How can I expand into the commercial sector?

Milton Chang

Q Any advice on how to significantly expand a stable business that develops custom lasers for government applications? We want to tackle the commercial market by leveraging the strength of our technical team and our IP portfolio.

A If growth is what you are looking for, the best approach is usually to do more for your current customers and to get additional customers with similar needs. Because your customers are mostly defense contractors, you can subcontract a greater portion of their systems to include more optical, mechanical, and electronics subsystems. Similar customers could include additional aerospace companies or big industrial partners. On the other hand, if you think the grass is greener on the commercial side, then that’s where you’ll end up going. Your desire to grow is what’s going to get you growth, and there is more than one way to achieve your objective.

The underlying consideration to keep in mind is capital efficiency, or, to be more encompassing, resource efficiency. That is, how do you get the most growth by deploying your core competencies with minimal additional financial investment? Any additional investment you have to make would lower that efficiency. Depending on what you mean by “commercial,” the likelihood is you will have to make substantial investments in changing the makeup of your engineering staff and also the culture of the entire organization. To induce the least pain on the organization, you can consider leaving your current business alone and starting with a clean slate to build a separate commercial arm to do it right.

My company is not going anywhere and cash is running low. Everyone is recommending that I get a new CEO. Anyone you care to recommend?

Q Good CEOs are hard to come by, because capable executives of any kind are in short supply and everyone is looking for that magic man or woman. The issue you face is that you are recruiting at a time when the opportunity appears high risk and low yield in comparison to other “hot” opportunities. You may wind up settling for a second- or third-tier executive who is likely to do more harm than good. In my opinion, the most critical job of a CEO is to set the strategic direction. What you really need is an experienced businessperson who is strategic and is motivated to help you make some tough decisions about the direction of the company and who will spend money on hiring good operations people. Once the company is on solid footing, you’ll be able to put together a better story to attract that super human person envisioned to lead the charge.

How do I deal with my very wealthy angel investor who has invested over $4 million in the last five years but recently is only willing to write $50,000 checks to help pay the bills instead of making any long-term commitment. We have developed a number of very exciting technologies but have only made minimal sales.

A Your investor is probably having a hard time facing the reality that this is not working, and it is easier for him to write small checks rather than big ones to postpone the day of reckoning that he has made a bad investment.

How can it go on like this? You are doomed to fail. Without a clear definition of financial support, you cannot pursue any meaningful long-term strategy and you cannot attract quality people. Unless this investor is willing to make a substantial commitment, I cannot even see how you and your team can justify not pursuing more productive careers elsewhere. Your case is a painful reminder to people raising money to look for investors who can help you succeed rather than investors who are willing to give you easy money.

MILTON CHANG is managing director of Incubic, a venture fund dedicated to helping entrepreneurs build great companies. He was president/CEO of Newport and New Focus, and is currently on the boards of Arcturus Bioscience, OEpic, OpVista, Rockwell Scientific, and YesVideo. Send your questions on career matters, starting and running your own high-tech business, or manufacturing and operations to [email protected] Visit www.incubic.com for other articles he’s written.