Category Archives: Business

Swarfcast Ep. 42 – John Habe IV on Valuing a Machining Business

By Lloyd and Noah Graff

Today’s podcast is part 2 of an interview we did with John Habe IV, President of Metal Seal Precision, a machining company based in Mentor, Ohio.

Listen to the podcast on the player below.

Over the last several years John has grown Metal Seal Precision both organically and through major acquisitions. According to John, growing through acquisitions can be financially rewarding but does not come easily. John discussed the difficulty in buying companies, which often have emotionally attached owners. He also talked about how he calculates the buy price of a company. He looks at cashflow, often called EBITDA in the acquisitions business, as well as criteria such as product sector, customer diversity, and management style of the current ownership.

Question: Is this a good time to go into the machining business? If so, what sector?

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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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Swarfcast Ep. 41 – John Habe IV on Growing a Machining Business through Acquisitions

By Lloyd and Noah Graff

Today’s podcast is part 1 of a two part interview we did with John Habe IV of Metal Seal Corporation, a machining company based in Mentor, Ohio.

Scroll down to listen to the podcast.

John and his two brothers own Metal Seal and several other machining companies, along with some granite countertop firms. He told us that since they purchased their father’s machining business in 1999 they have built their enterprise into one doing over $100 million in sales per year.

In the interview John discussed how Metal Seal dealt with a catastrophic fire in 2014, as well as his approach to delegation of power in a family business.

Question: Do you have a fire story?

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The Journal Deserves a Medal

If you are interested in women’s soccer, obscure foods, and the tortured lives of Congressional Medal of Honor winners, last weekend’s Wall Street Journal provided hours of Gatorade for your thirst for quality content.

As a writer I appreciate a well-researched and written piece.  As a former magazine editor, I know what it takes to put together a readable monthly publication.  I can only applaud the editors of the Journal who produce a superb publication five days a week and an absolutely brilliant one on the weekend.

As the supposed competition, The New York Times and Washington Post, have deteriorated into political rags and the TV competition from the networks plus NPR are now biased jokes, the Journal shines like a ruby. On the financial side, Bloomberg is a legitimate challenger, but only on the business news.

I decided to read the WSJ weekend issue cover to cover over the recent holiday and was blown away by the quality and variety of articles.  Let me give you a brief review of just a fraction of this one issue.

On Page One was a photo of Dakota Meyer, a recent Congressional Medal of Honor winner, under the caption “Medal of Honor’s Heavy Burden.”  It directed you to the “C” section for the piece by Michael Phillips, so appropriate for Memorial Day weekend.  Phillips’ article was a 2000-word series of interviews with CMH recipients beginning with 71-year-old Gary Beikirch who received the Medal in 1973 for his actions in Vietnam.  Beikirch’s captioned quote was, “it is harder to live with the Medal that it was to earn it.”  He was a Green Beret medic whose unit was attacked by North Vietnamese at a Special Forces outpost on the Laotian border.  He was badly wounded but continued to treat his comrades while he was carried on the shoulders of two Vietnamese aides.

When Gary arrived home, “filled with rage and racked by guilt,” he decided to head for New Hampshire and live in a cave in the White Mountains, looking for “the peace and contentment he had lost in the jungle.” He took classes at a local seminary, and a few weeks after moving he found a note in the local post office instructing him to call the Pentagon. He called and found out about the CMH award and that he had an appointment to visit President Nixon. He met Nixon, who fitted the star-spangled blue choker and wreathed medal around his neck. A couple days later he returned to the cave with the Medal in his duffle bag.  He did not take it out for seven years.

Phillips’ soulful article continued with interviews with Ron Shurer, Flo Groberg, and Dakota Meyer, all of whom were wounded heroes who saw their comrades die. They are all living with the hell of the day that won them the CMH. They all wish that day, that brought them personal fame and honor, had never occurred. Dakota Meyer says “it represents the worst day of my life.”

*    *     *     *

I read at least a dozen more memorable articles in this one newspaper. There was a long, thoroughly researched piece on Huawei Technologies, the Chinese electronics firm which epitomizes the America-China discord regarding intellectual property theft, and competition between the two countries. Five Journal writers had the byline on this article, detailing how Huawei plays the game of business. It was a damning article, but one written without an obvious editorial edge. It chronicled numerous lawsuits filed by electronics firms, large and small, illuminating Huawei’s ruthless pursuit of technical knowledge by any means available, including copying competitor Cisco’s products so closely that bugs deliberately left by Cisco and typos in the manuals were in Huawei products. A comprehensive, beautifully researched Journal piece.

Next to the Huawei article was one on Novartis attaining approval for a gene therapy cure that treats an inherited disease called spinal muscular atrophy which kills most babies it afflicts by the time they are two years old.

There was also a fascinating feature about the hunt for the next “superfood,” mostly in obscure locations in West Africa.  Entrepreneurs like Phillip Teverow are looking for the next quinoa and kale.  He was pushing “fonio,” which looks a lot like golden sand, at Whole Foods in Brooklyn trying to get adventurous eaters to give it a try.  The writer, Jessica Donati, also discussed moringa, a chewy green “energy plant” and baobab fruit from the biblical “tree of life.”

Also on the front page of the weekend Journal was the beginning of an in-depth article on Tesla and what its falling stock price was all about. Written by Charley Grant, it was a thorough piece about Elon Musk’s challenge to establish Tesla before the rush of electric car competitors start to really challenge the company and before their cash runs out. Elon Musk is probably the most interesting and gutsy entrepreneur in the world.  This article told us how close to the edge he continues to run.

Another piece tucked in the back of the “Off Duty” section by their auto writer, Don Neil, reviewed the new Audi e-tron and compared it to Tesla Model X. According to Neil it fell short of the Tesla in several significant ways.

I could keep going about the two hundred different unique articles in this one issue. But one that will stay with me is an op-ed piece by Burgess Owens, a former NFL player for the Oakland Raiders and today a writer and entrepreneur.

His great, great, great grandfather came to America shackled in a slave ship.  He was sold at an auction in Charleston, South Carolina, but eventually escaped with others via the Underground Railroad to Texas and ultimately became the owner of 102 acres of farmland and an entrepreneur.

In the article, Owens decried the notion of reparations for African Americans as divisive and demeaning for whites and blacks. “The idea of reparations demeans America’s founding ideals. A culturally Marxist idea promoted by socialists, reparations denies the promise granted by God that we are truly equal.”  He called it a cynical ideology promoted by an elitist class to divide us.

The Wall Street Journal is a consistent masterpiece of variegated content.  Last weekend’s issue was truly remarkable.

Question: What are you reading these days? What have you given up?

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Tanking

In the world of professional sports “tanking” has become the trendy strategy for a losing team to turn a losing franchise into a contender.  In baseball, the Chicago Cubs and Houston Astros both transformed themselves by becoming ultra-awful losers for several years in order to draft potential stars and develop them into the nucleus of a winning team over five years.  Many teams try to “tank” and rebuild only to languish for years in the purgatory of sports.  The Cleveland Browns and Buffalo Bills of pro football come to mind.

The path seems pretty clear in pro sports, though not so easy to execute in real life.  In business change is constant.  I see the medium-sized suburban shopping centers that had a supermarket, a few restaurants, maybe a Starbucks, a movie rental store, a cleaners, two dress stores, and a Target are mostly pathetic relics.  The big-city print newspaper is another anachronism.  For these entities “tanking” is not a clear option.  There is no “draft” of young stores or advertisers.  For them bankruptcy is the equivalent to tanking, but there is no organized “draft” process for a defunct shopping center or print newspaper reliant on classified advertising.

I think most businesses face the possibility of extinction because of structural change in their industries, if they are successful enough to survive long enough to encounter it.

I am watching it firsthand now in the screw machine industry which has been attacked by foreign competition, technological change, an aging workforce that is difficult to replace, and in the next few years the likely decline in the use of internal combustion engines in vehicles.  Don’t forget the rise of cold heading and hot and cold forging to conserve metal.  The commercial side of the used machinery business has seen the transparency of the internet and

Tanking

the ascendancy of online auctions taking the mystery out of pricing illiquid, obscure market anomalies like machine tools.

For a used machinery dealer like me the “tanking” opportunity does not exist.  There is no “draft” to help the inept dealer.  The bankruptcy option that the shopping center owner has is a lousy one because the outdated inventory does not have underlying land to support its value like real estate.  Scrap iron is cheap.

My approach is to use another sports term, the “pivot.”  Use “quick feet” to change course, but stay on the field and compete.  For the Graff-Pinkert used screw machine business the cam multi-spindles are still profitable tools for new owners to the field but are not profitable enough to merit enlarging their numbers for most companies.  But firms need to keep them running even if they are old and tired.  Companies that used to buy several additional machines each year are now buying primarily repair parts.  Old multi-spindles become packages of scarce replacement parts.

One opportunity is clear. The high cost of labor is pushing even small firms into automation.  Graff-Pinkert is experimenting with buying and selling robots.  We recently bought two FANUC robots with a 15-pound “wrist” capacity.  They were bought new in 2016 and have barely any hours on them.

We also bought an ABB robot that was bought new in 2016 by a mattress manufacturer but never used.  It has a 300-pound lifting capacity.  The robot area appears to have potential.  We have already sold our first one, a FANUC robot that had been loading and unloading a CNC lathe.  Made a few bucks, and we’re building our knowledge and confidence.

We are also heavily involved in Swiss-type lathes and CNC multi spindles.  A lot of competition in this area but also significant demand.

Meanwhile, we continue to sell our older screw machines with heavy value-added options.  Customers will pay for our specialized knowledge even when they shun the old “commodity” screw machines.

Will our current “pivot” work in the changing machining environment?  Probably not.  We will have to continue to experiment and evolve.  Maybe pare down, maybe build up.  It’s business.  It’s constantly up hill.  But if you love “the game” it’s a fun job to try to figure it out.  At least some days.

Question: Is business easier or harder than it was 20 years ago?

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Betting on Yourself

I think I can learn something from anybody. I think there is a lot to be learned from James Holzhauer who has won $1,691,000 on Jeopardy and is still going strong.

I don’t watch the program, but I have seen it on occasion and remember Rosie Perez in the movie White Men Can’t Jump prep for the show like her life depended on it, hoping for her chance to make a big score. It is a quiz show competition with a betting component which is the perfect combination for James Holzhauer, a 35-year-old Chicagoan who is a trivia champion, math whiz, fast-twitch buzzer, and professional sports better.  He is the archetype of the Jeopardy savant that Rosie Perez dreamt of becoming.

His winning approach naturally depends on his breadth of knowledge and quick-twitch ability, but what sets him apart is his aggressive and unconventional strategy. James starts with the most difficult questions, trolls for Daily Doubles, and bets boldly, often risking his earnings in an effort to quickly put away his opponents.  He knows he is on a streak and so do most of his opponents, which gives him a big psychological edge.

His mantra is “all I have to lose is money,” and he knows he’s the smartest dude on the block, so he continually overwhelms his tentative opponents no matter how skilled they are.

I think there is a lot to be learned from Holzhauer.

I love his confidence and boldness. He believes in himself and that is vital to be a consistent winner. Intimidation can be a huge factor in sports and business. It does not have to go with obnoxiousness. You know when your opponent knows in their heart of hearts that they are going to win.

What really sets James Holzhauer apart is his audacity, his calculated chances in the betting.

In my own business career I have usually been cautious. My son Noah delights in questioning most of my business decisions, often challenging me for hedging my bets. Having seen a million things go wrong in my long business career I have good reason to be cautious, but I know I can learn from the aberrant tack that Holzhauer takes to bet big when he thinks he has superior knowledge.  This is how you win in sports betting and Jeopardy and probably in business over time.

A fascinating complement to the James Holzhauer story is the spotlight on Alex Trebek, the host of Jeopardy since its inception.  He is battling pancreatic cancer at the same time he is hosting the show and pulling in big ratings. Alex is showing supreme confidence in himself as he does five shows in a taping session while dealing with chemotherapy.

My hope is that he and James keep charging boldly into the dark nights of uncertainty.

Question: What is the best bet you’ve ever made?

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To Spray or Not To Spray?

By Lloyd Graff

I am in the process of making a lot of changes in my surroundings. The axiom used to be that as you get older it gets harder to change, but I don’t find that to be true. Seeing friends and associates get sick and die makes it easier because I want to sandwich more stuff into my life while I still can. If I have the energy and the money to replace the old appliances in the house and sand the floors and paint the walls I want to do it now.

The redo in my house has nothing to do with enhancing its value. Where I live home prices have stagnated for 30 years. Whatever money I’ve spent is an investment in happiness, not appreciation. Maybe that is the ultimate value play, anyway.

This year I’m spraying the apple trees on the Graff-Pinkert property. They have a fungus on the bark, and last year we lost the entire crop. This year I hope to see a big crop of tasty, red Jonathan apples in September. Is it an economic judgment to spray? Hardly. It is all about the fun of picking and eating the fruit.

I think of all the money I have sunk into my warehouse over 35 years. Recently I spent $10,000 to remediate moldy walls and drywall. It was an investment in health, but it really brought me no joy. Of all the investments I have made in the property the one that undoubtedly has brought me the most pleasure is paying a young artist, Mike Eisenwasser, 15 years ago to paint a mural on the side of a 40-foot container next to my warehouse. I see it every time I drive onto the property and every evening when I leave. I look out on it during the day. It is colorful and symbolic. It tells a story that gives meaning to my life and work, of connecting people through commerce and writing. It gives a visual voice to how I feel about my work.

used machine business graff pinkert with apple treesI think the value of art and storytelling is really undervalued in manufacturing businesses. People like to work in pleasant surroundings. I think customers often want context for what they are buying, whether that is in a story on the website, a sales person embodying the product, the packaging of the material, the voice that answers the phone, or the follow-up or apology for mistakes or delays.

The people who think everything in business is by the numbers are wrong. Decisions often are not clear cut in business. If it is a close call the winner is usually the one who is considered the most reliable or easy to work with or caring.

I imagine lots of folks are bewildered that Noah and I spend so much time on stuff that may seem frivolous and frothy to the community we serve. From a financial standpoint Today’s Machining World and the podcast are hardly great investments in time and energy. But Noah and I view ourselves as storytellers and artists. We do this work because our creative souls long for expression. It gives us joy to reach out to the thousands of people who connect with us frequently or once in a while.

I think the connections we make do ultimately bring us customers but that is not the purpose of this investment. We do it because we love to do it. We do it because we almost have to do it.

Question: Can you justify epoxying a factory floor?

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Machining the Fair Way

Francesco Molinari, the Italian professional golfer who has entered the top tier of pros who are factors in every major tournament, led by two strokes going into the final round of the Masters Sunday.

I have followed Molinari with more than a casual interest of late because he has used a putter made by a 90-person job shop just down the road from Graff-Pinkert in Tinley Park, Illinois. I met the owner, Bob Bettinardi, at IMTS. We were both resting our bones for a few minutes next to the Universal Robots exhibit, and we talked a bit about CNC mills and his putters business, which has evolved from the job shop that was its origin.

Bettinardi had a golf shirt on with Bettindari Golf’s logo. He has built a product with worldwide reach out of a small Haas mill shop.  This is the dream of so many independent entrepreneurs in our machining world who long for the margins and stature that come from a world-renowned product.

Bettinardi’s branded putters sell for $300-$400 for a club similar to the stick Molinari used to win the British Open at Carnoustie last year.  He also makes an $800 putter with a copper insert.

For a shop running VF-3 Haases with less than 100 employees, Bettinardi is playing in the big leagues with Callaway Golf and Mizuno dominant in the golf club world. It appears Callaway lured Francesco Molinari away from Bettinardi this year though Matt Kuchar, still a prominent pro, and many other up-and-comers are still using the Tinley Park shop’s putter.

Francesco Molinari's former Bettinardi Putter

Francesco Molinari’s former Bettinardi Putter

A Bettinardi faces a daunting challenge going up against the Callaways of the golf world. They have enormous marketing budgets, and a putter’s design can be easily copied. I do not believe Bettinardi has a patented putter. He has to make a product that pro golfers adore, convince them to stay with it for years, and hope his devotees win big tournaments to popularize his sticks. A company doing maybe $20 million a year in sales can do the golf shows and hit the big retailers, but it is always an uphill battle against the Callaways who have constant exposure in the equipment market and have their name on half the golf bags on the pro tour.

This is why small, closely held family businesses like Bettinardi Golf sell out to the behemoths. I do not know if Bob will sell out or if Callaway, with a market cap of $1.6 billion, will eventually crush him by stealing away all the Molinaris of the golf world when they get hot.

As an independent observer and former mediocre golfer, I hope he keeps milling fantastic, elegant putters in Tinley Park, Illinois, and selling them direct on Amazon for $399 a pop.  I’d like to see him buy a dozen more Haas mills and put “Made in USA” on every lovely club he makes.

Maybe today Francesco Molinari will wonder if he could have beaten Tiger Woods at the 2019 Masters if he had had the Bettinardi in his bag.

Questions: 

Is there an even playing field in the machining business?
Has Haas helped even the playing field?

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Swarfcast Ep. 36 – Ben York on Taking the Art Out of Machining

By Noah Graff

In today’s podcast I interviewed Ben York, an inventor and consultant for machining companies. I met him at the 2019 Precision Machining Technology Show where his company, Theory 168, was presenting his Perfect Zero Alignment system. The system uses a camera installed in a CNC machine to set work coordinates and align and set tooling (see demonstration video below).

Ben said his mission is to “take the art out of machining.” He wants machining to be easy enough so people can do it even if they don’t know the “tricks of the trade.” In the podcast Ben talks about his process of inventing his new product and starting a company in the machining field.

Listen to the podcast below the video.

Question: Is machining an art form?

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Machining Show Business

I attended PMTS, the exhibition put on by the Precision Products Association last week, not really to sell screw machines, but to learn and connect. Accomplishing this goal gave me a satisfaction and closure that I’ve never felt before at a show. Here’s the crux of what I learned.

This was the happiest crowd I’ve ever seen at an event of this type. The endless mope of the last recession finally has drifted away.  Nobody mentioned losing work to China which was a theme for so long. The prevailing vibe was that big companies are finding China a scary place to make large bets. Costs are converging with America finally, and production mistakes and logistical headaches make China a wash as far as costs go. The Trump tariffs cut both ways as far as competitiveness is concerned, but they do emphasize the uncertainties of depending on a competitor for crucial production. “I’ll make it in China,” used to be an automatic response by large corporations to a production requirement. Today it isn’t. This does not mean a torrent of work is coming back, but it is more than a trickle. The major point is that the gutting of American manufacturing has ended, and the mood of suppliers has changed to positive.

Another nonissue for PMTS participants was the worker shortage. In three days of connecting with participants I never heard it mentioned. My sense is that owners and companies are adjusting to the employee scarcity. Interest in robots is keen for the dumb jobs that used to require thoughtless loading and unloading. Robotics programming and training is a hot category. Recycling 5- to 10-year-old refugee robots is getting to be an important business category.

Lloyd, Noah, and Rex at the PMTS 2019 Graff-Pinkert Booth

Lloyd, Noah, & Rex at the PMTS 2019 Graff-Pinkert Booth

The large number of young people attending makes me think they are starting to get intrigued by interesting factory work and becoming disenchanted with piling up debt in four-year collegiate programs. I also saw more women who have moved into shop floor work and supervision. It is still a piddling percentage, but growing.

I found it odd that the machine tool behemoths like Mazak, DMG-MORI, Okuma, and Doosan chose not to display. They seemingly blow millions of bucks on IMTS and then claim poverty for off-year shows like PMTS. This leaves the field open for specialty builders to make a big pitch for capex budgets.

Davenport made a splash with their CNC multi-spindle. Many old Davenport folk gasped at the $345,000 price tag, but compared to European 20mm multis the price looked provocative. They sold two the first day.

All of the Swiss CNC folks showed except Tornos. The field is crowded, with Citizen, Star, and Tsugami hogging most of the market.  Citizen folk were beaming as they were coming off their best year ever, their fiscal year having ended just a few days before in March.

Reflecting the boom in Swiss sales, Kevin Meehan of Edge was ebullient about his past year, selling record numbers of FMB and Taiwanese bar loaders and hiring the staff needed to get them out the door and install them.

Yet this was not a crowd of people jumping for joy and putting up new factories. The folks I talked to were pleased but not complacent. Nobody wanted to talk politics, which was not the case during the later Obama years. OSHA was never mentioned.  People wanted to buy stuff, update, improve, but not add square footage. They wanted to buy shops to get customers and employees, not bricks and roofing. It was a Midwestern crowd, an increase over previous years in Columbus, Ohio. I think that was not an indictment of Columbus, but a reflection of happier times and greater convenience.

Hopefully the 2021 PMTS will show similar trends and even greater optimism.

Question: Do you still go to trade shows? Why?

 

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