Worth the Risk?

By Noah Graff

Last Friday we sold a Swiss machine. It was an OK deal, but in order to complete the sale we had to take some live tooling from a different machine we own and transfer it to the one we sold. We don’t know how much the live tooling is going to cost to replace it, but we made a calculated judgement that robbing one of our other machines was worth it. The important part was to make a sale. Close the deal! Because even in a good market, as we seem to be in right now, it’s hard to close deals.

It’s funny how a used machine can stay on the market for six months, a year, two years. Then all of a sudden you get interested in purchasing it. You start doing your research to see if it’s the right machine to buy, and boom! Someone else is interested too, and it’s gone the next day.

It’s not out of the ordinary for Graff-Pinkert to buy machines from people we have never met. We buy machines on other continents, machines sitting in caves or barns, machines old enough to be my parents.  

We buy some machines we have only seen a few photos of, let alone seen running on video.

In 2012, we bought our first INDEX MS32C at an auction in Australia. We did not know how much we could sell it for, and we didn’t know how much it would end up costing to ship it to Chicago—$70,000. We still ended up doing well on it.

We have also taken some risks on deals in the past that had horrible consequences. We suffered one our worst loses a few years ago on a CNC machinery deal in Asia. I spent several days with the seller and his wife. They shared intimate details about their family with me. They paid for my train ticket. They conned me.

In our business, it’s important to constantly question ourselves whether a risk is worth taking. Are we are making a decision with limited knowledge because we were too lazy or careless to do the necessary research that could prevent a mistake? Or, do we really have to make a snap judgement on deal because otherwise we risk losing out on a great opportunity?

What would be worse, losing out on a lot of great opportunities because we were too indecisive or scared, or taking a big hit from a disastrous deal?

Question: What interesting calculated risks have you taken in the past? Did they pay off?

Share this post

7 thoughts on “Worth the Risk?

  1. AvatarMiles Free

    Great topic!

    What you describe in your failed CNC machinery deal in Asia is the inevitable result of asymmetric information. Compounded with the seller’s “home field advantage” and then topped off by the fact that you had no way to insure your risk nor remedy it through legal means.

    Reputation is the means to try to manage risk in these situations, but in foreign country and limited network, that was not available to you.

    In the absence of solid legal recourse, it would be wisest course to decline the opportunity from an otherwise unknown and unknowable counterparty.

    Asymmetric information is why many of us are willing to take the known financial depreciation penalty of buying a new car from the dealer, rather than picking up a “gently driven” model a year or so old from a used car dealer. Carfax and star rating systems on vendor websites are attempts to reduce buyer’s risk by creating a de facto “reputation.”

     
    1. Noah GraffNoah Graff

      Thanks for your insight Miles. You are right. We were paralyzed legally.

      One problem was that we were so in love with finding a secret contact that we didn’t want to check with others about the trustworthiness of the seller. Had we done that, I think we would not have made the mistake. It was an important lesson for the future, which we should have already known.

       
  2. AvatarGreg

    Being an old fellow, I have taken (and paid for) various levels of risk over the years. Today, if the risk is too great, I invite the other party to participate in the risk. Basic negotiations.

    If the other part deems the risk too great to participate in the risk, the deal has to tilt seriously in my favor. When I was younger, I was much more willing bear the brunt of the risk, believing I had time to ‘make it up’ if I was wrong.

    In business every decision has some degree of risk. From hiring employees to taking on new work. I guess it’s really no different in personal life, just harder to measure.

    Pay off? Not to sound too philosophical, but if I learned a lesson and lost money, maybe they still paid off.

     
  3. AvatarJim Hanna

    After 34 years in the electric utility industry, doing most information technology work, I had the opportunity for a buyout, which I took. Shorty thereafter an opportunity arose to buy a half interest in a small manufacturing company. The first three years were terrifying, but thanks to an engineering education and some help from one of the previous owners I was able to adapt, learn, and succeed. It was a radical shift from my prior work, but an exciting challenge. I was able to sell the business after 13 years for a decent return and have the pleasure of being able to say that we shipped some of our products TO China.

     
  4. Lloyd+GraffLloyd+Graff

    One of my poorer deals deals out to be one of my best ones. I guaranteed and auction deal $1600,0000 million to participipate with our company sharing the upside. We also placed a few of our own machines in the deal and some tooling. The auction ended in a sizable shortfall which Graff Pinkert was obligated to be. The deal in tself, was a disappoitment but it established our legitimacy to the seller, and led to many other. Sometimes the value in taking a risk is show you are big rnought to accept a loss with grace.

     

Comments are closed.