BUSINESS FORUM: Business building blocks have changed

t took me several years to build a profitable business selling imported lighting products on eBay and Amazon. The business is getting more competitive and these sites are imposing increasingly tighter control over me. I am seriously considering moving on to start a new business. Any suggestions?

May 14th, 2012
Milton Chang
Milton Chang

Q:It took me several years to build a profitable business selling imported lighting products on eBay and Amazon. The business is getting more competitive and these sites are imposing increasingly tighter control over me. I am seriously considering moving on to start a new business. Any suggestions?

A: Don’t give up so easily. If you insist on starting a new business, do so only after thorough due diligence. There is no hassle-free business. As the saying goes, “The grass is greener on the other side until you get there.” There will certainly be unanticipated issues in any new business.

Based on my experience, getting started is usually the most difficult phase. Explore options, by all means, but also think of ways to overcome the issues you are facing and find ways to improve and grow the current business. For example, you can increase revenues and diminish your dependence on your current distribution channel by encouraging direct purchase. You can ping your existing customers to increase traffic to your site and make it easy to order from you directly. What you will find is that incremental sales can significantly improve your profit margin because you will be making more effective use of the infrastructure you have put in place.

Q:Why aren't there more corporate VCs funding companies these days?

A: This source has lost its luster to corporations and entrepreneurs seeking funding. My impression is that corporate VCs have not done very well in meeting their objectives. It is a corporate function set up to fail.

Most corporate investors want to get an attractive return on their investment as well as a window into the marketplace for their company. In theory, this is also a good way for an entrepreneur to get an industry insider on his or her side. But these funds are invariably not structured for any of these objectives to be achieved. They do not have billion-dollar capital to enable them to go after high-risk/high-reward ventures that require brute force to succeed; neither do they have the patience to invest in rational businesses that grow over time. After all, their fund managers are measured and incentivized by the returns they get. And in terms of intangible benefits for both sides, there is usually a built-in barrier of mistrust to prevent information flow.

A company can generate profits by properly managing its business, but it would require an extra effort outside of business routines to get a window into technology. It would make more sense for us to encourage and facilitate direct interaction between photonics companies and the technical community, such as by supporting technical societies and sponsoring academic research.

Q:You recommended regular reading of several business magazines and newspapers. Which one would you recommend if I were to read only one? I am an engineer aspiring to start my own business someday.

A: I recommend reading Fortune, Businessweek (now Bloomberg Businessweek), Forbes, and the Wall Street Journal (WSJ) in my book. If you insist on reading only one magazine, then my suggestion is Forbes because it runs more stories on how successful entrepreneurs start their businesses and how these individuals overcome their mistakes along the way. I feel strongly it is essential that you read all of them because each one has a different emphasis. For example, you would want to read WSJ to develop an intuition on how the market reacts to what companies do because you will be able to correlate Wall Street reactions to events.

It is beneficial for you to read business material extensively and attend lectures and classes. Business is highly unpredictable; entrepreneurs have to be broadly knowledgeable in order to deal effectively with whatever comes their way.

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MILTON CHANG of Incubic Management was president of Newport and New Focus. He is currently director of Precision Photonics, mBio, and Aurrion; a trustee of Caltech; a member of the SEC Advisory Committee on Small and Emerging Companies; and serves on advisory boards and mentors entrepreneurs. Chang is a Fellow of IEEE, OSA, and LIA. Direct your business, management, and career questions to him at miltonchang@incubic.com, and check out his book Toward Entrepreneurship at www.miltonchang.com.

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