Ceiling of Complexity

I took a quarterly seminar many years ago taught by Dan Sullivan. It was aimed at entrepreneurs and focused on how you could grow your business and enhance your life through planning and simplification. One of Dan’s catchphrases that I go back to frequently was, “reaching your ceiling of complexity.” As I entered the library this morning to write this piece, that line struck me between the eyes.

I realized that I was bumping my head against that “ceiling” that felt five feet high at that moment. I had attempted to write this blog three times in three days and hit a blank each time, something that rarely happens to me. My head was definitely bruised from bopping into that low ceiling. Why now?

A few days ago, Noah and I attended the Precision Machined Products Association annual Management Update Conference. There were more than 150 people at the event, many of whom I had known for decades. A lot of younger people attended too, which is a sign of vigor and optimism in the industry. The focus of the meeting was on change and the ability to build a foundation of relationships and culture which would enable a business to weather the inevitable ups and downs of being in the game.

Lloyd experiences deep thoughts on buying and selling machining businesses.

Underlying the topics was the tough reality of people nearing what they deem to be “retirement age” struggling to exit the industry and businesses they have loved and prospered in all their lives. How do they exit gracefully with the gains they have made? To whom do they sell the businesses or pass them on? Quite a few people are now asking me to help them in this process, and the emotional investment for families in the center of these decisions is heavier than I expected.

I’m not playing with the private-equity boys who are all about the numbers. The EBITDA, accounts receivable, and the viability of the customers is their only focus. It simplifies the game for them. For me, it is the people, their life’s work, more than just the money that is the magnet, and that’s what makes everything so damn complicated.

Selling a business is a quantum leap more complicated than selling a Wickman or a Nakamura. More emotions, more family input, more tugs and eventually hugs. It shouldn’t have surprised me, but it has. Knowing the buyer and seller by their first names is a blessing and a curse. The beauty of selling machining businesses is that I’m invited into people’s lives in a profound way. It gives me a purpose akin to the purpose of writing a blog aimed at the people in this industry.

The deals I’ve been working on are much more complex than selling one machine or buying a package of machines. When somebody is buying a business to gain access to contractual relationships and may encounter erratic income streams, the deal is constantly in flux. The broker becomes an interpreter of facts and feelings on both sides of the transaction and sometimes has to soften the emotions on both sides to keep things on track. My ceiling for complexity rises and falls with the vibes of each deal. I find the process exciting and exhausting at times. I think I’m getting better at it, but occasionally the ceiling is a little bit tight.

Question: How do you simplify your life?

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Swarfcast Ep. 28 – Bryan Batten, Mechanical Pyschologist

By Noah Graff

On today’s podcast, I interviewed Bryan Batten, CEO of Palmetto Precision Machining, located in Anderson, South Carolina. Palmetto Machining is a precision machining/fabrication shop specializing in tooling and automation for the automotive industry. Bryan, who jokingly refers to himself as a mechanical psychologist, discusses the difference between working with automotive companies in different countries, his experience purchasing a machining company, and the manufacturing boom in the South.

Question: Do you have a machine that should go to a shrink?

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The Hole in China’s Apple

A tiny gecko can literally climb up sheer glass.

A team of robotics geeks in Denmark thought, wouldn’t it be cool if we could mimic the gecko in a robot’s gripper? Wouldn’t that be a great product?

They accomplished just that and started a company in Odense, Denmark to sell their gecko gripper, called OnRobot.

Odense, home of Universal Robots, is the robotics incubator of the world. Poetically enough, it is also where Hans Christian Andersen wrote his fairy tales. The gecko gripper concept grew from a research paper written at Stanford University in Palo Alto, which was picked up by NASA as having the potential for retrieving satellites in space. The folks in Odense saw its potential.

Would this have happened in Shanghai?

Recently, things have become quite ugly for China after 30 years of almost unimaginable growth. The Chinese leadership, starting with Deng Xiaoping, has been almost maniacal in pushing growth in China.  With shrewd planning, an industrious and hungry population, heavy borrowing, and a knack for stealing and copying the hard-won knowledge of their competitors in the United State and Europe, they have continued their ascent.

Shanghai is not Palo Alto, California, or Odense, Denmark. Companies like Huawei and ZTE have become electronics giants in recent years by developing copycat products based on intellectual property theft and industrial espionage while playing footsie with bad actors like Iran. This has been abetted by the Chinese government, which has afforded them immense lending resources as part of China’s extraordinary rush to catch up to the United States and ultimately surpass America in almost every way possible.

The Chinese leaders did not have time for the kind of entrepreneurial organic growth of a Universal Robots or OnRobot. They wanted to leapfrog the agonizing trial and error and market flops that little startups have. So Huawei and ZTE and countless other firms stole their way to the top.

They did not have to try that hard to do it. Many large firms virtually handed the Chinese their intellectual property in exchange for market opportunity. Apple’s current falling earnings are a direct result of weakening iPhone sales in China as their competitors are making nice copies for half the price. The only edge Apple has left is their high-class brand, but that apple is now more than half eaten.

Apple was not naïve about China. Its gamble was that they would make billions of dollars in China before the intellectual property theft really bit, and then they would use that money to fund research which would net the next generation of killer phones or some other monster product.

The Chinese leadership’s gamble was that the American leadership would make the same short-range gamble as Apple. In exchange for gaining lucrative markets for America’s relatively cheap commodities, the U.S. would allow intellectual property theft without retribution and the looting of the American and Western European industrial complexes by subsidized ones in China. For example, the Chinese steel industry has grown to be by far the world’s biggest, and yet it is hopelessly inefficient, as the government has run it as a make-work project for hundreds of thousands of workers.

The Trump tariffs on steel and aluminum have hurt American companies who use the materials, many of whom are our customers, as well as the Chinese. The Huawei case in which the founder’s daughter is the mouse who was caught in the trap in Vancouver, Canada, is as clear a signal as America can send to China — that things finally are changing.  It is starting to get uncomfortable for both the U.S. and China as the stalemate continues to bite.

Both countries have a huge amount at stake in the trade talks going on right now in Washington.  Shanghai is not Palo Alto.  It is not Odense. What is being exposed to the world at this moment is that despite the enormous growth in China over the last 30 years and its overarching ambition to surpass America in every way, it is weak at its core. It can be seen as similar to Japan in 1990.  Many futurists saw Japan surpassing the U.S. at that point, but despite America’s missteps, like the Iraq War, it did not happen.

China does not innovate. It mostly copies and steals intellectual property.  Its education system does not produce risk takers.  Nonconformists often end up in jail. I believe the top leaders in China understand this is a profound weakness, but it is extremely hard to address it because doing so would undermine the soft foundation of the country — economically, socially, and politically.

I think Donald Trump, the New York real estate developer and gut puncher, gets this. The amiable Bushes, Clinton, and Obama seemingly did not understand China’s basic weakness and refused to play the strong hand that they had.

The big question ahead of us is will Trump play his strong hand too aggressively and screw up the world economy, or will he find a path to a compromise? The Fed’s recent pullback on interest rate hikes was its statement that they are worried that the whole poker table might collapse.

Question: What copycat or knockoff products have you purchased?

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Swarfcast Ep. 27 – Dave Thuro on Growing a Machining Business (Part 2)

By Noah and Lloyd Graff

Today’s podcast is Part 2 of our interview with Dave Thuro, second-generation owner of Thuro Metal Products. In this episode, Dave discusses his growth philosophies. He believes in aggressively acquiring as many job opportunities as possible, but then saying no to most of them. The company tries to acquire at least two long term accounts per year that will bring in monthly sales of $50,000 to $100,000.

Scroll down to listen to the podcast with Dave Thuro.

Dave also discusses his hiring practices. He believes in hiring the majority of his employees at the entry level and training them from within the company. The company’s 56 person workforce happens to be 50% women.

Question: How does your shop go about acquiring new clients?

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Legalize Pot, Why?

By Lloyd Graff

The big push is on all over the country to legalize recreational marijuana. My gut reaction is that I am appalled, but I’ve been reading up on the topic to see if I am just an old fuddy-duddy teetotaler or if there is a good reason to oppose and fear it. It also has real ramifications in the machining industry with hiring decisions. Will drug testing for cannabis become obsolete or forbidden?

Since Canada has legalized the sale of marijuana, as have states like Washington and Colorado, pot has become hot. Canadian pot companies like Tilray have gone public and their value has gone up tenfold in a matter of months. Tobacco companies, beer and wine behemoths, and investors like Peter Thiel, who made billions on Facebook, have bet big on Canadian cannabis. Politicians and lobbyists in every state have joined the frenzy to rack up loot on pot.

If you are an agnostic speculator it may be a dream come true.  If you’ve made your fortune on booze or cigarettes why not get in early on a potential legal addiction play? But if you aren’t in the addiction business why should we make it easy for my 13-year-old granddaughter to vape, or to snack on cannabis brownies after school?

In recent days, writer Malcolm Gladwell and former Wall Street Journal reporter Alex Berenson, now a successful mystery writer, have come out with prominent pieces discussing the dangers of marijuana usage.  Both men sound the alarm about the relationship between pot usage and violent behavior.

The statistics in Washington State, Finland, and Denmark definitely point to an increase in reported murders and other violent crimes after the drug was legalized. Is murder unequivocally associated with legalization? No, but analytics point in that direction. The published literature appears to show a distinct relationship between increased instances of schizophrenic and bipolar people acting out violently after using marijuana. This may account for the significant rise in the criminal violence stats.

Another concerning trend is the widespread breeding of marijuana plants to yield a much higher content of the compound THC, which is much more potent than the garden variety bootlegged for so many years. These designer compounds have been touted for the amelioration of nausea in chemotherapy patients and potentially for therapy for Alzheimer’s, depression, Parkinson’s, and other maladies.

There does appear to be evidence that there is a medical rationale for cannabis use, but Anheuser-Busch and the Marlboro Man are not investing in pot companies to stop patients from shaking.

The intersection of mental illness, marijuana usage, and violent behavior is probably the most troubling aspect of the legalization of cannabis.  But as a business person, I am fearful of the widespread use of pot by potential employees in a legalized world.  I know a lot of people use pot now, knowing that the penalties for usage are a slap on the wrist in most cases.  However, if it is illegal, there are a lot of folks who will not make the extra effort to obtain a verboten substance that may harm them.

To me, the bottom-line question is:  What good does it do to legalize it?  Cash-starved states like Illinois might get substantial revenue from taxing it, but is that a good reason for sanitizing it for 13-year-olds by removing the stigma of illegality? In the political frenzy to legalize it, the talk about pot being a gateway drug to even more-addictive drugs like heroin or opiates has quieted.  It does scare me that giving millions of people access to it in vaping parlors could be a public health disaster in America.

Why should we do this?  Give me a good reason why it would be good for you or your children – or the country – to legalize the stuff.

Question:  Why should we legalize pot in the U.S.?

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Swarfcast Ep. 26 – Dave Thuro on Growing a Machining Business (Part 1)

By Noah and Lloyd Graff

Today’s podcast is part one of a two-part interview with Dave Thuro, second-generation owner of Thuro Metal Products, a successful job shop in Long Island, New York. The business produces parts for a variety of industries, including aerospace, fuel injectors, HVAC, bearing and linear and, more recently, optics and lighting.

Scroll down to listen to the podcast.

We spoke to Dave about his equipment choices, focusing on Swiss automatics and multi-turret CNC lathes. We also discussed his father’s journey from Yugoslavia, living in an old army barracks in Munich, Germany, as a refugee following World War II. He became a master machinist in Germany, before immigrating to the United States at the age of 23 and finally starting a machine shop of his own.

Question: Which piece of equipment in your shop is your favorite?



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Swarfcast Ep. 25 – Brett May on Keeping Cam Screw Machines Relevant

By Noah Graff and Rex Magagnotti

We interviewed Brett May of BME Inc. Screw Machine Attachments for today’s podcast. Brett’s mission in business is to make old cam multi-spindle screw machines like National Acmes, Wickmans, and New Britains into productive money makers in today’s competitive machining environment.

Scroll down to listen to the podcast with Brett May.

Brett builds unique attachments which eliminate secondary operations that many people would put on a mill-turn CNC to finish, or run on an accurate but achingly slow Swiss-type machine. When he does his magic he turns supposed clunkers into enormously valuable machine tools.

Brett sees an old Acme and visualizes value, where others see a candidate for the scrap heap. As part of the BME value proposition, he also rebuilds multi-spindle machines, particularly National Acmes.

Question: Have you given up on non-CNC equipment? Why?

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Can a Machine Sniff the Market?

By Lloyd Graff

I am not a big stock trader, but I have a portfolio of stocks in my IRA, which is a backstop for the volatility of the used machinery business.

Or at least I used to think so.

I know stocks go up and down. I know that when stocks go up a lot, I break up my day to check them. It is usually a reliable sell signal. When they are trending down and I don’t want to look, it is a reliable buy signal. Of course, being a sheep like most people, I rarely do that. I am in the market for the long term (at 74?), so I generally follow the passive approach of buying a Vanguard Fund and sit and hold.

Lately, stocks have been a yo-yo on a long string — a thousand points up or a thousand down on the Dow almost every day. The trained seals on Bloomberg and CNBC and their lackeys from the big investment funds parade onto the sets to explain why the markets are headed up or down. It’s becoming ever clearer that they are even stupider than I am, or they are being paid to deliberately babble impenetrable nonsense.

The fact is that most hedge funds lost money in 2018. Some funds are shutting down. It is pretty simple to see what’s going on. Machines have taken over the stock market. Computerized trading now comprises 85% of the daily volume, and machines are ruthless, headless sheepherders. They sniff a trend (can a machine sniff?), and in a nanosecond they sell or buy a sheaf of stocks, at which point all the sheep follow them.

To push the metaphor to the ridiculous, the sheep are on a teeter-totter and Vanguard Funds are on a yo-yo. Algorithms rule and investors get more nauseous with each bounce.

The babblers try to rationalize the see-saw ride, but being rational about the irrational is folly. They cannot go on TV and admit that the great old game of investing has been usurped by algorithms and artificial intelligence which have institutionalized stupidity on Wall Street.

Folks, this is a bad trend, because rational human beings are going to sell their shares and put them into gold or Bitcoins or U.S. Treasuries, and a traditional trove of value, publicly held companies, will shrink in value. This would be a disaster for the economy because going public is a good way for small companies to attract capital for further growth.

However, there is a way out of this computerized trading mess — force the computers to wait. Let them trade every 15 minutes. If they violate the rules call a personal foul on them. Five fouls and they are out of the game for a week or a month. Hire some good referees and pay them a million bucks or two to make sure the game goes back to human beings. This is what the casinos in Vegas would do if machines were screwing up their businesses.

While we are at it we can straighten out the destruction of privacy by Facebook, and the obliteration of small retail stores by Amazon.

Let 2019 be the year people strike back at the tyranny of technology. The new password is HUMANSWINONE.

Question: Which investments do you put money in?

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Swarfcast Ep. 24 – Albert Lettman on Lean Manufacturing Around the Globe

By Noah Graff

On today’s podcast, I interviewed Albert Lettmen, a Lean Six Sigma and Quality Systems consultant and educator who has worked for decades with prominent manufacturing companies around the world. Albert grew up in Jamaica, studied business in Scotland, and then worked for companies in Europe, China, Canada and the United States. I was surprised when Albert explained to me that a company eliminating waste and boosting efficiency does not necessarily translate to firing a lot of workers. Over the years I have heard many people in the machining business talk about incorporating Lean Manufacturing into their organization, but I must confess that until this interview the concept of “Lean” remained a mystery to me.

Scroll down to listen to the podcast with Albert Lettman.

Question: What areas do you think a consultant could help in your business?

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The Elusive Quarterback

By Lloyd Graff

I’ve loved pro football since the days of Johnny Unitas. Dropback quarterbacks have dominated the game, but in recent years defense has become more prominent. Now the sport is swinging toward a more elusive running quarterback. With this swing, another interesting trend has been evolving. The quarterback position has become more “athletic,” and the players coming to dominate it are primarily young and African American.

I’ve always regarded the National Football League as the most racist of the major sports. Yes, about 80% of the players are African American, but traditionally the quarterbacks have been White. The recent dust-up with Colin Kaepernick, an African American quarterback who ironically was raised by White parents, highlighted the deep-seated neanderthalism of the ownership, administration, and hardcore pro football fans.

Among this year’s playoff teams, five are led by young African American signal callers. Russell Wilson of Seattle, Lamar Jackson of Baltimore, Deshaun Watson of Houston, “Dak” Prescott of Dallas, and Pat Mahomes of Kansas City are all dynamic young stars. The myth in the bad old days was that Black quarterbacks didn’t have the savvy, intelligence, and leadership ability to be NFL quarterbacks. That has finally changed, as the ability to avoid 300-pound rushers has begun to replace the quick-release-but-immobile Tom Brady and Phillip Rivers style.

The Elusive Russell Wilson

Improvising and throwing on the run, epitomized by Russell Wilson when the Seahawks won the Super Bowl in 2015, has truly altered the quarterback position. Nevertheless, the stone-age thinking still dominant in the NFL pushed Lamar Jackson down to 32nd pick in the 2018 draft. Despite being probably the best player in college football during two seasons at Louisville, some pro football GMs were thinking he should switch to wide receiver or defensive back, reflecting the bias against “athletic” Black quarterbacks who could advance the ball in ways other than by throwing sideline routes.

The elusive quarterbacks have proven what should have been an obvious fact. If a quarterback has 5 or 6 seconds to enable 5 or 6 receivers to get open, he has a better chance for a completion than chucking the ball in 1.5 seconds like the incredibly accurate, but relatively immobile, Brady or Rivers style.

But if quarterbacks like Wilson or Mahomes win themselves five extra seconds, they will usually do it at the expense of the ideal throwing position. They will throw off their back foot or sidearm or even with two hands like I’ve seen Wilson do. Their style is not classic Johnny Unitas high-top-shoes football. But, wow, can they put up points and excite a fan like me!

Wild Card Weekend was an interesting test of the mobile athletic quarterback versus the classic old-school, accurate, “statue” style. The games were not high scoring at all. Defenses seemingly were primed to bottle up the shorter running QBs. Two of the all-time great pocket passers, Phillip Rivers of the L.A. Chargers and Andrew Luck of the Indianapolis Colts, demonstrated that if you have a great offensive line to block for you and you have incredible composure, courage, and vision, you do not have to be evasive to be successful. Nick Foles of the Eagles also held up well against a superb Chicago Bears defense, as he did last year when he led Philly to the Championship.

To me, the conflicting styles of quarterbacking only make the game more fascinating. I think we will now be seeing more offensive linemen becoming first-round draft picks. The effectiveness of the Indianapolis guards and tackles in keeping Andrew Luck’s uniform clean against a tremendous Baltimore Ravens defense enabled Luck to dominate their game in the first half. Fabulous offensive linemen, like Jason Peters of Philly and Quenton Nelson of Indy, are game changers if you have an old-school quarterback to protect.

This week’s games should be great. Will Tom Brady defy age and immobility to lead the Patriots? Will Pat Mahomes of Kansas City show how he threw for 50 touchdowns this season? The game is changing, but the remarkable standstill, old-school quarterbacks are still holding up well.

Question: Which type of quarterback do you prefer watching? Russell Wilson or Tom Brady?

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