Your idea will work if you focus your energy, respect your competitors, and make a commitment to achieve your goal.
Milton Chang
Your mind is made up--you're going to start your own company. But making the move is tough. You wonder if you have an idea that's going to work. How do you decide what kind of business to start?
Fortunately your decisions aren't cast in stone; once you've built a stable business, you'll have options and find new opportunities. Even so, you can minimize risk by doing a lot of soul searching and thinking at the beginning. This installment of Business Engineering offers a winning formula for making good decisions and a capsule look at several individuals whose companies have become successful in their own right.
Small companies enjoy some other inherent advantages: they can be flexible, fast moving, and relationship-oriented. If your business concept exploits these advantages, you'll probably find it easier to succeed in the early stages. Large companies, because of their size and overhead, find it hard to compete effectively in selling products that require a high degree of customization or customer support.
Each company must differentiate itself in some way. Companies that muddle around in the middle generally will fail because they're subject to attack from both sides. Take the restaurant business, for example. In good times, most restaurants do well. In bad times, fancy restaurants (selling a place to feel good) are jam-packed, and cheap restaurants (selling food) are jam-packed, but middle-of-the-road restaurants are shutting down.
The same applies to any business. Small companies usually have to specialize--manufacture fewer products, serve a limited range of customers so well that no one can take them away, then expand from that base.
At New Focus, our differentiation is captured in the motto "Simply Better Photonics Tools." When we started the company in 1990, we were competing against several well-established companies. Since we didn't have enough capital to build a broad range of products, we had to differentiate everything we sold, or else people would have had no reason to switch.
We decided to focus on customers who required mechanical stability and to forego those who didn't. As a result, our sales were quite small in the first year. But the emphasis on clever engineering allowed us to serve a small group of customers that particularly cared about performance. As it turned out, these customers were opinion leaders who helped us get the word around.
If you can build something better, somebody else can probably build it better still. If you build something cheaper, your competitors can usually lower the price. Their prices aren't always directly related to their costs. They can always say, "Let's not burden this product with that cost, let's assign that cost somewhere else." People already in the business will react when you threaten their market share.
Beware of ideas that are self-limiting. For example, I've heard people say, "My costs are low because I'll have a simple operation. I don't have all that high overhead." They may very well find they'll have the same disadvantage as their business grows. Have the utmost respect for your competitors.
People often overestimate the importance of a patent, a specific technology, or a contract. Certainly these factors can be important, but often they're insufficient drivers for success. What about manufacturing capability, distribution channels, and customer recognition? If these other drivers loom large or if your idea requires substantial investment, you may do well by structuring your business to team with a company that has already invested in the right kind of business infrastructure.
More than 25 years ago, I talked about the idea of driving over a trench to change the oil in a car instead of having the car lifted. What did I do with that idea? Nothing. Neither do I own a piece of Jiffy-Lube, a thriving business started not too long ago, that does exactly that. An idea about what to do is worth nothing until you do it. Commitment makes it work, more than the idea itself.
By the way, even if I had tried to implement that idea, I probably would have failed, because at that time I didn't realize that Jiffy-Lube isn't about driving cars over holes and servicing them; it's about financing and franchising. You not only need to go after an idea--you also need to know what drives a business and makes it successful, and that may not always be what comes to mind first.
We laser jocks are blessed because many people come to us looking for solutions, motivated by their fascination with what they think lasers can do. But we're more likely to come up with an optimum solution if we consider all technologies. And we're more likely to come up with ideas of our own if we see ourselves as clever engineers rather than clever electro-optics engineers. We'll consider more options if we approach the problem even more broadly, as a technical business person. Technology is the business of the future, and technology is delivering significant competitive advantages in almost all businesses. We engineers, more than people with only a business education, are in position to take advantage of that trend.
Are there systematic ways to search for ideas? Certainly major trends, like the information highway, bring opportunities. Optics should find ample applications in the fields of health, personal security, and entertainment. These are important human needs, and optics has played a major role to make possible a lot of the applications. Many business ideas can't be realized without the right technology.
To test the potential for your idea, you must talk to potential customers. Try to understand what knowledgeable people say, then extrapolate to see statistically how many more people would want your widget. The accuracy of your projection improves significantly as you talk to more people and to different kinds of people. Marketing is not hard, it's just hard work.
You are much more likely to succeed if you focus your energy. An understanding of the characteristics of the different kinds of markets for your product can help you select your focus.
You may also find opportunities when a company formed on the venture-capital model fails to grow at the expected rate. When the venture capitalists perceive one of their investments as one of the "walking dead," that is, companies that won't grow big enough to go public, they often "pull the plug." You may have the opportunity to salvage the pieces and turn it into a small but solid business until a growth opportunity comes along.
Yet another possibility is to negotiate an equity position in a company with an established infrastructure. A lot of people who founded small companies in our industry are now in their late fifties to early seventies. Some of them want to retire, but they can't sell their company for an attractive price because the laser industry is struggling. A bright, energetic young engineer with a good reputation might be able to cut a deal in which he or she takes on a lot of responsibility in return for an engineer's salary plus stock options to earn ownership over time.
Reprinted from and Copyright © Laser Focus World--May 1995
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