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Starting A Busienss Without Jeopardizing Your Financial Security
July 2012
www.miltonchang.com
Entrepreneurship enable each of us to reach our full productivity potential to benefit humanity
Companies I Started/Incubated
1971Newport (Research Equipment, IPO), Uniphase (OEM lasers, IPO and later JDSU), Cyonics (OEM argon lasers, a sister company of Uniphase), CyberOptics (robotic vision systems, IPO), Questek (excimer lasers, acquired), Laser Power Optics (infrared optical components, IPO), and Lightwave Electronics (argon lasers, acquired). Euphonix (audio mixing systems, IPO), Iridex (laser ophthalmic systems, IPO), and Gadzoox (storage area networks, IPO), New Focus (laser equipment, IPO).
2000 Incubic Ventures…invested in about 12 companies… NowPrecision Photonics (optics), mBio (Medical diagnostic), Greystripe (Mobile Advertising), Aurrion (Silicon photonics)…
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What I’ve Learned from the HBS and
The “School Of Hard Knocks”!
Every person could benefit from knowing something about business and management – to provides a context to make better everyday decisions and also an add to career options
The Book Offers Practical Insight On All Aspects Of Starting And Running A business
Addressing two topics of interest today
The process of starting a business
Prepare for entrepreneurship and gain access to opportunity
Use Capital To Create Value Efficiently Is A Necessary Condition For A Business To Succeed
Entrepreneurship is by definition “To create value in an economy by moving resources out of areas of low productivity into areas of high productivity and greater yield.”
Starting Company The Usual Way
“Go for it!” Come up with a big idea, raise venture capital, and gain first-mover advantage to get rich and famous.
1000 ideas 100 business plans10 funded, <5 success, maybe one big win
The outcome is binary. This approach can provide a handsome average return for an investor who has a portfolio of companies. It is enormously risky for entrepreneurs
A hot idea implies you are likely to be in the midst of a crowd.
The goal is to build out the business quickly to gain first-mover advantage for a big win. Capital efficiency is often ignored
Big spending begins before the business model is validated and market potential verified
Haste makes waste. Mistakes are costly.
The business can succeed if everything worked out as planned
Haste-makes-waste, mistakes are costly and unavoidable.
Why Is The Conventional Approach Risky?
Big Bets for Big Rewards
• Google ($50M), Groupon ($135M), Facebook (>$390M)
• Segway ($150M), Soyndra (1.5 Billion)
• In contrast, the two companies I took public: Newport $150K, New Focus $2M,
A Practical Approach That Works Even For A
First-Time Entrepreneur
Start a niche business in an area where you are an expert and an industry insider
The ability to serve a finite set of customers really well can provide a strong barrier against competition
Scale the business and make a major bet only after you are satisfied with a “business prototype”
Execute! Fine tune your operational and develop a strong organization to achieve efficiency
Grow the business logically based on customer needs and strategically capitalizing on your strengths
What Is Prototyping A Business?
Do what is necessary to verifying the assumptions why the business could succeed
Could be as rudimentary as having a product prototype to get meaningful feedback from opinion leaders
Getting opinion-leading customers to commit to placing a few firm orders
Having shipped products to a few respected leading customers
Start In Your Own Niche Is Capital Efficient & Is Low Risk
The insight of an industry insider enables you to avoid major mistakes
Focusing on a niche market and a few customer make it less likely to attract competition
Low capital required makes it easier to raise funds
You can manage with common sense and gain management acumen as you go
You are in the game when you have an established business.
You’ll get product ideas from the marketplace, and can raise money at an attractive valuation when rapid expansion is justifiable
Very few businesses are suitable for the build-out-rapidly approach, at least not until the business potential is fully validated by a prototype business. Most businesses can be successful using the build-over-time model.
What About First-Mover Advantage?
Headline: Johnson & Johnson dropped out of the stent business! (Even though the company was leading in the early days)
Taking a systematic approach does not necessarily slows you down
Instead:
Learn from early adopter, and avoid “pioneer gets arrows in the back.”
Implement IP strategy to prevent being shut out of the market
Acquisition Is A Likely Exit Scenario
IPO presents a high hurdle An early acquisition is likely to produce the highest ROI for all involved
It is capital efficient to incubate an idea in a startup company
It is capital efficient to scale the business in an established company
It is less dilutive to the founders
Focus on building a standalone company because acquisition is not within your control.; acquisition will occur only when you have addressed all the issues an acquiring company wants resolved.
Take Home Messages
A business must use its resources to create value efficiently, and to provide an attractive return to its investors and stakeholders
Start in an industry you really know and understand
Be well prepared before you start: understand the marketplace, develop a viable business model, write a thorough business plan, garner adequate resources, and execute.
First prove out the business concept with a “business prototype”
Open to an early acquisition to optimize the outcome
Prepare For Entrepreneurship
#1 requirement: Be really good at what you do Become an expert to compete for opportunities (Generalists can be entertaining, but cannot compete). Your job is a training ground for entrepreneurship Take on project management responsibilities Take an interest in business and management Strive to be successful on the job to learn what it takes to succeed and build a great professional reputation Participate in professional societies and reach out into the community
A Few Personal Advice
Never stop learning
Know your strengths and weaknesses. Self-awareness is a life-long learning process
Be proud but never arrogant
Reciprocity is the basis of relationship: Give to get
You Can Do It!
We all have dreams;
Develop a dream into a goal,
Strive to make that goal a reality
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Available at www.miltonchang.com
You Have My Best wishes!
Milton ChangIncubic Management LLC
www.miltonchang.com
