both hitting 120 mph serves on the lines, playing long rallies, and going to the net and racing back for lobs.  Their concentration was immaculate—and astounding.

A match like Federer-Djokovic is an inspiration.  It says to me that just because other folks are retiring or cutting back it does not mean I have to.  Just because I had a heart attack 11 years ago it doesn’t mean I can’t be active now, at 74.  It also tells me that if I am serious about business or fitness I have to be committed to it.

Will Roger and Novak eventually be supplanted by great new players?  Yes, but nobody appears to be ready to beat them now.

They aren’t going to make it easy, either.

Question: Have you gotten better with age?

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A Killer Family Business Saga

By Lloyd Graff

I just listened twice to a podcast with Dave Dahl, creator of Dave’s Killer Bread.  It was the most recent “How I Built This” podcast, conducted by the finest interviewer I’ve heard, Guy Raz of NPR.

Dahl slowly recounted his story of almost forty years, much of it about misery, depression, and failure, culminating in enormous financial success and more disappointment.

From a journalistic viewpoint the podcast was a masterpiece of storytelling – a slow, meticulous, layered presentation of a man’s life of pain and, particularly, family resilience.  From a business standpoint it was fascinating and revealing.

Dave's killer family business

David Dahl’s parents had a small family bakery in Portland, Oregon.  They were Seventh-day Adventists.  His father slowly moved the business toward whole-grain products.  David started working in the bakery when he was tall enough to reach the dough table. He was nine years old, earning 25 cents an hour, some of which he was forced to use to pay for school and clothes.  He describes himself as almost always angry and rebellious, suffering from being bipolar and having ADD.  He dropped out of high school, experimented with drugs and alcohol, and joined the Marine Corps, ultimately dropping out.  He said he was always running away from something.  After the Marines he got hooked on cocaine and meth, which pushed him into car theft and armed robbery.

Dahl spent a total of 15 years in jail, despondent, angry, and frequently suicidal.  He shunned treatment but eventually consented to taking Paxil, an antidepressant which he says had an almost immediate positive effect on him.  He was offered an opportunity in 2002 to take a class in computerized drafting, and he loved it.  He finally left jail in 2003, and his brother Glenn, eight years older than him, who had taken over the family bakery, offered him a $12-an-hour job as a baker, which he accepted.

The Dahl family was not a happy, jolly one.  The relationship between Dave and Glenn was strained from the beginning and did not get easier when Glenn’s son Shobi, an Economics graduate of Brown, came into the business around the same time.

But Dave Dahl had finally changed from the drug-dependent, despondent criminal.  He had accepted himself and had a passion to do something with his life, and bread was his vehicle.

Glenn and Shobi gave him the time and oven space to develop breads of his own creation.  He used seeds and nuts and whole grains to develop unique breads.  He sold them at local farmers’ markets around Portland and quickly developed a following.  He created a bread made with bluish cornmeal, called Blues Bread, and then his trademark, “Dave’s Killer Bread,” which concisely told his personal story of jail, dependency, and resilience on the label, with a cartoon picture of Dave with enhanced biceps.

The business grew spectacularly, getting clients like Safeway and Costco.  Dave and his nephew developed the Dave’s brand independently, buying equity into the entire family baking business run by his brother Glenn.  It was an enormously successful, yet extremely unhappy and contentious, family business.

The family sold it to a private-equity firm in 2012 and became quite wealthy, but still unhappy, rarely speaking to one another other than nodding at family gatherings.

I was enthralled by Dave Dahl’s saga and his candor. Putting his story on the bread packaging was the brilliant, counterintuitive move that struck me.  His marketing consultant thought he was crazy.  But he did it anyway.

I get it. I want to know something about the life stories of people I do business with.  I like to check out their websites for at least a glimpse into who they are.  I very rarely get anything juicy or substantive to grasp.  If there is anything at all it’s usually a predictable, frothy story of happy success.

We all know enterprises are built from failure and conflict.  It may not be jail and drug addiction and family drama, but life is a struggle.  Nobody gets a pass.

Dave Dahl, the miserable, 15-year prison veteran reveals himself on his signature bread.  We eat it up.

Question: What is the story of your business? Has there been drama?

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Swarfcast Ep. 45 – Patrice Zamor on Manufacturing in Israel

By Lloyd and Noah Graff

For most people manufacturing and Israel are two topics that are not normally spoken about together. Patrice Zamor, the guest on today’s podcast, lives in both of these worlds.

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Patrice emigrated to Israel from France in the 1970s and has spent much of his career working for Ditron Precision, a multi-national automotive component supplier headquartered there.

Takeaways from the interview:

  • Patrice discussed Israel’s strength in high-tech fields as well as its significance in producing machined components for international markets.
  • He gave his outlook on the current world automotive industry.
  • He talked about Israeli culture and what inspired him to emigrate from France.

Question: Is Israel a place you want to visit? Why?

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Single Source Gamble

By Lloyd Graff

This is just a guess, but I’m betting the following conversation took place recently between Warren Buffett, who owns $50 billion of Apple shares, and Tim Cook, CEO of Apple Corporation.

“Hi, Tim, it’s Warren.  I’ve been thinking about Apple’s China exposure, Tim.”

“Yeah, me too, Warren.”

“Tim, what if this Huawei stuff really gets out of hand, or Trump and Xi start to snarl at each other in Japan, or Hong Kong really blows up, do you think China might retaliate against Apple?”

“Yeah, Warren, that’s our biggest nightmare.  We have no backup plan in place, honestly.”

“Well, Tim, I think you better start putting one together, fast.  I don’t think you or I are Donald Trump’s favorite.”

I think all over corporate America some flavor of this discussion is taking place.  Dependency on China, and even NAFTA darling Mexico, is a troubling fact of life for companies dependent on a world supply network.  That reliability on China and Mexico that seemed so comfortable just a few years ago is now suspect.

People often ask me if the tariffs have had much effect on the people we do business with. The easy answer is “No” because China has absorbed most of the steel price increases or the market has just accepted them because of their ubiquity, but the nuanced answer is a big “Yes” because they have lifted the long-term competition with China from the theoretical to reality. Reliability of supply is even more important than price.  When the bedrock of reliability is eroded by political uncertainty and a doubtful “rule of law,” pricing attractiveness becomes secondary.

This is what we are seeing today with a clarity that was clouded by the rose-colored glasses business people wore from the Clinton through Obama presidencies.

Theft of intellectual property was the price companies like Apple figured into the profit margins that fueled the stock and provided vast reserves for research for new products.  It could be tolerated by Cook and Buffett.  But disruption of the supply chain, even just a whiff of a scare – that was a curse.

For Silicon Valley, China is key to supply, but for the machining world Mexico is our China.  In the automotive industry Mexico is the liver and kidneys of the supply organism.  GM, Ford, Daimler, Toyota, etc., cannot survive anymore without the plants in Querétaro and Metamoros.  In Mexico, like in China, price is important, but reliability is number one.  NAFTA has brought good prices, stable labor relationships, and proximity to American factories, but the new regime in Mexico City, a more aggressive worker attitude, and the recognition in Mexico that the United States and U.S. companies are terribly dependent on the Mexico supply chain have radically changed the dynamic.  Add in the Central American immigration pickle and Trump’s quixotic tariff gambit and suddenly companies have another supply chain nightmare.

In recent weeks labor disruptions at automotive suppliers, with big ransoms demanded and exacted to go back to work, have sent chills through the automotive world from Detroit to Stuttgart.  The realization that companies can be held hostage and that the rule of law is a hollow theory in Mexico City have challenged auto companies and Tier One suppliers to wake up to the need for dual suppliers with at least one in the U.S.  This cannot happen overnight with bidding and PPAPs, but the will is there, finally, to bring work back to America. The abject fear at a Ford truck plant or a Camry assembly facility that for want of an $8 part the whole joint can be stopped in place is moving the needle at last.

The trap of “just in time” is also becoming apparent.  It just does not work if Mexican workers are blocking the suppliers’ doors.

We are in the early stages of redundant sourcing.  It will change the outsourcing world that has been flowering almost unimpeded for 25 years in China and Mexico.

The countries are very different, but the supply issue they share affects our machining world in a profound way.  The “game” has finally changed.

Question: Has the move to dual sourcing affected your company yet?

 

 

 

 

 

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Swarfcast Ep. 44 – Bruno Schmitter on Hydromat vs. Swiss Machining

By Lloyd and Noah Graff

Today’s podcast is part two of an interview we did with Bruno Schmitter, CEO and COO of Hydromat USA.

When Bruno came to America in 1979, his competition was National Acme and New Britain Multi-Spindles. Today he says his competition is mainly CNC Swiss and 5-axis Turning Centers. Bruno argues that having one machine that can do many operations at a time is a better option than having multiple machines which require more space, more people and more tooling.

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In the interview we also discussed Hydromat’s diversification into selling bar loaders and the company’s newest offering, the Eclipse 12-100, which offers machining up to 100mm.

Question: Would you rather have a Hydromat or six CNC Swiss machines?

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The Purchasing Bottleneck

What else doesn’t count anymore?  PURCHASING DEPARTMENTS.  The bottleneck of “purchasing” in big companies has become laughable to me as an outsider and to shop folks who make the money in manufacturing.  The big gripe used to be “management,” but I don’t hear that as much now.

Today, the outcry is with purchasing departments in larger companies that slow everything down with paperwork and “justifications.”  When you need 1,000 pounds of 12L15 round tomorrow, and Central Steel is happy to get it to you at a fair price so the company can make five grand on a hot job, and purchasing just can’t quite make it happen for a week, that is dumb, antiquated management.  We see it all the time.  It’s why small companies survive and often prosper, while bigger firms trip all over themselves.

It is also why private equity firms are eyeing even small shops with 20 or 30 employees if they have a “secret sauce,” few destructive fiefdoms, and a culture of cooperation.  Unions have failed in America today because they rely on a culture of conflict.  Enlightened management has reduced conflict in many cases, thus reducing the desire for institutionalizing conflict in a union setup.

American stock markets edged close to all-time highs yesterday.  The mavens of the market, who I think really know less than nothing, think it is the prospect of the Fed lowering interest rates today.  I doubt it.  The Fed is generally rather irrelevant during these days of low inflation and tiny unemployment.  The Fed is almost as irrelevant as the United Auto Workers who after 25 years still have not managed to unionize one auto plant in the South.  They lost last week at the Volkswagen plant in Chattanooga again.  This is at VW which has a Board thick with Union folks in Germany.  The UAW now has 30% of the workers it used to have.

*************

We are celebrating 10 years of growth in the economy according to the numbers.  I am a bit skeptical of that personally.  I have seen plenty of ups and downs in my work over the last 10 years, but the broad sweep has been upwards — unless you build single-family homes in places like Chicago.

The national press and Democrats running for President are up in arms about the “lack of affordable housing.”  If you live in Seattle, Portland, or Manhattan, yes, you cannot find a cheap place to live except for an alley, but to generalize it for the rest of the country is absurd.

You want affordable, move to Bismarck or Oklahoma City or my neighborhood of beautiful homes on big lots, 35 minutes from downtown Chicago.  You may have a neighbor with darker skin than you, but this is America, folks.  Or you might prefer 900 square feet of quite-functional, newer space in Chicago and forgo a car.  Affordable housing is in the eye of the beholder.  I just heard of a couple from Seattle who made a study of the entire country as they prepared to move.  They were both in jobs which required them to have access to a major airport.  They were hoping to have kids.  They wanted an area that was not homogeneous.  They bought a home under $200,000 near me where they can live on one earner’s pay.  Affordable housing is plentiful if you have flexibility and don’t accept the conventional wisdom of scarcity.

Where is the “economy” heading?  It depends on what economy you identify with.  My economy of people making stuff out of metal using creativity and grit looks quite promising, even as automotive companies deal with a young population increasingly bored with cars and trucks.  There are plenty of more promising areas to gravitate into than pickups and SUVs.

Interest rates, inflation, the Fed, tariffs, the deficit, barely move the needle except to stock market junkies.  U.S.-China competition will continue whether Donald Trump wins or loses in 2020.

Enjoy the opportunities. Ignore the noise.

Question: Does “Purchasing” get in your way?

 

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Quandry, Gold or Dross?

The scary, little, chubby chess piece sat in the old Scottish antiques dealer’s desk for 50 years.  He bought it for a few pounds and stuck it in a drawer.  After his death his heirs were checking out his belongings and discovered the elaborate carving made from a walrus tusk.  One of them thought it might have some value.  They guessed correctly.

On July 2, it will be auctioned off by Sotheby’s. Its anticipated sale price is around $1 million.

It is a piece from the collection of Lewis Chessmen, carved in the 12th century in the form of Norse warriors.  In 1831, 93 pieces of the group were found on Scotland’s Isle of Lewis.  They now are on display in museums in London and Edinburgh, Scotland.

I read about the 3-1/2” high Lewis Chessman yesterday morning in The Wall Street Journal at my factory office.  Later that morning we had an inquiry from South America on a used threading attachment for a 2-5/8”-6 spindle Wickman screw machine.  I immediately started wondering if the attachment was a potential Lewis chess piece.  I haven’t sold a big Wickman machine for years.  I have stripped several of them for key parts, but we don’t sell much big Wickman stuff anymore.

Then came the pricing quandary.  What do you ask for a 50-year-old attachment for a machine few folks in the world use anymore?  I am blessed to have a complete one in stock and the components to almost complete another one.

I pulled a price out of my behind, $7,500.  Another member of the team objected.  He suggested that another party who was apt to also have a complete attachment available might be asking more money for theirs.  He argued that we probe the other dealer’s price before quoting our prospect in South America.  I pushed back.  To me $7,500 was a nice price for a probably useless antique that would very likely outlast me.  To me it was iron.  To him it was gold.  It’s what makes a market and attracts all those cars to estate sales.

I am fascinated by how things are valued by people.  It is also the apple pie of my business, guessing the value of stuff, believing in my judgment, but having a willingness to throw in the towel when the market proves me wrong.

If I had bought that Lewis Chessman and I didn’t know the ugly carving was 900 years old, I probably would have dished it off, made a few hundred quid, and celebrated with chocolate ice cream.  If you have a business with expensive employees, rent to pay, taxes, and health insurance bills you need a semblance of steady cash flow.  It is hard to wait for the market to discover your hidden brilliance.

I knew that the potential buyer for the seldom-coveted threading attachment might decide to run his other big Wickman longer hours, rather than schlep a heavy piece of metal 5000 miles, pay 40% duty, then find a technician to put it on his machine correctly.  Or maybe he could find a soon-to-be-scrapped machine in Sao Paolo for $1,000.  A collector can afford to wait, but a business person has tuition to pay.

I may have a few ugly ivories on my shelves – dusty, grimy die heads or screw machine manuals that Mr. Davenport may have signed.  I don’t know, and I don’t really care.  Very often less is more in business, and a visually impaired old dude like me is quite likely to trip over a vagrant ivory that falls on the shop floor.

Question:  Do you collect or throw out?  Why?

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Best of Swarfcast: The Self-Taught Machinist, With John Saunders of NYC CNC

By Noah Graff

In Throwback Thursday fashion, Lloyd and Noah are out of town this week, so we’re sharing one of our favorite podcasts from the past. Be sure to listen in and weigh in on the new question below.

In December, we interviewed John Saunders, founder of Saunders Machine Works and the creator of the NYC CNC YouTube channel. John is an innovative entrepreneur who lives and breathes CNC machining. When he was 24 he had an idea to sell an automatically resetting steel target for practicing firearms, but he had no engineering background, no CAD experience and no machining experience. After working on a prototype with a contracted engineer he decided that before he would pursue production of his product he wanted to fully understand the production process.

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He bought a Taig CNC milling machine and put it in his one-bedroom New York City apartment. He quickly realized he was passionate about CNC machining and taught himself to use his machine on nights and weekends for two years. Using resources on the Web, instructional DVDs and New York’s MakerSpace NYC community he eventually gained the skills to machine a prototype of his automatically resetting target by himself. Since his first time experimenting with his Taig until today he has religiously documented his machining projects on YouTube and now NYC CNC has acquired over 273,000 subscribers.

Today Saunders with a staff of six employees, runs a machine shop in his hometown of Zanesville, OH. His company runs an intensive training course on machining and welding, and it uploads at least one YouTube video a week about machining. He also cohosts a weekly podcast where he discusses his challenges running a small machining business.

Question: Is the machining business too capital intensive for most entrepreneurs?

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