IEEE Photonics Chapter Presentation on Entrepreneurship in Photonics

Lif b Mi d tLif b Mi d t

on Entrepreneurship in Photonics

Life by Misadventure…..Life by Misadventure…..

Larry MarshallLarry MarshallyyFormerlyFormerly CEO Light Solutions, Lightbit, Translucent, Fiberbyte; CEO Light Solutions, Lightbit, Translucent, Fiberbyte;

CTO Iridex, IridermCTO Iridex, IridermC rrentl Chairman AOC Inters mbolC rrentl Chairman AOC Inters mbolCurrently Chairman AOC, IntersymbolCurrently Chairman AOC, Intersymbol

So who does this guy think he is?So who does this guy think he is?Left Oz 22yrs agoLeft Oz 22yrs ago…..never lose the accent…..never lose the accent

Startup Startup –– FibertekFibertek, 4 years later:, 4 years later:CoCo--founded & ran Light Solutions founded & ran Light Solutions ggFormed IRIDEX, went public in ’96 on Formed IRIDEX, went public in ’96 on NasdaqNasdaqCoCo--founded IRIDERM to spin outfounded IRIDERM to spin outppCoCo--founded AOC, founded AOC, FiberbyteFiberbyteFounded & ran Founded & ran IridexIridex OEM group to sellOEM group to sellCoCo--founded & ran founded & ran LightbitLightbit, bought IOA , bought IOA soldsoldCoCo--founded & ran Translucent founded & ran Translucent soldsoldTook Took ArasorArasor public public Managing Director, Southern Cross VenturesManaging Director, Southern Cross Ventures

Light SolutionsLight Solutions

Founded 1993, in a Recession Founded 1993, in a Recession GREAT VCGREAT VCGREAT VCs:GREAT VCs:–– B of A, Citibank, B of A, Citibank, ……VISA, Mastercard……VISA, Mastercard

F d d $250k f 37 dit dF d d $250k f 37 dit d–– Funded $250k, from 37 credit cards……Funded $250k, from 37 credit cards……Founders drew no salary for 2 yearsFounders drew no salary for 2 years1st year employees worked for equity1st year employees worked for equity1st year employees worked for equity1st year employees worked for equity

–– Worked out of my basement & bedroomWorked out of my basement & bedroom

Classic Aussie bootstrapped Startup, in USClassic Aussie bootstrapped Startup, in US–– Invented the “holy grail” of lasers (at that time)Invented the “holy grail” of lasers (at that time)Invented the holy grail of lasers (at that time)Invented the holy grail of lasers (at that time)

Strong IP barriers, 2Strong IP barriers, 2--3yrs ahead of competition3yrs ahead of competition

What’s wrong with this Business?What’s wrong with this Business?

Where is the Customer?Where is the Customer?Where is the Customer?Where is the Customer?

CUSTOMER 1CUSTOMER 1stst

–– NOT Technology 1NOT Technology 1stst

Never be a solution looking for a problemNever be a solution looking for a problem

Startups don’t fail because of bad Startups don’t fail because of bad technology……………………………………technology……………………………………gygy…………they fail for lack of a CUSTOMER…………they fail for lack of a CUSTOMER

Betting big Betting big IPO: IridexIPO: IridexI left here

Had to find a PARTNERHad to find a PARTNER–– 11stst Partnered with, then Merged with Iris Partnered with, then Merged with Iris gg

Iris had great S&M, but no TechnologyIris had great S&M, but no Technology

Created IRIDEX Created IRIDEX IPOIPO in Feb 1996in Feb 1996R t d 12 t I t t IPO (th h )R t d 12 t I t t IPO (th h )–– Returned 12x to Investors at IPO (the shoe)Returned 12x to Investors at IPO (the shoe)

Kevin wants to buy company for 20% premium Kevin wants to buy company for 20% premium y p y py p y pcites synergy & growth visioncites synergy & growth vision

Should we sell?Should we sell?JDS Uniphase to acquire SDL for

$41 Billion

–– Company was JDSU, Kevin (Kalkhoven)Company was JDSU, Kevin (Kalkhoven)–– If we’d sold to JDSUIf we’d sold to JDSU would have returned 70xwould have returned 70xIf we d sold to JDSU, If we d sold to JDSU, would have returned 70xwould have returned 70x

…..& if you think that’s bad……Dave offered to buy 1 year later…..& if you think that’s bad……Dave offered to buy 1 year later

Bootstrapping: AOC Corp.Bootstrapping: AOC Corp.R

Its great to think Big, but Its great to think Big, but smallsmall works tooworks too–– Most Photonics companies have to bootstrapMost Photonics companies have to bootstrap

Most Photonics companies have to bootstrapMost Photonics companies have to bootstrapVCs hated photonics before Telecom, but they really hate it now….VCs hated photonics before Telecom, but they really hate it now….

Funded $100k from Founders in ‘99Funded $100k from Founders in ‘99$$Could have raised VC $ in bubble, but didn’t needCould have raised VC $ in bubble, but didn’t need

–– Founder wanted to be his own boss Founder wanted to be his own boss VC means EXITVC means EXITOptical components for CableOptical components for CableOptical components for CableOptical components for Cable

Cable was deserted for TelecomCable was deserted for Telecom

More earnings than some public More earnings than some public TelcosTelcos…………☺☺–– Growing at 17%...... even in this $#@T marketGrowing at 17%...... even in this $#@T market

Returning $0.5M/y low tax dividends to founders Returning $0.5M/y low tax dividends to founders small works!small works!

Focus Focus FocusFocus Focus FocusFocus, Focus, FocusFocus, Focus, Focus–– No TechnologyNo Technology, just CUSTOMER focus, & great execution , just CUSTOMER focus, & great execution

: Know When to Change, Sell: Know When to Change, Sell2000: Lightbit is a $1B company with unique product that 2000: Lightbit is a $1B company with unique product that fills missing piece fills missing piece –– tier1 VCs….tier1 VCs….–– c.f. $2c.f. $2--3B acquisitions for tunable, AOXC….3B acquisitions for tunable, AOXC….c.f. $2c.f. $2 3B acquisitions for tunable, AOXC….3B acquisitions for tunable, AOXC….

2001: offered $100M by big Chip Co.2001: offered $100M by big Chip Co.–– What !?! Take a 10x ROI in a space where peers have done 100xWhat !?! Take a 10x ROI in a space where peers have done 100x

2002 ff d $50M b bi T l2002 ff d $50M b bi T l2002: offered $50M by big Telco.2002: offered $50M by big Telco.–– You idiot You idiot –– why would VCs take a measly 5x ROI why would VCs take a measly 5x ROI –– rather risk it allrather risk it all

Meanwhile Meanwhile -- Repositioned into Biotech Repositioned into Biotech –– very quietly…..very quietly…..2003 ff d $4M b 2 P bli C2003 ff d $4M b 2 P bli C2003: offered $4M by 2 Public Co.s 2003: offered $4M by 2 Public Co.s

End 2003: sold to Chinese consortium for 3x Industry avg.End 2003: sold to Chinese consortium for 3x Industry avg.–– Because we shifted focus & had a key customer they neededBecause we shifted focus & had a key customer they needed–– …..& because they got $100M from China govt., for doing it!…..& because they got $100M from China govt., for doing it!

$ can fix Technology, $ can fix Technology, nevernever the Marketthe Market–– Be Focused, but don’t wear Be Focused, but don’t wear blindersblinders

Partnering: .Partnering: .Great technology, no Customer engagementGreat technology, no Customer engagement–– Fixed product after real customer interactionFixed product after real customer interactionpp

Difficult for company in Chicago, Difficult for company in Chicago, c.f. Ozc.f. Oz

1. Marketed to Customer’s customer 1. Marketed to Customer’s customer –– They convinced our customer to design us inThey convinced our customer to design us in

11stst design win, 1design win, 1stst revenue, 1revenue, 1stst volume POvolume PO

2 Partnered with Company in different segment2 Partnered with Company in different segment2. Partnered with Company in different segment2. Partnered with Company in different segment–– Proved can use our chip to make their $5k product for $1kProved can use our chip to make their $5k product for $1k

3 Value3 Value3. Value 3. Value –– Chip revenue + Product value Chip revenue + Product value 1 + 1 + 33….….

4. Exit4. Exit–– Partner is also your most likely buyerPartner is also your most likely buyer

MarketingMarketingThis is really hard in Photonics because This is really hard in Photonics because

Markets are a mile wide but an inch deep & so:Markets are a mile wide but an inch deep & so:–– Markets are a mile wide but an inch deep, & so:Markets are a mile wide but an inch deep, & so:There are so few true Marketing people There are so few true Marketing people ..So make this a strength…....So make this a strength…..

–– Use several verticals to find the best niche & PROCESSUse several verticals to find the best niche & PROCESSThen FOCUS on 1Then FOCUS on 1

It costs 2It costs 2--3X more to Market & Sell than develop3X more to Market & Sell than develop–– Expect to PAY for itExpect to PAY for it Aussies don’t like to payAussies don’t like to pay–– Expect to PAY for it…….Expect to PAY for it…….Aussies don t like to payAussies don t like to pay

Why does Intel advertise?Why does Intel advertise?–– Classic Classic PushPush--Pull Pull breaks down the barriersbreaks down the barriers

ArasorArasor won China wireless markets by convincing Carriers, who won China wireless markets by convincing Carriers, who then told their suppliers to design then told their suppliers to design ArasorArasor inin

LightbitLightbit sold tosold to CoreluxCorelux which becamewhich became ArasorArasorLightbitLightbit sold to sold to CoreluxCorelux which became which became ArasorArasorTook public in Oct 2006 ARRTook public in Oct 2006 ARR –– $1.40 $1.40 $4 $4 –– 10x ROI to 10x ROI to investors who stayed in……. Sure wish I hadn’t held on to that stock……investors who stayed in……. Sure wish I hadn’t held on to that stock……

TechnologyTechnologyIs Technology the key to a Tech Startup? Is Technology the key to a Tech Startup? Technology usually gets you into market atTechnology usually gets you into market atTechnology usually gets you into market, at Technology usually gets you into market, at least secured early adopters, least secured early adopters, B t it C t d t di & i tiB t it C t d t di & i tiBut its Customer understanding & intimacy But its Customer understanding & intimacy that keeps you therethat keeps you thereBut, Translucent says sometimes….But, Translucent says sometimes….–– Transparent Electronics Transparent Electronics $400B TAM$400B TAM

Demonstrated optical gain in Silicon 2004Demonstrated optical gain in Silicon 2004Demonstrated optical gain in Silicon 2004Demonstrated optical gain in Silicon 2004–– Signed partnership with major US SemiSigned partnership with major US Semi--CoCo

PARTNERINGPARTNERING Completed value chain Completed value chain SOLD $$SOLD $$P i bl d l f j h lP i bl d l f j h l–– Partnering enabled sale of just technologyPartnering enabled sale of just technology

Value Value –– the Winthe Win--Win DealWin DealEmployees: Employees: ““what’s the other guy taking what’s the other guy taking fromfrom me?”me?”–– VCs want too much equity & Consultants want too much $$$ VCs want too much equity & Consultants want too much $$$ yy

Entrepreneurs: Entrepreneurs: ““what is he doing what is he doing forfor me?”me?”C I t th f t ith VC$ & C I k th t it biC I t th f t ith VC$ & C I k th t it bi–– Can I get there faster with VC$ & Can I make the opportunity bigger Can I get there faster with VC$ & Can I make the opportunity bigger

Focus onFocus on making the Pie biggermaking the Pie biggerFocus onFocus on making the Pie biggermaking the Pie biggerAussies are great at bootstrapping, and conserving $Aussies are great at bootstrapping, and conserving $

Y ’t lf i hY ’t lf i hYou can’t save yourself richYou can’t save yourself rich–– Share the wealth with Investors, and TeamShare the wealth with Investors, and Team

1111

When we sold Translucent, the acquirer's market CAP went When we sold Translucent, the acquirer's market CAP went up 10x what they paid ……up 10x what they paid ……sure wish I hadn’t sold that stock!sure wish I hadn’t sold that stock!

NetworkingNetworkingIt j t b iIt j t b iIts just business…….Its just business…….one of the most misquoted linesone of the most misquoted lines

–– PASSION fuels startups, not just $PASSION fuels startups, not just $–– Your startup is your babyYour startup is your baby it doesn’t get more personal than thatit doesn’t get more personal than thatYour startup is your babyYour startup is your baby, it doesn t get more personal than that, it doesn t get more personal than that

Form relationships Form relationships –– friendship & mutual leveragefriendship & mutual leverage–– Make customers, employees, investors enjoy being Make customers, employees, investors enjoy being , p y , j y g, p y , j y g

around you….then they’ll stickaround you….then they’ll stickFriendly exchange of influence opens doorsFriendly exchange of influence opens doors

I t d ti b t ld llI t d ti b t ld ll l h i PARTNERSl h i PARTNERS–– Introductions beat cold calls Introductions beat cold calls value chain PARTNERSvalue chain PARTNERSEngineers don’t do this well…….. if at allEngineers don’t do this well…….. if at all

Do you have a Mentor?,….1 for each key element?Do you have a Mentor?,….1 for each key element?Do you have a Mentor?,….1 for each key element?Do you have a Mentor?,….1 for each key element?–– Do you have a local CEO forum, monthly?Do you have a local CEO forum, monthly?

What will you do at the end of these talks?What will you do at the end of these talks?

YouYou gottagotta givegiveYou You gottagotta givegive–– Be willing to give 1Be willing to give 1stst,…..,…..even if its not your shouteven if its not your shout

…………………and pay back when someone gives to you 1…………………and pay back when someone gives to you 1stst

TeamTeam

VCs invest in Teams, not DreamsVCs invest in Teams, not Dreams,,–– Markets always change, so your idea will too……all Markets always change, so your idea will too……all

companies evolvecompanies evolveTh T t b bl t d tTh T t b bl t d tThe Team must be able to adaptThe Team must be able to adapt

1st decide “Whose on the Bus”1st decide “Whose on the Bus”1st decide Whose on the Bus1st decide Whose on the Busthen… “Where are they sitting”then… “Where are they sitting”then work out “Where to Drive”then work out “Where to Drive”then…..work out Where to Drive then…..work out Where to Drive

& know when to get off!& know when to get off!………..& know when to get off!………..& know when to get off!

Every startup has a near death Every startup has a near death experienceexperienceexperienceexperience

That’s good because they need itThat’s good because they need itThat s good because they need it….That s good because they need it….–– West head story….West head story….

The valley of death kills most startupsThe valley of death kills most startupsThe valley of death kills most startupsThe valley of death kills most startups–– Only passion, persistence, vision & LUCK get Only passion, persistence, vision & LUCK get

you throughyou throughyou throughyou throughVCs worry about the J curve, going deep VCs worry about the J curve, going deep i t th d b f t i fiti t th d b f t i fitinto the red before turning a profitinto the red before turning a profitVCs can carry you through with money, if VCs can carry you through with money, if early adopters really believeearly adopters really believe

Business EvolutionBusiness EvolutionTechnology Leadership

Customer Intimacy

Operational Excellence

Mass Market Acceptance

p y

owth

Disruption

Win MarketSegments Commodity

Disruption

Mar

ket G

ro

R

M Hard part

1515

Time

Leaky PipesLeaky Pipes

Most Startups fix the customer’s “leaky pipe”Most Startups fix the customer’s “leaky pipe”

Problem is that most Startup’s pipe leaks at Problem is that most Startup’s pipe leaks at the source…..the CUSTOMERthe source…..the CUSTOMERGreat Product development, but lousy….Great Product development, but lousy….p yp yCustomer DevelopmentCustomer Development

Customer DevelopmentCustomer Development Has $Has problemT i t fiP d t D l t

FIND CUSTOMERSFilter out “users” from visionaries

Trying to fixKnows its Hard

PRICE not an ISSUEConcept

Product Development

Validate Customers….with POs & other….

UNDERSTAND CUSTOMERSWho decides to buy & Why ?Create Sales PROCESS

Prod. Dev.

VALIDATE SALES PROCESS with CustomersGo through process with many customersBeta g p yIterate until PROCESS works

CREATE CUSTOMERSL h Apply the PROVEN process

Mine the space vertically, then horizontallyLaunch

The Key = The Key = ListenListenEngineers feel a little intimidated, tend to talk even Engineers feel a little intimidated, tend to talk even more than usualmore than usual

Can’t out talk an American….. so listen insteadCan’t out talk an American….. so listen instead

A great salesman A great salesman talkstalks 20%20%, , listens listens 80%80%CCCustomers, Employees, Investors will tell you what Customers, Employees, Investors will tell you what you need to know if you:you need to know if you:–– ASK THE RIGHT QUESTIONSASK THE RIGHT QUESTIONS–– ASK THE RIGHT QUESTIONSASK THE RIGHT QUESTIONS–– Listen carefully to the answersListen carefully to the answers

People like to be listened to, want to be understoodPeople like to be listened to, want to be understood

#1 Mistake #1 Mistake –– telling the customer his problemtelling the customer his problem–– Wouldn’t you prefer to do business with the guy who Wouldn’t you prefer to do business with the guy who

listens to your problem & genuinely wants to help?listens to your problem & genuinely wants to help?listens to your problem & genuinely wants to help?listens to your problem & genuinely wants to help?–– Lee Iacocca vs. Darwin SmithLee Iacocca vs. Darwin Smith

Making it HarderMaking it HarderL d ith iL d ith iLead with priceLead with price–– Don’t take $ from early adopters Don’t take $ from early adopters -- Low price shrinks TAMLow price shrinks TAM

OverOver--promise & underpromise & under--deliverdeliverOverOver--promise & underpromise & under--deliverdeliverNot understand Marketing…Not understand Marketing…think its on the ground in a cow paddockthink its on the ground in a cow paddock

Separate Marketing from EngineeringSeparate Marketing from EngineeringSeparate Marketing from EngineeringSeparate Marketing from Engineering–– Implications for Oz/midImplications for Oz/mid--west companieswest companies

ArasorArasor sells in US & China, by having S&M & R&D in both placessells in US & China, by having S&M & R&D in both places

Be far away from Customer……..OzBe far away from Customer……..OzEnter Foreign markets too early Enter Foreign markets too early

Cl i i t k d b t US t tCl i i t k d b t US t t–– Classic mistake made by most US startupsClassic mistake made by most US startupsNot understanding real PartneringNot understanding real Partnering–– Toothless partnershipsToothless partnerships –– no resources $ leverageno resources $ leverage–– Toothless partnerships Toothless partnerships –– no resources, $, leverage no resources, $, leverage

Problem: In a down market everyone cares about priceProblem: In a down market everyone cares about price–– So instead, So instead, Find another MarketFind another Market that values youthat values you

Making it EasierMaking it Easier

Get someone to carry you across the valley of deathGet someone to carry you across the valley of death

Get someone with a roadmapGet someone with a roadmap

Be willing to share the wealth and make the pie Be willing to share the wealth and make the pie biggerbiggerbiggerbigger

Do you really want to date a VC?Do you really want to date a VC?

What Silicon Valley VCs want:What Silicon Valley VCs want:yy–– Passionate, driven entrepreneursPassionate, driven entrepreneurs–– White space (recently called Blue Ocean)White space (recently called Blue Ocean)White space (recently called Blue Ocean)White space (recently called Blue Ocean)–– Large Market Potential (may be 0 today)Large Market Potential (may be 0 today)

Clear Unfair AdvantageClear Unfair Advantage technologytechnology–– Clear Unfair Advantage Clear Unfair Advantage —— technology, technology, business model, geobusiness model, geo--politicialpoliticial... ...

–– ExitExit —— preferrablypreferrably 10x investment10x investmentExit Exit preferrablypreferrably 10x investment10x investment

What you get from a What you get from a REALREAL VC….VC….

In the valley there is an abundance of VCs In the valley there is an abundance of VCs ——creates competition and specializationcreates competition and specializationIts not about the $, its about the networks and Its not about the $, its about the networks and battle scarsbattle scarsbattle scarsbattle scarsDeep networks of angels, lawyers, finance, MBAs, Deep networks of angels, lawyers, finance, MBAs, Biz Dev Biz Dev –– The best are magnets for the bestThe best are magnets for the best

Real VCs roll up their sleeves….talk to their CEOs Real VCs roll up their sleeves….talk to their CEOs & founders:& founders:& founders:& founders:–– How much time spent before investment?How much time spent before investment?–– How much time spent after investment?How much time spent after investment?

(IL Fornaio) Business Plan(IL Fornaio) Business PlanTEAMTEAM –– who are you & what have you done?who are you & what have you done?CUSTOMERCUSTOMER –– level of intimacy & experiencelevel of intimacy & experience–– What is their What is their PAINPAIN? ?

PRODUCTPRODUCT –– how does it fix their how does it fix their PAINPAIN??VALUEVALUE –– how much will Customershow much will Customers PAYPAY??VALUE VALUE how much will Customers how much will Customers PAYPAY??COSTCOST to build & to build & SELLSELLUNFAIR ADVANTAGEUNFAIR ADVANTAGE T h Bi d lT h Bi d lUNFAIR ADVANTAGEUNFAIR ADVANTAGE –– Tech or Biz modelTech or Biz modelCOMPETITIONCOMPETITION –– why do Customers love you?why do Customers love you?

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Fear & FailureFear & FailureEngineers hate to failEngineers hate to fail

Even tend to enjoy watching others fail…..tall poppy Even tend to enjoy watching others fail…..tall poppy

Entrepreneurs love to winEntrepreneurs love to win–– Play hard to win, have no fearPlay hard to win, have no fear

Love a winner respect a guy who’s not afraid to tryLove a winner respect a guy who’s not afraid to tryLove a winner, respect a guy who s not afraid to try…Love a winner, respect a guy who s not afraid to try…

Its OK to fail Its OK to fail -- if you fail, fail fast & move onif you fail, fail fast & move on–– Probability of failure is high if win is largeProbability of failure is high if win is largeProbability of failure is high if win is largeProbability of failure is high if win is large

Mediocrity/Purgatory is worse than failureMediocrity/Purgatory is worse than failure–– Its how you respond to a setback that decides….. Its how you respond to a setback that decides…..

OO ll th i f ilth i f ilOnce you Once you leapleap, there is no failure, there is no failureWe’ve all been raised to be good employeesWe’ve all been raised to be good employees

–– Education focuses on making us more employableEducation focuses on making us more employable

It takes tremendous courage to break out as It takes tremendous courage to break out as an an EmployerEmployer