Category Archives: Finance

Ep. 80 – Negotiating Like an FBI Agent with Chris and Brandon Voss

By Noah Graff

Today’s podcast is part 1 of a two part interview with Chris and Brandon Voss, co-authors of the best selling book on business negotiation, Never Split the Difference, and executives at Black Swan Group, a company offering business negotiation training.

Scroll down to listen to the podcast.

Never Split the Difference teaches how to approach business negotiations using the same the techniques that Chris Voss learned from decades working as an FBI hostage negotiator. I can vouch for its effectiveness personally, having listened to the book from start to finish 3 years ago. I probably use its principles in our business every day.

Main Points

(3:45)  Chris and Brandon explain their company, Black Swan Group, which teaches business negotiation. They sum it up as the company that “makes sure you don’t leave money on the table.” They also say that it provides guidance for navigating difficult conversations.

(5:35)  Chris talks about working as an FBI hostage negotiator specializing in terrorism. He says that his son Brandon learned a lot about negotiation from a very young age by observing him. He says that Brandon used his skills of “disarming agitated adversaries” to deal with disciplinarians and Vice Principals in high school. After Chris retired from the FBI he taught negotiation in business classes at Harvard and Georgetown. A few years ago he and Brandon cowrote Never Split the Difference, which has become the best selling business negotiation book around the world.

(9:00) Chris says that the principles of hostage negotiation work for business negotiations across all cultures. He says that in every business deal something is under siege or threat.

(12:25) Brandon explains one of their most important negotiation strategies, mirroring and labeling. He explains that “labeling” refers to a verbal observation in which a person says, “it feels like,” “it sounds like,” “it seems like,” or “it looks like.” A “mirror” means repeating the last few words of the last sentence that someone has just said. These techniques help sound out your counterpart. They give a person new information about how the counterpart sees a situation, but the counterpart stays relaxed because you don’t have to ask questions. Questions can make people feel they are being interrogated.

(17:15) Noah brings up his own recent challenge using mirrors and labels to get a machinery rigger down in price.

(19:25) Brandon talks about a negotiation technique called an “accusations audit” (see video) that Noah could use to try to get a machinery rigger down in price. The negotiator mentions all of the difficult things his counterpart has had to do to accommodate him. This can neutralize his negative feelings before he has a chance to say them. In the case of Noah’s machinery rigger, he could say to him things like, “I know you have had to do a lot of work already for this job,” “I know you’re the only game in town,” “I know you’ve already tried to get the price down,” and “I bet your sick and tired of having this conversation with everyone you speak to.”

Click here to watch more videos from the interview.

(24:15) Chris explains price anchoring. He says that most academics say a person should start a negotiation by naming an extreme asking price. However, he discourages this strategy because it can scare customers away and cause one to lose potential deals. Also people don’t know what price their counterparts will start at—perhaps his price is better than they thought. Chris says the majority of the best negotiators get the counterpart to name a price first. When both people are trying to make each other name price first a person can use mirrors and labels to get important information about the price the counterpart has in mind.

Question: Do you usually like to name price first in a negotiation?

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False Positive?

By Lloyd Graff

Are we getting a false positive signal from the stock market, or is it a predictor of the economy in 3 to 6 months? This is the question business folk, big, small, and tiny, are asking themselves as the markets regain the ground lost in the early March slaughter.

The big tech stocks, Microsoft, Google, Apple, and Facebook, plus Amazon, Walmart, and Costco, are still sitting near all-time highs, while unemployment swells, small businesses languish, and Macy’s and Kohl’s starve. GM and Ford stock shrink, and Tesla stock hits $700 per share.

Are we on the eve of a depression or is this just a temporary misstep on the great trampoline of growth in America?

The machining business is straddling the chasm between panic and smiles of confidence. If a firm is predominantly an automotive supplier to anybody but Tesla, things look bleak. But for how long? There is plenty of potential demand waiting in the bushes.

People fear public transportation, which may translate to car sales. My sister bought an Audi SUV in February and my wife and daughter were both on the cusp of buying new vehicles. They will be back in the market when it feels safe to test drive some possibilities. My daughter is looking at the Jeep-Chrysler Pacifica, while my wife’s lease expired 3 months ago on her Camry.

We are waiting for the waters to calm. I’m sure there are many others in our shoes. But when will it be safe to do something, when right now a big trip is to visit the local supermarket for groceries to be put in the trunk after ordering ahead? The crazy thing is that we know our fear will dissipate and mostly be forgotten, but will it take 2 months, 6 months, or a year to regain our mojo?

We are just beginning the early spring of revival. I can feel it on good days when the sun is shining and neighbors are venturing out and talking without masks on. My sons are going out on walks together. My granddaughters recently met up with some close friends (10 feet away). I’ve almost gone to Dunkin Donuts to pick up coffee. My cardiologist tells me that his hundreds of patients are doing well and that the few who tested positive have recovered, except for the one frail man who died. I have friends who have recovered. It almost gives me confidence, but not enough to end my 33 day quarantine.

Yet business goes on. Most of my precision machining clients are working and reasonably busy. Medical and guns are strong. Military is okay but hesitant. Auctions are still taking place.

When will the umps say “Play Ball!”?

There will be a warm gust that begins to clear the fog of hesitation. It may be Major League Baseball or the NBA that gives the signal that we are waiting for. Yes, they will probably play without crowds and all of the participants will take their temperatures before play or practice begins. There will be missteps. A player or coach or ump will get sick, but one misstep does not mean it isn’t worth resuming. People always get sick and the world doesn’t fall apart.

Eventually we will have to coexist with COVID-19. We are social beings. We need to connect, travel, touch, and do business. We need to shed fear and take some calculated risks. The politicians and bureaucrats will dither, but the stock market is telling us, hopefully correctly, that good news is coming soon. Maybe when the ump yells “Play Ball!”

Question:  What is the first thing you plan to do when shelter-in-place orders are lifted?

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Condo or College?

For most of my life I have made my good living by buying and selling physical things.  My line of credit with my bank is still directly related to the financial institution’s belief in the value of inventory, machines, and cash on hand in relation to money owed to them.

This is the traditional bible of finance.  Our statistical yardsticks of wealth, both individually and as a country, are based on measurable, identifiable things.  But increasingly I am doubting a lot of these old rubrics which the college Economics texts are based on.

I am not the only one who is questioning the ancient axioms.

About a week ago I heard one of the chief decision makers at BlackRock, one of Wall Street’s largest money managers, announce that he and BlackRock have been wrong in predicting that interest rates and inflation had to go up because unemployment was at a record low and wages were rising.  He said the old playbook was wrong, and they were throwing it away.

The chief investment guru of PIMCO, who has had an awful time betting on higher interest rates, took the blame for his terrible year a couple of days ago, but he is staying with the strategy that placed him in the lowest 7% of money managers.  He bet on rising mortgage rates.

This is not an idle academic argument.  I think it is important for the machining world for several reasons.

The people in our world make stuff for people who want stuff.  We use machines and steel and oil.  We employ people and use physical space and ship goods to customers.

What if stuff, things, physically measurable items are gradually becoming less important each day?

Mortgage rates are dropping like a stone, currently, as the 10-year U.S. Treasury interest rate hovers around 1.5%.  Yet there is no rush by young people to buy homes or condos.  Renting is popular today, not buying.  One big reason for that is that young people have big college debts they are paying off monthly.  They have consciously, or unconsciously, made the deduction that education is more important to them than home ownership.  Whether this will prove to be a good or bad economic gamble, long term, is an unknown, but it is affecting the purchase of real estate, and I expect this trend to continue.

I think we are seeing the same choices in vehicles.  Young people are investing in day care and gym memberships and restaurants rather than a Harley or a convertible.  For city people, Uber, a bicycle, or the subway are limiting car buying.  This doesn’t mean that people are poorer today because they do not own a car.  They are making different choices.

People are also veering into different spending choices in food and vacations.  We are seeing more folks opt for restaurant food or delivered menus.  People are spending on travel experiences rather than buying a cabin at a lake in Northern Michigan or Wisconsin.

Warren Buffett recently admitted he made one of his worst mistakes by buying Heinz and its tired old brands.  Same with Kraft and Campbell’s.  Tired old brands are not selling.  Panera and plant-based meat are working.

I’ve been bouncing around in this article, but the theme running through it is that the bankers and investors who have followed the ancient rules are losing.  The manufacturers who have done well making parts for home faucets and sedans are beginning to fade.  Real value lies in intellectual capital, but it can also evaporate quickly.  The numbers that bounce the markets around like yo-yos are obsolete.  GDP does not measure air quality, creativity, or life expectancy.  Employment does not measure automation improvements.  The markets are volatile because people look at conflicting numbers.  And the numbers they look at are yesterday’s.

Question: Is college a better investment than a house?

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One auction in May, the machining world looked brighter

By Lloyd Graff

Auction prices today are very hard to figure. I talked at length with Dennis Hoff of Hoff-Hilk Auctioneers about his May 26 sale at Bystrom Precision, a small CNC shop in Minneapolis. The magnet pieces in the 150 lot sale were three L-20 Citizens, Type VII new in 2000 with Iemca Genius barloaders.

Hoff says he told the client the sale price for each of those machines would be in the $30,000 to $40,000 range. The day after a long Memorial Day holiday is a lousy day to do an auction because people are just getting their plants up and running. An hour before closing, the prices were a little above dirt.

Hoff told me that the seller was distraught as he looked at the disappointing numbers on the screen, but suddenly the bidders started waking up. In the last few minutes of bidding, the Citizens spurted from $12,000 to an average of $60,000 for each of the three machines with barfeeds.

The Royal Master centerless grinders brought $15,000 for one and $20,000 for a second, and a one of a kind model went for $5000. Uglier ones sold in Canada a month earlier for $500 each.

There were three small Brother TC31A drilling and tapping machines which sold for an average of $11,000 each.

A Daewoo Lynx 200A turning center fetched $12,000, and a Eurotech 7 axis 420SLL with a 1-3/4” bar capacity new in 1999 brought $33,000.

The weak sisters of the sale were three Nomura CNC Swiss Model NN13-SB, which scored $10,000 bids, with Fedek loaders hitting around $2000.

This auction is no definitive marker of the beginning of a turnaround—it may be more a function of shrewd marketing by Hoff-Hilk. But on one day in May, the machining world looked brighter.

Question: The Consumer Confidence Index had a big bounce Tuesday, are you seeing anything positive?

Citizen Model L20-VII CNC Swiss Type Screw Machine from sale

Citizen Model L20-VII CNC Swiss Type Screw Machine from sale

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Is the economic tornado blowing over?

By Lloyd Graff,

At least three times per summer we hear the sirens blare, signaling the possibility of a tornado in our vicinity. We take cover in the basement or the safest corner and wait for it to pass over. We listen for the “all clear” signal and the absence of thunder.

For the machining industry, particularly in the Midwest, the tornado sirens keep shrieking and the all clear has yet to sound. Since September a lousy recession has become a depression worthy event for anybody who cuts or bends metal. The only hiding places have been in guns which are going nuts as people fret about an Obama weapons law, and medical which has held up partly because people shoot at each other occasionally. The big winner is still orthopedic implants which save the bodies of aging baby boomers.

The stock market has been signaling that the financial system is stabilizing. Houses are selling with the huge price drops and the inducements of low interest mortgages and assorted subsidies. The stimulus package, though diluted by transfer payment funding is going to kick in soon. The Fed has poured liquidity into the banking system and the corporate bond market has strengthened. Inventories are paltry in the bins and semiconductors, the guts of electronic tools are making a comeback.

It appears that the economy is beginning to get its legs back. Auction prices are in the toilet. Much of the equipment that goes to sale does not meet the reserves which ultimately depresses prices further. It seems like it cannot get worse and then it keeps getting worse in machining. We probably will get no clear bottoming signal. Some very sharp economists who know our world are predicting an uptown—next March.

Hang in there. Unfortunately I have no economic Doppler radar. It will get better, but we won’t hear any “all clear” horns go off.

Question: Do you think the tornado will ease up soon?

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A Renaissance in Detroit

By Noah Graff

Last week I went to Detroit to shoot a video spot for an advertiser of Today’s Machining World. A melancholy vibe permeated the city that I can only compare with the one I felt when I was last in New Orleans. When I arrived there were only three taxies and two limos sitting outside. Five vehicles to serve the entire Detroit Metro airport? I decided to query the empty rental car buses driving by to see if they had any cars available. I asked Hertz, Avis, and Budget, and every driver claimed that there weren’t any cars. Evidently so few people are traveling to Detroit Metro that the rental car companies have transferred their fleets to other more bustling cities.

Yet amidst all of its depression and desperation, Detroit now has an unexpected grassroots movement, attempting to revitalize the city’s housing market. At this moment, artists from around the world are buying houses in the Detroit ghetto for a few hundred dollars each.

Four years ago, artists Mitch and Gina Cope, bought a broken down house on Detroit’s North side for $1900. The house had been ravaged by scrappers who stole everything from copper plumbing, radiators to electrical lines. But the Copes bought it anyway and decided to turn it into what Mitch Cope calls the “Power House Project.” “Our idea — instead of putting it all back and connecting to the grid, we wanted to keep it off the grid and get enough solar and wind turbines and batteries to power this house and power the next-door house,” Cope says.

He thinks he can make the whole place operate “off the grid” for around $60,000, a cost he hopes to help cover with grants. He plans for the first floor to be a neighborhood art center and the second floor to be a bedroom for traveling artists. Of course, his grand vision is for the entire neighborhood to transform itself into an artist community using dirt cheep real estate as a magnet for new settlers. Cope has already convinced around a dozen artists from countries around the world such as the Netherlands and Germany to buy houses. Jon Brumit, a prominent artist from Chicago just bought a house in the area for $100.

You may find this story uplifting yet then put your nose up when you remember only 12 homes have been bought. But maybe manufacturers can learn from what these artists are doing. The bottom line is that the real estate in Detroit is going for practically nothing, Michigan is going out of its way to give tax incentives for new development, and there is an abundance of laid-off, skilled workers who potentially would jump at the chance to work at a job shop, even for a modest wage. Sounds like an opportunity for some creative types.

Listen to a podcast of the story at NPR.org

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What if we just gave the bailout money to the people?

By Noah Graff

What if instead of giving all the bailout money to the reckless, untrustworthy banks and incompetent automakers our government just gave the money to the people? I’m not talking about 500 dollar “stimulus” checks. Say all of this aid money, maybe about $10,000,000,000 ($10 trillion!), was distributed to 100 million tax paying units in the U.S.? The people – our people, rich and poor, would get $100,000 each, and surly they would do some awesome things to stimulate the economy. Think about what people might use the money for – cars, houses, college educations, stocks, bonds, starting new businesses – not to mention depositing the money in the bank. So the banks would get their liquid too! What if people got half that amount, a quarter? What would you do with $25,000?

Personally, I’m very skeptical that the recipients of the current bailout plan are going to use the money wisely. Like so many people, I am scared that they will not learn from their mistakes. I fear we may be throwing our hard earned dollars into a black hole.

I say let the people fix the economy!

Question: Would giving $100,000 to every U.S. tax payer be a better way to save our economy?

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Will China keep investing here?

By September 2008, China had owned 585 billion U.S. dollars in U.S. government bonds, becoming the largest creditor of the world’s largest economy, according to the latest statistics from China’s Ministry of Finance. It bought new US national debts every month during 2008’s first three quarters. (news.xinhuanet.com)

For years, China has had a surplus of money, which its national bank gleans from its high export to import trade imbalance. It takes the dollars it makes from U.S. consumers and then needs a reliable place to invest them, and it has historically invested heavily in U.S. treasuries along with private U.S. assets.

But now many of China’s investments in the U.S. have gone awry, as they were screwed by Freddie Mac and Fanny Mae, and reckless derivative trading. Naturally, like most people in the world, they have lost some trust in the once supposedly rock solid U.S. economy.

I believe that Americans will keep buying Chinese goods for a long time – although maybe slightly less because people here are struggling. Nevertheless, at least 90 percent of the goods Americans take for granted in their daily lives are made in China. Read the book, A Year Without Made in China, (reviewed by Today’s Machining World) and this concept is clear.

China’s government should have plenty of money to invest overseas for years to come. The question is … has the U.S. economy gotten so bad that they will put a lot of it elsewhere. Personally I don’t think so.

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Is our economy a modern day version of "Atlas Shrugged"?

By Noah Graff

A recent column in the Wall Street Journal made a comparison of U.S. government policies in the present economy to those in the classic novel, Atlas Shrugged, written in 1957 by the anti-government, ultra capitalist Ayn Rand. Rand’s dogma which transcends all of her works has the fundamental principle that when government steps in to “bailout” incompetent businesses for the sake of the “common good” it causes a tumultuous domino effect.

Wall Street Journal Columnist Stephen Moore summarizes the book’s moral as the following: “Politicians invariably respond to crises — that in most cases they themselves created — by spawning new government programs, laws and regulations. These, in turn, generate more havoc and poverty, which inspires the politicians to create more programs … and the downward spiral repeats itself until the productive sectors of the economy collapse under the collective weight of taxes and other burdens imposed in the name of fairness, equality and do-goodism.”

Sound kind of familiar? Tarp? Auto company bailouts? A bunch more “stimulus plans”? I know. It’s scary right now. Desperate times. And I believe the government must step in somehow to stop a catastrophic loss of jobs and halted workflow that a bankruptcy of the Big Three would entail. And yes, it has to create liquid for the banks. But just like in the book, large companies are getting a free pass on their incompetence in management and law breaking. A money infusion gives them an opportunity to change their ways, but there is a definite chance it could create a downward spiral just as Rand envisioned. Does GM have a plan for how to spend the new money, other than to survive the next few months? Do the banks know what to do with their new capital? All of a sudden they have to figure out new ways to lend it, because now we know that the ways they were using it — such as granting sub-prime mortgages and trading recklessly with high leverage won’t work. The economy can only stabilize when these companies get their act together, and then, when the people regain trust in them. I don’t see either one happening soon.

Question: Do you have faith that the U.S. government’s new stimulus plans are going to create economic change for the better in the near future, or will they exacerbate our problems by allowing incompetents and crooks to continue their ways?

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