Can three people grow a business?

July 1, 2003
We produce a very good laser but are now down to only three people. What can we do to grow the business?
1304qa Chang New

Q: We produce a very good laser but are now down to only three people. What can we do to grow the business?

A: Most likely you are at subcritical mass as a stand-alone company. Merging your company with an established laser company could be a solution, but selling a business is easier said than done. Laser companies, like most established companies, tend to acquire firms for revenue, which you don't have much to offer. Also, keep in mind that businesses are bought, not sold. That is, the process is beyond your control. Generally, buyers take their sweet time unless several companies are competing to buy you, and it is easy to neglect building the business while selling the company. You should certainly pursue that option, but that should not be your main focus.

What I would suggest instead is to use your expertise to transform the company into a service company. That is, instead of selling lasers, sell your laser and optics product-development skills to help established companies develop and build laser application systems. Another way to look at it is to job shop to develop products for companies that have the marketing expertise but not your level of sophistication in laser product development. Please let me know how this idea works for you.

Q: Now that telecom business has hit the wall, companies are repositioning themselves to pursue nontelecom laser businesses. Is that a good direction to look for start-up opportunities?

A: Many optical telecom start-up companies still have money in the bank but the business has evaporated. So, the reasoning here is to use what has been built—people and capability—to get into another viable business and at the same time keep the company together and ready to ramp up when the telecom market recovers. This could work, assuming one can come up with a good business idea quickly and there are enough good people to execute more than one business. A more skeptical view is you have industry outsiders looking in but are only half-committed to compete with industry insiders who are really committed and entrenched.

Getting investors to invest in a new business is a different story. There you must have the rigor to pick ONE business and be 110% committed to it. I cannot help but think back to the state of the laser/optics/photonics industry pre-bubble. Our industry historically consisted of mostly niche companies. Aside from a few success stories, most companies are struggling specialty businesses, started by people with a special know-how who have to cope with technology obsolescence that could come quickly. The result is we have not had much success in getting the financial community interested, and most companies are self-financed or financed by wishful angels. Moving forward, the environment will be better because technology is more mature and therefore obsolescence is likely to be less drastic, the world is more willing to try new technologies, and our industry now has more business experience and investor familiarity. Counteracting that is the fact that venture-capital investors are going to be more rigorous in picking their bets, having been burned by "optics." We have too many self-proclaimed entrepreneurs muddling up the scene, thinking the real world of starting and managing businesses is what occurred during the bubble.

What is likely to happen in the start-up scene? One can get funded if one has a sound business model and an excellent management team that can stand up to scrutiny. A sound business model is more than just a breakthrough technology; it's one that serves real needs AND the investment capital required to get to cash-flow breakeven is consistent with the return-on-investment (ROI) that investors need to justify taking the risk. As a word of encouragement, the key words here are "self-consistency" and "be realistic." I personally think investing in small businesses that are sure bets is going to produce better returns than betting on big wild-goose chases.

About the Author

Milton Chang

MILTON CHANG of Incubic Management was president of Newport and New Focus. He is currently director of mBio Diagnostics 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 [email protected], and check out his book Toward Entrepreneurship at www.miltonchang.com.

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