Category Archives: Business

A Perfect Day

Sometimes I have a day when everything comes together and I have to say, “Thank you, God, for allowing me to experience it.”

I had one on May 7th. Noah and I had an interview scheduled with Eitan Wertheimer, Chairman of the Board of Iscar, the huge Israeli cutting tool firm that he and his father Stef built. They just sold 80 percent of the company to Warren Buffet’s Berkshire Hathaway for $4 billion.

We got to the Standard Club in Chicago a half hour early, stepped into the elevator and Eitan introduced himself to us. He was ready to start the interview at 9:00 instead of 9:30, and we immediately began talking about Iscar, the sale to Buffet, his business career, love of cars, interest in education, the ups and downs of family business and a satchel full of other subjects.

Great chemistry. He wanted my take on business in North America, particularly the car industry and the woes of GM, Ford and the Tier Ones. I wanted to get his view of Israeli politics. He said that in business you can develop good people and work with them for a long time, but in politics you have no choice but deal with a bunch of difficult personalities.

He had advice for Noah about family business. The two of them seemed to hit it off immediately. Eitan’s oldest son is Noah’s age and is trying his hand at being an internet entrepreneur.

The interview lasted 75 minutes, and I felt like we could have talked for hours, but I knew that other people were waiting for a piece of his day in Chicago.

So we left the elegant, old Standard Club to prepare for our later interviews that day. Noah was preparing to talk to the twenty-something owners of Threadless, a custom tee-shirt company that is rewriting the business script of retail, and I was going to see the young entrepreneurs at Microlution, a machine tool startup on the Northwest Side of Chicago.

Microlution is making a CNC milling machine, smaller than a desktop computer. The next version of the tool will be adding a tool changer with the same kind of tiny footprint or, to be more precise, handprint. These young engineers worked on this stuff when they were students at the University of Illinois and are now translating it into what they hope will be a viable business. They are working on a big development contract from the Navy, they hope to sell four machines by the end of 2007 and 20 next year.

I think that they are doing something very cool. The current machine is potentially a design engineer’s best friend because the engineer could make prototypes literally at his desk by himself, skipping layers of bureaucracy and enormous tooling expense in a traditional big company setting. The engineer could make ten iterations of a component in a fraction of the time it would take to job it out or send it to a big company’s toolroom for prototyping.

I was impressed with their product, and I liked the way they think. I had a 5:00 p.m. reception for the American Israeli Chamber of Commerce back downtown, and I needed a ride. In a moment of inspiration I asked Andy Phillip, one of the brains at Microlution, if he would like to meet Eitan Wertheimer of Iscar. After a long moment of pondering his schedule, he said yes.

We stopped by his apartment in the city (he lives two blocks from Noah), so he could change into a suit and tie for the old school meet-and-greet for big shots at the Conrad Hilton on Michigan Avenue.

We walked into the reception (for the American/Israeli Chamber of Commerce) and saw Eitan Wertheimer surrounded by a gaggle of people. He immediately greeted me buoyantly and asked me if Noah was coming. I told him no, but I had another young guy named Andy Phillip that he had to meet. I briefly described the Microlution product, and then the two men started to talk shop. After 10 minutes they exchanged cards and promised to email. Then Eitan introduced Andy to several men from Pratt and Whitney, with whom he has a big joint venture making jet engine blades in Israel. One of the aircraft engine guys we met has 450 design engineers working under him.

I got a huge kick out of it. Will anything great come of the interviews and the matchmaking? It already has for me.

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How little Spira Shoe Company stole the show from Nike

What do you do if you are an unknown pipsqueak company with a killer idea, going up against a giant with an almost unlimited marketing budget?

On April 16th at the biggest running event of the year, the Boston Marathon, tiny Spira Shoe Company of El Paso, Texas, stole the show from Nike.

For two thirds of the race, two unknown Kenyan runners led, wearing brilliant yellow Spira shoes. Spira shoes have a superior design to their competition aside from just their color. Tiny springs are put into the heel of the shoes. This idea is getting traction in the footwear community but has not been deemed kosher by the running mavens. The Spira guys did not expect to win the Marathon. They just wanted to be noticed. And for one hour 32 minutes of the two hour, 10 minute race, they were front and center.

Nike can buy every track star on the planet (the winner did wear the swoosh), but the talk of the race was these two wannabee Kenyans with the incredibly yellow shoes.

Spira had promised the Kenyan rabbits $150,000 if either won the race. If the runners had won the race they would have had to forfeit the marathon’s official prize because of the spring shoes, but Spira was pretty secure these unknown runners weren’t going to finish first.

Unknowns do not win the Boston Marathon, but this year one did – Spira

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Daimler-Chrysler Wants a Divorce. Shocking.

We now have the news that Daimler-Chrysler wants a divorce. Shocking.

One more stupid merger falls apart because the people couldn’t get along. The Germans thought Detroit built crappy cars, and the Chrysler folk thought the Mercedes men dissed them. The hapless Dr. Z commercials were so discordant with American sensibilities even Beyoncé hood ornaments could not have saved the lines.

About the only way GM could buy Chrysler would be to trade its interest in Delphi for it. Marrying Ford and Chrysler would be a match between Alzheimer patients. Toyota needs Chrysler like it needs a UAW contract, and Carlos Ghosn now has a toothache at Renault.

Chrysler is as sick as a metropolitan newspaper, which means that there are buyers on Wall Street who smell blood and money, but not in Autoland. Kirk Kerkorian might resurface for a Chrysler redux, but at 90-years-old with his slots at MGM just spewing money, what does he need Chrysler’s misery for?

If Dieter Zietsche and his comrades are willing to take the hit, Chrysler will be sold to a hedge fund willing to stare down the UAW in the upcoming contract negotiations. This could mean a long strike like Goodyear recently weathered. I think Daimler has no stomach for this kind of war, so they will probably bail out quickly.

Some shrewd and gutsy people will step up for the minivan, Jeep and Dodge truck franchises. Chrysler is not a basket case yet, but the sooner the Daimler Dandies head back to Stuttgart the better.

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Lovie and Tony's Coaching Styles

Tony Dungy, the coach of the Indianapolis Colts, and Lovie Smith, coach of the Chicago Bears, are close personal friends who talk to each other at 5:00 a.m. every Monday morning during the NFL regular season. They are also the this year’s two Super Bowl Coaches.

The parallels between the management styles of the first two black coaches to run teams in the BIG GAME are suggestive of important shifts in business management at this point in American history.

Dungy and Smith are both soft spoken, religious, Christian men. They deflect personal notoriety and celebrity and both continually praise their players in public. They both stress defense and defer to their coordinators and in Dungy’s case the star quarterback Peyton Manning. They play the Cover Two defense, which is a complicated hybrid of the Man to Man and Zone approach in the secondary to defend the pass.

These men have risen to the peak of their profession while the egotistical coaches of the Bill Parcells, Tom Coughlin, Dennis Green model have been unable to mold cohesive, confident, winning teams in recent years. In a league where 70 percent of the players are young and black with a lot of spending money and huge visibility, these strong fatherly quiet men have built accountability into their systems.

The NFL has a rigid salary cap and a sacrosanct draft which builds parity of personnel. This makes coaching and talent evaluation the great unleveler. The New England Patriots have defied the equalizing momentum each year because Bill Belichick, another self effacing coach, remolds a great team year after year. The coach is the great variable in pro football and deserves to be paid as much of more than the star players.

Games are won consistently in the NFL because one team buckles at a critical moment. The quarterback is the most important player, but many teams win with a mediocre quarterback, the Bears being a prominent example.

The Smith and Dungy coaching model; emphasizing defense, speed and accountability while reducing the visibility of the “Star Coach” can teach us a lot about successful leadership today.

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Commodity Prices Unraveling

Copper prices are down almost 30 percent from the speculative hedge fund bubble. Brass rod is just beginning to follow with scrap prices down about 10 percent from the peak.

We are in the midst of the unraveling of the commodity price squeeze which was more about avarice than scarcity. Oil is hovering around $52 a barrel for crude, which is attributed to a mild winter in the United States, but really, how many people are still burning heating oil. The reality is that the speculators who went long on petrol are on the run. If we don’t get a Shia A-bomb soon, the oil bulls will be deader than the A-Team.

For Ben Bernanke, the commodity route gives him time to plan his next move. Gasoline at $1.75 a gallon is like a tax cut or a half point rate cut for the economy. It may be enough to stabilize the housing market which is already showing a heartbeat. The stock market analysts say they look forward, but they usually are obsessed with the current quarter’s comparisons with last year. They will probably miss the likely bounce in construction. Global warming also allows builders to work virtually year-round now, all the way to Manitoba, which skews old comps.

Weak steel prices are likely to give the auto companies and their traumatized suppliers a little boost. When the metal supply gets sloshy, the dynamic shifts power to the buyers even with the reduction in primary producers.

The acceleration of stock prices in recent weeks despite the Democrats grabbing Congress, Iraq dragging on, and a lousy Wal-mart Christmas indicates that the financial mavens believe the U.S. will get the prayed-for soft landing.

Amen.

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Meeting People the Old Fashion Way (Liberated from email!)

One of the great things about doing this magazine is finding out that people actually read it, and some even like it.

I received a call from Paul Ikasalo, the manufacturing manager at F.H. Peterson of Stoughton, Massachusetts. Paul liked my Swarf piece in November when I declared my self-exile from the email world. He called me at 708-535-2200 and on my cell phone (708-380-8530) to say hello and endorse my email boycott. He hates the sterility and pollution of web messaging. We had a hearty conversation for twenty minutes discussing the business approach at his sixty-person job shop near Boston. Peterson does short-run stuff. Medical apparatus is an important component of their business. They run old school toolroom equipment, but have invested in CNC Toshiba boring mills in recent years, which are now their core machining capability. Business is good. They have been able to hold on to their machinists over a long period of time because they pay well and listen.

I also had a great conversation with Scott Volk of MetalQuest in Hebron, Nebraska, near Lincoln. He wanted to talk about my “radical proposal” Afterthought column regarding enlistment of young people in the machining world. He is heavily involved in an outreach effort at a local high school and junior college to tell them about the cool opportunities available. He says there is an active group of grass roots communicators in Nebraska and Kansas who are quickly getting traction in recruiting students into a manufacturing track. Their approach has been to get to know career counselors and invite kids into their factories for show and tells. When kids see the fun stuff in today’s CNC shops, they bite. He says local junior colleges have filled their manufacturing-oriented classes to overflowing, because kids can see the payback.

Paul and Scott love the thrill of making things that are important. This is the story of manufacturing which has been so poorly told to the uninitiated french fry fryers of America. The new world of customized manufacturing, which is coming soon to a company or a war near you, is going to open up more opportunities, as making things when and where they are needed eliminates the advantage of off-shore manufacturing.

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Don't Want to Get Passed Up

What do you do if your core business is imploding not because you are bad at what you do, but because the world has suddenly changed. Ask the Tribune Company, parent of the Chicago Tribune newspaper, the Los Angeles Times, the Chicago Cubs, and part owner of WGN television network and the Food Network cable channel.

Tribune Company’s newspapers are losing circulation and advertising weekly to Craigslist, ESPN and themselves on the web. America’s newspapers have a mass case of Parkinson’s for which there is no current cure. Younger people want their news on the Internet. It’s that simple. The big city newspaper as we know it is dying.

Big city papers like the Trib still make a lot of money, but the future is shrinkage. The stock market hates for that. It worships growth and despises shrinkage. The Tribune Board is now almost forced to sell the papers to a private equity firm, which will milk them to pay debt and fees. The tough decision is whether to keep the other media aspects together as a package or sell off everything and count the money.

The Tribune Company is in a fix like a lot of guys in the screw machine business today. The multi spindle business, high volume, medium accuracy is being dismembered by movement of work to China and India. The trend ebbs and flows, but the long term shift of high volume commercial manufacturing is clearly toward low cost labor markets. As these low cost suppliers hone their skills they will take low volume, high value added work too.

Using the Tribune Company logic, this is the time to sell out of the screw machine business to a smaller private equity investor who will do the eminently logical thing – squeeze it and pay down debt, then flip it to somebody else.

I think that the big city newspaper and the big manufacturing company analogy holds up fairly well. The niche publication, which is not time sensitive, can succeed in the marketplace. And the niche machining company with great expertise and swift response capability will be able to prosper in the American market. Medical, aerospace, military, specialty auto and hundreds of other specialty machining markets hold great promise for well positioned firms. The web will foster numerous export opportunities.

The Tribune is doing the right thing to dish off the papers. They are too big to fix quickly. Huge manufacturing concerns are also correct to shut down fat old factories, but little niche players should have an open field in both publishing and manufacturing in the next several years.

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November

As I am writing, the Congressional elections are an unknown. The conventional wisdom is that the Democrats will win the House and possibly the Senate. Is this a big deal if it happens?

From a legislative standpoint it is a nonevent.

But from a political point of view it is significant. The Republicans have held the House for 12 years. Six years of Bill Clinton and six years of Bush, the political climate in Washington continues to sour. The animosity between the parties is stronger than I can ever remember. This is good and bad.

Legislatively we will have gridlock. This is a wonderful thing for business because usually the best outcome we can hope for in Washington is stalemate. The mantra of doctors and Congress people should always be “do no harm.” If the government can’t get anything done, we are normally sheltered from gross stupidity.

So the Congress will probably become a vitriolic star chamber of investigations of the Bush administration with the Dems attempting to brand George the 43rd as Charles Manson’s twin brother.

But no matter what happens in the 2006 election, 2007 will be an important year for debate about the Iraq war and containment of North Korea and Iran.

The possible presidential candidates will be formulating their war messages next year. Al Gore, Hillary and various unknown governors will be testing their rhetoric on the left wing power brokers in the Democratic party. They will have to appease the La Monsters to get the nomination, but if they go too lefty, they will alienate middle America, which also dislikes an endless war of refereeing between Muslim gangstas in Iraq, but realizes that the U.S. needs a military presence in the Oil loaded desert.

It will be a signal event if the euphemism “War on Terror” finally is renamed by the candidates as the ”War against nihilist Muslim Jihadists.” It will be a long fight, like the Cold War was.

On the Republican side, the 2006 election will also shape the message of the presidential contenders. Senator John McCain appears to really want it. If the Bushies get whomped in the Congressional elections, he will be a logical alternative for the party, but the unalterable fact remains – senators usually lose Presidential elections. You have to go back to 1960 and John Kennedy to a senator who moved directly to the presidency. For this reason I think Rudy Giuliani has a good shot at the nomination despite a lot of health and personal issues which will disappoint the party’s Social conservatives. Whoever gets the GOP nod will position himself or (herself) as the counter-Bush candidate. History may vindicate Bush-Cheney-Rumsfeld’s foreign policy, but 2008 will be too close for happy reminiscences.

If the Democrats take the Senate with 51 seats, it will be extremely difficult for Bush to name a Supreme Court Justice if a vacancy occurs. About the only sure bet to pass a Democrat Senate would be Bill Clinton. Now that would be one way to get him off the campaign circuit in 2008.

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Scrap Pays the Bills

A recent conversation has me thinking that the old screw machine world has been turned on its head and the change is falling out of its pockets.

I was talking to an old machining client, and he mentioned that in the last quarter he derived more money from his scrap than from the components he had made. This fellow runs a sophisticated machining company—no dumb washers—so he adds a lot of value to his machined components. Still, this quarter his scrap brought in more dollars than his product. This is a testament to global sourcing and manufacturing efficiency, but it also may be pointing toward diminishing viability of metal machining in the age of scarce and expensive raw materials. If copper and brass prices stay over $3.00 per pound, we are going to see the engineers figure out methods to get around using them. We are beginning to see lead engineered away because of health and disposal issues. It could happen with copper, brass and stainless. Composites are changing aerospace and will soon make their mark in the automotive. The parts printing paradigm (see “Ex One Revolution below) addresses the scrap from machining with a scrapless process, which also trumps the messy fluids issues. Heading, EDM, injection molding, waterjet and laser are all pointing in the direction of scrapless part making.

Eaton Corporation recently closed a big brass fittings plant in Oklahoma because they felt that they could deploy their capital more efficiently than investing it in brass bar, chips and nipples.

Another statement about the price of scrap was made on eBay in a recent Graff-Pinkert auction. A used 1100 E, Burrett 30” chip wringer brought $13,000 in a competitive auction. Spinners rise in value when chips become more dear. This is the highest price I’ve ever seen for such a model. The recent commodities slide may temper the focus on chips, but as long as China is committed to its frantic infrastructure build out, brass and copper will be short, and scrap will stay hot.

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Beautiful, Soiled Mops

My friend Stanley lives for laundry. He is a young entrepreneur who brings his intellect and creativity every day and night to his sliver of a laundromat in a strip mall in Homewood IL. The Starbucks and Panera Bread stores are the offices where he plots his forays into the lucrative land of institutional laundry.

Hospitals are the Valhalla of laundry. A decent sized hospital has a million dollar a year laundry tab. Stanley says once you get into a hospital’s billing system it takes explosives to evict you. So how does a tiny strip mall laundromat shop get into a gigantic hospital? Cold calling? Knocking on doors? Direct mail? –Hopeless. But Stanley feels like he has found the key—mops.

Hospitals use a lot of mops and they must be laundered every day. Institutional laundries tend to throw the mops in with the sheets when they return them to hospitals. This means lots of wasted time by housekeeping to fetch their cleaned mops. Stanley, the mop cleaning specialist, will return the mops clean and segregated, to the place where they are needed. These days, Stanley takes his digital camera on deliveries to document the waste of bundling mops and linens. He plans to illustrate his better approach to ten local hospitals. One hospital’s mops are a $700 week account, a pittance to an institutional laundry, but a nice account for Stanley. But the most important piece of the mop business is that it gets him into the hospital on a regular basis to build his relationships and credibility. And once you are in the billing system…

Every big company has a wedge, a dirty mop, which is begging for a better way. Stanley will eventually get the mop business at several of the local hospitals, not on price or even connections, but because he showed the tenacity and the creativity to scope out his opening. And one day, the soggy mops will lead to linen business.

Next time you think there is no way to pry open the door of a big account, consider my friend Stanley and the beautiful, soiled mops.

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