How Much is College Worth?

By Lloyd Graff.

My Chicago Cubs just made a trade for center fielder Dexter Fowler, a 6-year Major Leaguer currently in contract arbitration who is asking for $10 million for one year. Last year he made $7.3 million. Coming out of high school in Alpharetta, Georgia, a suburb of Atlanta, he had the opportunity to get a full ride to Harvard University, but chose to take the money of a 14th round draft pick to try to get to the Major Leagues quickly.

It was an interesting choice for an 18-year-old kid. Harvard versus Minor League baseball and a small cash bonus. It reminds me of Billy Beane, the Oakland A’s general manager who had to choose between an offer to play baseball at Stanford or take a $100,000 signing bonus as a first round draft pick of the New York Mets in 1980. At the urging of his parents he took the money and spent most of his baseball career as a player scuffling in the Minors.

How much is a college education worth? How much is an education at Stanford or Harvard worth? You can figure the cost of tuition and room and board, but the true value in dollars of connections, urbanity, and love of learning cannot be measured in pecuniary terms.

Dexter Fowler’s gamble on baseball over Harvard worked out for him. On the other side of the spectrum, so many millennials are choking on debt from four years at Podunk A&M or even Dartmouth or Duke. In a changing job market more kids and parents may reject the expensive gamble on college. Money might be better spent traveling the world. I think of all of the young Israelis who travel the world after compulsory military service. They end up much more worldly and educated than provincial Americans who may never leave Nebraska.


I recently had a long phone conversation with Analisa Rudy, who along with her husband Eric Mott recently bought 60-year-old Cecor Corporation, which makes “Shark” sump pumping equipment and high quality shop carts. She piqued my interest by sending me an email with the subject line “take a dump.” I figured somebody with the sense of humor and audacity to approach me with that subject line was worth connecting with. And, she was charming and enthusiastic about the business challenge she and her husband have taken on. Sludge is exciting if it is your life’s work.

We are not defined by what we make or sell. The most mundane products are fascinating to the people who use and produce them. To the uninitiated, a simple brass fitting selling for 50 cents at Home Depot is utterly boring, but the nuances of that fitting are almost endless. How is the brass made? How much copper, brass scrap and electric power went into manufacturing the rod? Where was the brass made? Where was the fitting manufactured? Did Home Depot buy it in China or Thailand or Ohio? Was the thread cut or rolled? These are questions that barely touch the surface of that “simple” 50 cent fitting at Home Depot.

I am sure the challenge of making a high quality, competitively priced shop cart is equally complex. I laud Analisa and Eric for putting their money and energy at risk in the untidy world of rolling carts and gunk removal. Business is messy and so is life. Good luck.

Question: Should the government pay for Americans to go to college?

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The Title Shot

By Noah Graff.

Rocky’s Title Shot with Apollo Creed

Many Super Bowl watchers are familiar with the Doritos Brand Global Crash the Super Bowl Ad Contest, a competition Frito-Lay has been running since the 2006-07 football season. This year, Doritos received 4,900 videos submitted from 29 countries made by independent filmmakers — not ad agencies — to compete to have their ad played during the Super Bowl and receive $1 million. A panel of judges consisting of Doritos executives, advertising experts, and actress Elizabeth Banks picked 10 finalists. Those finalists’ videos are online currently and will be voted on by Web viewers. Two videos will be shown during the Super Bowl, one the winner of the Web audience vote, whose creator will receive $1 million, and one other video chosen by the panel, whose creator will win $50,000.

I see this contest as a symbol of America’s romance with democratic opportunity, the idea that everyone should have their chance to reach their dream. The Doritos contest is like the World Heavy Weight Title shot that Apollo Creed gave Rocky Balboa. It’s the chance, to be broadcast on the most watched event of the year, win $1 million, and possibly break into an advertising career. It is the same theme as the barage of talent contest reality shows that saturate our TV schedule, such as Top Chef, American Idol, Americas’s Got Talent, and my favorite, So You Think You Can Dance. Their message is that if you have the talent and drive you should be given your dream title shot, regardless of where you were born, how much money you have, or who you know.

I’ve written before about my various YouTube series, such as Jew Complete Me, a reality dating show about my search to find the Jewish woman of my dreams, and my recent documentary, Saving Ferris, a film about the Chicago locations of Ferris Bueller’s Day Off. When it first debuted, I saw Jew Complete Me as my longshot chance to be discovered by a Hollywood executive who could give me a way into the professional mainstream TV industry. It wasn’t exactly a direct title shot, but it was my way of throwing my hat into the ring. Despite my videos receiving hundreds of thousands of views, I never became famous beyond the YouTube screen. So I chose to embrace the quality career options in front of me, journalism and the used machinery business. They weren’t my romantic dream jobs that I had fantasized about when I was 15 — at that age I had envisioned myself following in the footsteps of Quentin Tarantino. But it turned out that I liked both jobs and they grow on me every day. Nowadays, I fulfill my passion for filmmaking with projects like Saving Ferris. What’s nice is that I don’t have to make videos to eat. I get to make videos, and I only produce ones I feel like making. Do I ask myself what if I went a different route and tried harder to be a full-time filmmaker? Once in a while, but not that often like I used to. My main filmmaking ambition now is for my work to be seen and enjoyed by a lot of people.

My dad Lloyd Graff took his title shot when he tried out for the Chicago Cubs as a sidearm pitcher. He wrote a letter to the team and somehow convinced the Cubs to invite him to tryouts at Wrigley Field. As his story goes, he didn’t have his control that day.

Later, Lloyd was confronted with the choice of going into the relative security of the family machinery business or using his journalism master’s degree to take a shot at becoming the next Mike Royko. He chose the family business, and I’ve never once heard him say, “I wonder what would have happened if I had tried to get a job at the New York Times,” despite the fact that some of his fellow journalism classmates at University of Michigan did eventually become famous writers. But obviously, he never did give up his dream job of reaching thousands of people with his writing.

Question: What was your dream job when you were younger?

Noah Graff writes for Today’s Machining World and sells machines for Graff-Pinkert & Co.

Watch a clip of Apollo giving Rocky his shot

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Fittings Together Over 60 Years

By Lloyd Graff.

Company Owners left to right: Tricia Morris, Perry Wiltsie, Jeff Wiltsie, Jim Wiltsie Jr.

The latest statistics show confidence building steadily for small businesses while Wall Street staggers over plunging oil and copper prices. The oily bankers and hedge funds bet big on the frackers in West Texas and North Dakota, and some of those leveraged loans look as solid as Venezuelan bonds today.

But for most of the folks we deal with on a daily basis, business looks rosy. The Detroit Auto Show has its mojo back. Cobo Hall has the pizzazz of the Las Vegas Consumer Electronics Show held last week. It’s amazing what 17 million cars can do for American machining.

A family business we’ve known for four decades, Vanamatic Company of Delphos, Ohio, is celebrating 60 years in business. The Wiltsie family has figured out a way to manage 70 people, including nine family members, into a prospering continuing company. Through turbulent times, the challenges of changing technology and an evolution in attitudes about work, Vanamatic has made it work. Four siblings share the authority of leadership with three brothers holding the title of President. To an outsider it may seem like a model for managerial chaos, but when family members respect each other’s talents, it can work.

A family business that works is a beautiful thing. As we watch the daily malfunction of government amidst the contentiousness of hardball politics, a functional family business seems almost magical.

The funny thing is that in the competitive machining world it really does work surprisingly often.

In the small microcosm of Graff-Pinkert & Co. my brother Jim and I worked with our father Leonard for 25 years. We argued frequently about the direction and tactics of the business, but the relationships were respectful. After our father died, leaving me with a slightly larger ownership in the business, it became harder to maintain balance and satisfaction. Ultimately my brother and I could not maintain the joy and momentum, and I bought out his interest in the company. But we still stay in touch and sometimes we do deals together.

Now my son Noah and I work at the art of balancing family and business while keeping the father-son relationship a happy one. Noah’s buoyant attitude sops up my incipient pessimism, making the situation generally viable and fun. I thought I understood the ethos of a successful family business when my Dad, Jim and I worked together, but there is no magic to it. It takes enduring respect and a daily subjugation of ego.

At Vanamatic four members of the third generation currently work in the firm. They are preparing for long careers. Employees average 17 years with the company.

Congratulations to the Wiltsie family and Vanamatic for 60 years of success, finessing ornery 8-spindle Conomatic screw machines and modern CNC equipment to produce beautiful fittings, along with automotive and aerospace components. Mastering screw machining is no easy task, but integrating nine family members into the fabric of Vanamatic over three generations is truly the art of the family business.

Vanamatic launches their new Website today.

Question: Should a spouse or in-law work in a family business?

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Review of Henry Kissinger’s “World Order”

By Jerry Levine.

Henry Kissinger’s recently published World Order, is an extremely thoughtful meditation on international harmony and disorder. He validates the truism that wisdom comes with age. (He’s currently 91.) I doubt that he could have written this book at age 50.

Kissinger relies on his great knowledge of history and his years of foreign service experience. The book is peppered with subtle, yet diplomatic digs at Obama’s foreign policy. He faults Obama’s inconsistency towards both allies (such as Saudi Arabia and Israel) and enemies (Putin, Assad and Iran), as well as the U.S.’s recent alternating engagements and withdrawals (Libya, Iraq/Syria).

Kissinger notes that there never has been a true world order. Previous empires at their height of power defined the world in their own image — be it China, Rome, Europe or Islam, but they were not necessarily inclusive or collaborating with those they ruled.

In defining America’s view of itself as a world power, he begins by quoting Harry Truman on what made him most proud. “We totally defeated our enemies, then brought them back to the community of nations.” Truman wanted to be remembered not so much for America’s victories, but for its conciliations. All of Truman’s successors have followed some version of this narrative. We see ourselves as a “benevolent superpower,” even if we don’t always live up to our ideals.

Kissinger then discusses varieties of world orders, specifically the European Westphalian arrangement: a multiplicity of political units (some with contradictory politics) where none was powerful enough to defeat all the others. They checked each other’s ambitions through a general equilibrium of power. Later, as the U.S. entered this system, there was a shift from a strict balance of power to the “achievement of peace through the spread of democratic principles.” This system now encompasses many regions and cultures.

Yet there are challenges on all sides. The European Union itself is shifting from independent states to a pooled sovereignty, and not without some significant inter-state conflict. In the Middle East, jihadists from both sides of the Sunni-Shiite divide are dismantling states in quest of a “global revolution” based on their own fundamentalist versions of their religion. In Asia, conflicts are arising, reflecting historical claims and borders of individual countries

Meanwhile, America struggles to define its relationship between its power and principles. We have a strong urge to withdraw from a confusing world. Yet in business and economics, right now the world is coming together. Globalization is complex and messy, but progressing. However, in politics, the progress is slower. Forces of anarchy have grown with potential to do great harm. Today, much of the Islamic world (defined as the Middle East, Pakistan and Afghanistan) struggles between joining the world community and fighting against it.

Historically, Islam grew by conquest, beginning in 622 A.D. and continuing until about 1700 A.D. As Islam grew, the faithful believed that the religion, the government and the land were all to be Islamic forever. The joining of state and religion is the official doctrine of Iran and other Islamic states, and is the rallying cry of armed militias throughout the Middle East from Palestine to Afghanistan. Western states, on the other hand, have maintained a separation between “things that were Caesar’s and things that are God’s.”

Kissinger discusses the general failure of the Arab Spring and the Syrian Cataclysm as the inability to develop pluralistic institutions and leaders. Syria, in particular, has become a battleground between rival regional players manipulating militias. It is not about democratic government, but merely about prevailing or just surviving.

Most Moslem Palestinians see the doctrinal commitment never to give up territory to non-Moslems as a tenet of their faith. This makes a two-state solution with a Jewish entity an intractable proposition, and is why every time that firm proposals such as Clinton’s Camp David negotiations or Olmert’s 2008 offer become formalized, the Palestinians reject them. It’s worse than politics, it’s religion.

In his conclusion Kissinger warns that, “In an era of suicide terrorism and proliferating weapons of mass destruction, pan-regional sectarian wars must be deemed a threat to world stability, warranting cooperative effort by all responsible powers.” “The affirmation of America’s exceptional nature must be sustained. America, the modern world’s articulation of the human quest for freedom, and the geopolitical force for the vindication of humane values, must retain its sense of direction.” It is obvious that Kissinger worries about our future.

Question: Do you agree with Obama’s withdrawal from Iraq and Afghanistan?


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How Much Are You Worth?

By Noah Graff.

There is a famous quote in the Talmud, the revered Jewish commentary, “Whoever saves a life, it is considered as if he saved an entire world.”

Our society puts a great value on human life, but the life preserving business is a complicated expensive challenge for patients, doctors, insurance companies and governments.

I want to share with you some fascinating insights on this topic brought up in a podcast of NPR’s show Radiolab.

Sovaldi (Sofosbuvir) is a drug for treating Hepatitis C that was released in December of 2013. In the U.S. it costs $1,000 per pill, which you take once a day. To cure the disease it costs about $84,000 over 12 weeks. It costs significantly less in other countries where governments regularly negotiate discounts with drug companies. In the first half of 2014, Gilead Sciences Inc., the company that owns Sovaldi, reported $5.8 billion in sales for the U.S. and Europe.

One thousand dollars a day is a ton of money, but unlike many expensive drugs, which often just attempt to prolong life, Sovaldi actually cures people and has a 95% success rate. Gilead argues that the steep $84,000 cost is justified because the treatment usually saves the patient’s life, and when the treatment ends he or she is no longer a burden to society. The company also justifies the high price based on the R&D cost such a powerful drug requires to develop.

The drug expense debate becomes more complicated with drugs that cannot be classified as a cure. For instance, Zaltrap is a cancer drug that costs $11,000 per month, and when the results are averaged out among patients it adds 42 days to a person’s life. It can prolong someone’s life three days or grant a person several more years.

How much money should 42 more days of life be worth? Eventually, the health care system, be it private or public, will not be able to support the number of sick people who have been promised whatever means necessary to preserve life. So where do you finally draw the line and say a person has already received the share of care they are entitled to in order to live longer? Many countries around the world have openly debated this question, but the discussion has remained fairly low key in the U.S. because when it was brought up a few years ago while Obamacare was conceived, Americans began ranting about “Death Panels.”

Believe it or not, the World Health Organization has an equation for this value. It recommends that for one additional year of a person’s life, countries should spend 1 to 3 times per capita income. With this standard, one more year of life for a U.S. citizen should be worth $50,000 to $150,000.

In the NPR story, a reporter asked people in Times Square what they believed was the right amount for society to pay for one more year of a person’s life. She was surprised that most people didn’t freak out or get angry at her. The responses ranged from under $1000 to $10 million. People often asked her questions such as, “What would the quality of life be?” “Would the person be emotionally happy during the year?” “Would other people also be trying to get the money at the same time?”

Listen to the Radiolab podcast here.

Question: How much money do you think one more year of your life should be worth?

Noah Graff writes for Today’s Machining World and sells machines for Graff-Pinkert & Co.

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This American Dollar

By Lloyd Graff.

Falling Canadian Loonie

For those of us who live in the United States, shop on Amazon and eat French fries at McDonalds, the world feels pretty flat. But the world economy is trembling underneath us every day.

Ten years of pouring sand and water into fracking wells in Williston, North Dakota, and what were once thought to be played out Texas oilfields where they played football on Friday Night Lights has changed our world by bringing back $2 gasoline.

Ben Bernanke’s contrarian approach at the Federal Reserve stabilized a busted banking system and helped rejuvenate the emaciated American economy, which easily could have gone the other way into Depression.

Now in 2015, we have a timid fearful Europe with pathetic neo-fascist parties vying for power, a good chance England will exit the European Union in 2017, and Japan becoming a country of old people. America shares the stage with China as the world’s superpowers. But who would want to live in China where kids go to school with smog masks?

So it is not shocking that money is gravitating to the U.S. and propelling the U.S. dollar to levels not seen in a decade.

In 2012, 82 yen could buy a dollar. Today it takes 119. Last year, a euro was worth $1.35. Today, it is $1.19. The Canadian dollar was worth more than the American dollar last year, but today it is worth 85 cents. But the weird thing is that the changes have come so quickly that other than for gasoline, we do not easily see the shifts. Good Italian olive oil will cost you more than it did six months ago, while airline fares are sticking at last year’s rates. Car prices are not budging even though the yen has devalued by one third in two years.

What’s going on is not really a conspiracy of sellers, but people playing for time while enjoying a price cushion which feels both unbelievable and fleeting.

One of these days, Costco or Amazon will puncture the bubble of the suppliers and sell sneakers for $10 a pair. Nucor or another minimill will hack 40% off a price quote on sheet steel to Ford. Then the war will be on. Inflation, don’t make me laugh. Price wars will be rampant. We might see 99 cent gas as a loss leader.

I’ve been talking to many smart people in the machinery and machining business lately about pricing. People seem to have an underlying sense of disquiet but seem happy to loll with the status quo for as long as it lasts.

Folks, I hope it lasts through 2015, but frankly I do not think it will. The dike will show holes and we will not have enough fingers to plug them. The Japanese have made the first big move by shrinking the yen. The 20 years of malaise plus Fukashima five years ago have pushed them to take actions that a few years ago would have seemed radical. Fanuc, with its production without people, would seem like a company that could cut prices in half if it was inclined. It has a powerful market position and makes a ton of money, but what if the company decided to go for a virtual monopoly in machine tool controls by killing the price or adding features without raising prices? What would Siemens do to combat Fanuc’s market hegemony?

We could see a price war among Japanese machine tool builders, which could challenge Haas and Chinese builders. We have not seen this yet, but customers and distributors may eventually force a showdown. The situation is complicated because production is spread all over the world. A lot of “Japanese” machines are made in China. Japanese car companies have factories across America and Mexico, but the yen devaluation is eventually going to upset the status quo.

IMTS could have been the first salvo in price reductions, but it did not happen. There is social pressure to keep the lid on pricing, but I can imagine Gene Haas looking at a 100 machine order from a General Electric for vertical machining centers and Japanese and European builders eying the same order. The purchasing lady at GE wants to make a career move and low-balls an offer.

Game on. It could be an exciting year in the trenches.

Question: Do you prefer a strong American dollar or weak one?

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Our Predictions for 2015

By Lloyd Graff.

I’ve spent a lot of time listening to pundits blab their predictions as I’ve been recovering from knee surgery in December.

Today I’m ready to blab my own.

1) 2015 will be a very nice car year, but a terrific truck year in America. Gas prices will probably fluctuate between $2 and $2.50. There are a lot of small businesses that have dilapidated vehicles begging for replacement. The depreciation law makes a $25,000 pickup a no-brainer for a landscaper or plumber driving a beater that poorly represents his or her business. Look for light trucks to be up 25%. Big trucks should also have a solid increase.

2) The homebuilders should have a big year in 2015 – except they won’t. Family formation is sluggish. The Millennials keep postponing marriage and kids. School debt is a huge damper on house buying. The suburbs have lost their charm for couples in their twenties and thirties, and condominiums in the big cities are crazy expensive. Renting makes more sense. High rise apartments will sprout up, but single family homes will continue to suffer. Home prices in the burbs will go down in value.

3) Dark horse candidates will emerge for the Presidency in 2016. Favorites like Hillary Clinton and Jeb Bush will start to look way too 1996 to excite primary voters. A fresh face, maybe a business guy from Silicon Valley or a mayor from Pittsburgh who is relatively clean politically and has a compelling biography, will come out of nowhere to capture the public’s imagination.

4) Somebody may die on the field in an NFL game, causing Roger Goodell to quit his job. Network ratings of NFL football then begin to fall, and beer companies will start channeling some ad money to soccer and hockey.

5) It will be a buyer’s market for bar stock. The world wide surplus of steel capacity will push down prices faster than expected. Scrap prices will plummet. It will make sense to buy metal on the spot market, and hedging on raw materials will get more common.

6) Wages will finally start to go up, even for the bottom tier of workers. Even Wal-Mart will be forced to pay higher wages because the quality of low-end workers will be so poor it will cost them enormously in lost sales because their workers turn off customers.

May you all enjoy a happy healthy 2015 and share your comments with TMW throughout the year.

Question 1: Will many states increase the gas tax this coming year?

Question 2: What are you hoping for in 2015?

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War on Terror History

By Noah Graff.

Delta Force Tryouts, day after physical selection. Haney in middle of first row.

While the U.S. government has been interrogating the CIA this week for the organization’s own controversial interrogation practices on suspected terrorists, I reflect on how our country’s perspective on terrorism has morphed over the last 13 years since September 11, 2001. The “War on Terror” is a term that many Americans have grown numb to as we encounter it on such a regular basis, whether it be in the real news or watching our favorite primetime shows. But of course, the United States has been officially at war with terrorism for decades, and the evolution of this war has been complicated and fascinating.

I just finished listening to Inside Delta Force by Eric Haney. Haney was an original founding member of Delta Force in 1978, the first U.S. Special Forces unit specifically devoted to international terrorism conflicts. Although today Delta Force isn’t a truly secret unit, as it was when it was first formed, it has managed to stay out of the limelight, aside from the 1980s Chuck Norris movies. The Pentagon refuses to comment publicly on Delta Force’s highly secretive activities, and Delta operators almost always wear street clothes, and have civilian hairstyles and facial hair to remain undercover.

I am wowed by the sophistication of Delta Force verses the traditional military forces that preceded it. In 1977, Colonel Charles Beckwith created Delta Force because he saw a need for an elite Special Forces unit that specialized in fighting international terrorism. He sought to create a unit resembling the British Special Air Service (SAS), in which he had served as an exchange officer in 1962. There had never been a U.S. Special Force like it up until then, but Beckwith convinced the U.S. army of his correct prediction, that terrorism would be huge threat around the world in the not so distant future.

In the first tryouts for Delta Force, only Eric Haney and 11 other men were accepted out of 163 other elite soldiers invited to Fort Bragg from around the world. That 7% acceptance rate was the highest ever for Delta Force tryouts.

The tryout process put the soldiers through the wringer both physically and psychologically. It finally culminated in a 40 mile solo course, which took the soldiers off main paths and roads with minuscule navigation assistance. No soldier was allowed to help a comrade in any of the tryout challenges. The Army has almost always relied upon structured orders and working in teams, but the Delta tryouts are designed to test soldiers’ abilities to work autonomously, without plans set up ahead of time by superior officers. One of the unique characteristics of Delta Force versus other military forces is that the small teams of operators participating in a mission are the ones who plan the mission. This enables Delta Force operators to plan missions in which they believe they can succeed. According to Haney, the Delta Force operator is still the only fighter who can be sent out alone or in small teams in extremely difficult conditions with limited or no guidance. (This version of the book was published in 2005)

In training the Delta Force operators, Colonel Beckwith’s philosophy also broke with Army tradition by utilizing experts from resources outside the Army. For instance, it used CIA field agents to instruct on trade craft (espionage) in hostile territories, the Secret Service for its expertise on sniping, and even consulted incarcerated expert thieves to teach soldiers such techniques as lock-picking and hot-wiring cars.

One of the specialties of Delta Force is hijacked airplane rescues, so its operators consult commercial airlines to study every model of aircraft available. Interestingly, Haney recounted that Delta Airlines was always the most cooperative and helpful airline during his time in Delta Force.

In the book, Haney describes some of his successful missions and disastrous ones, such as the attempted Iran hostage rescue. When Delta Force is not tasked with rescues or espionage, its operators are often used to protect American embassies in the most dangerous locations or to train foreign armies when it suits American interests. Haney did much of his service in the 1980s in hot zones such as Beirut and Latin American countries. In the book, he sometimes questions the motives of some of his missions in Latin America, where Delta’s purpose was to aid despotic regimes to squelch revolutionary guerrillas.

Politics and wars will always be messy. Despite our powerful media, U.S. citizens still don’t know what’s really going on behind the scenes — for better or worse. But at least we can feel confident that we have some of the most talented trained people defending us.


Does torture bother you?

Are we winning the War on Terror?

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Surgically Repaired

By Lloyd Graff.

A Stryker brand knee replacement

I’m writing this column one week after a full knee replacement. The surgeon used a Stryker knee. Some of you may have made parts that are now in my right knee. Thank you. The recovery is going ok, I guess. I’m taking the narcotic Oxycontin twice a day, and I am not used to its side effects which make me dopey, mess up my vulnerable vision, and perhaps give me slight hallucinations. The pain is tolerable, but I am annoyed by my struggle to concentrate. Everybody tells me that the recovery gets easier after the first week, and I feel good that I have written this blog. I will keep you informed as I go along with my recovery.


My son-in-law Scott lives in Palo Alto, California, working at at Google about 12 miles from his home. He is looking to replace his 13-year-old BMW 330i, which is now too small for a family with three kids and a lot of carpools. He asked me recently what I thought he should buy. I stammered a bit and then mentioned the upscale Toyota Camry XLE because it was the car I was most familiar with.

Scott has toyed with the idea of the Tesla Model S, which we looked at together at the Palo Alto showroom and took for a test drive.

We both loved the ride and coolness, but Scott never went any further on it. I think it’s a value question for Scott. If he keeps the car 10 years, which is his pattern, the car will probably have little value eventually because it will be needing a new battery pack.

So I’m throwing it out to you folks. The family already has a Honda van for the family trips and the school carpools. Scott likes the responsiveness of the BMW and is comfortable with tight steering wheel action. I don’t think a pickup truck is the right choice for the carpool life, but I will leave it open to your suggestions.


My Chicago Cubs beat out the San Francisco Giants and Boston Red Sox last night to sign ace pitcher (and cancer surviver) Jon Lester for $155 million over 6 years and a signing bonus of at least $20 million. It is the most expensive signing for a free agent pitcher ever. My question is how valuable over the course of a season is a #1 starter? There are very few true #1 starters in the Majors. Max Scherzer of Detroit, Los Angeles Dodgers’ Clayton Kershaw (30.7 million over 7 years), Madison Bumgarner of the Giants, and Felix Hernandez of the Seattle Mariners are the first to come to mind. On paper they do not calculate as fair value for $30 million a year for six or seven years, because you know their production will decrease over the full span of the contract. But evidently, some smart people in baseball think that wins per dollar of investment are the incorrect way to figure an ace’s value. They believe the feeling of invincibility an ace brings to a team lifts the abilities of the other players, so he is worth more than just his numbers. He may also enable a team to recruit other top players.

You could argue that teams without an ace starter normally do not win a pennant or World Series, but consider the 2014 Kansas City Royals model of having average starters but a super bullpen. Maybe this is the new baseball model and decreases the need for an ace. Although many people would say that the Giants prevailed in 2014 because of their invincible #1 starter and World Series MVP Madison Bumgarner.

In today’s new “dead ball” era of fewer home runs, the big money may not go to hitters. The Kansas City versus San Francisco World Series may usher in a new era of both mega rich ace starters and teams stockpiling power arms for super bullpens. The Yankees’ current signing of Andrew Miller as a left-handed bullet out of the bullpen may be an indication of this trend.

What do you baseball fans think? Does it make sense to overpay for a really top starter, considering all the bad things that can happen to a pitcher’s arm over six years?


What are your experiences with knee replacements?

Does it make sense to pay a starting pitcher $30 million a year for 6 years?

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Predictably Irrational

By Noah Graff.

Pepsi Challenge

I just finished listening to a great book called Predictably Irrational, by the acclaimed professor of behavioral economics, Dan Ariely. As I listened, I kept thinking of the irrational factors we deal with every day in the machine tool business.

Ariely says that standard economics assumes people are rational, thus they can make logical and sensible decisions, and quickly learn from past poor decisions either on their own or with the help of standard market forces.

However, his research has shown that people are much less rational than we assume. He says that people make the same mistakes over and over because of how our brains are wired, so we need to look at economics based on how people actually behave rather than how we think they should behave.

One concept Ariely discusses he calls “anchoring.” This often relates to prices as well as other benchmarks people encounter in business. Anchoring refers to how people’s minds set a standard based on the first figure they hear. For instance, if I’m selling a used machine and the first price I quote a customer is $100,000, that figure will guide the customer to believe that anything higher than that price is too expensive. That’s assuming the customer hasn’t been quoted a different price on that machine previously. If so, he will be anchored to that price instead. For an Acme-Gridley that is 40 years old, it is difficult to objectively assign a value based on market factors, so the experience of receiving a starting price can have a strong impact on the brain. At Graff-Pinkert one of our greatest struggles is figuring out the “right” value to put on a machine. In the end, the right price is when the customer’s irrational brain is in sync with our own irrational ones.

It works the same when quoting a cycle time to a customer. If the first figure we estimate for a customer is 15 seconds, any cycle time significantly higher than that will likely seem to him unacceptable. There may be plenty of logic and calculations which show that the 15 second cycle time first quoted was a ridiculous estimate, but after 15 seconds was mentioned, good luck pleasing the customer with a 25 second cycle time.

Restaurant owners have found that raising the prices of items on a menu can significantly increase revenue. People may want to stay away from the filet mignon that costs $60, so they settle on the prime rib, the second highest price on the menu for $50, which they are made to feel is a better value. If the restaurant owner is clever he could make the second most expensive item the one with the highest profit margin.

Another concept the book covers is how expectations will cause one item to seem superior to another. Ariely conducted an experiment in which for several days he served MIT students cups of coffee from a makeshift cafe. He served the students coffee in plain styrofoam cups and offered condiments like sugar and cream in simple containers sometimes made to look extra shabby by labeling them with felt tipped pens and cutting off their edges. The students then filled out surveys rating their satisfaction with the coffee. Other days the condiments were put out in fancy glass and metal containers on nice trays with silver spoons. When the condiments were served with the better presentation, the students rated the coffee better quality. Upscale presentation made them believe the they were drinking upscale coffee. When you walk into a shop or an office of a customer, does cleanliness and nice presentation give you more confidence in the quality of the products? Do clean machines actually produce more accurate parts? Maybe not, but I’ll admit there is a distinct positive feeling I get when I walk into a shop where we dealers say “you can lick the floor.”

To further study the effects of expectations, Ariely revisited the famous “Pepsi Challenge.” I’m sure you all remember when Pepsi conducted blind taste tests against Coke, from which they claimed their drink was preferred. Coke also conducted their own taste tests from which they claimed their drink was preferred. What is interesting is how the companies differed in their taste test procedures. For Pepsi’s taste test, the participants were supposedly blindfolded. While in Coke’s test, the subjects could see which beverage they were drinking.

Some neuroscientists conducted an experiment in which participants tasted the two soft drinks while using an MRI to test how the drinks stimulated the brain. By the way, it’s pretty difficult to drink while lying in an MRI tube. The scientists had to inject beverages into tubes running into the participants’ mouths. The participants were told before each gulp whether Pepsi, Coke, or an unknown drink was coming. The neuroscientists found that when the name of the drink was told to participants it stimulated the part of the brain known as the ventromedial prefrontal cortex (vmPFC), which is associated with strong feelings of emotional connection. Another part of the brain called the dorsolateral prefrontal cortex (dLPFC) was also triggered when the participant knew the brand of drink. This region can produce dopamine and activate the brain’s pleasure center. Both beverages had this effect, but significantly more participants drinking Coke stimulated the dLPFC, which produced dopamine, than those drinking Pepsi because more people had fond memories drinking Coke. Who knew — great branding actually has the power to stimulate people’s brain chemistry. Personally, drinking Pepsi is a last resort for me — blind taste test or not. Coke is delicious, and I think I’d prefer to drink water over Pepsi.

Will parts produced from your company produce more dopamine in your customers’ brains than those made by your competitors? You better have some good branding like Coke.


Coke or Pepsi?

Does it bother you to pay $5 for a drink at Starbucks?

Read the interview Noah Graff did with Dan Ariely in 2009 here.

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