How To Start Your Business Without Taking A Huge Risk
A
What I’ve Learned from the HBS and
The “School Of Hard Knocks”!
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)
The Book Offers Practical Insight
Preparing to become an entrepreneur
Starting a business
Idea, business model, business plan, raising capital,
Forming the team, getting going…
Running a business
Organizational strategy, marketing, R&D, Manufacturing, operation, financial management…
Maximizing exit valuation
Addressing Two Topics Of Interest Today
The process of starting and preparing to start a business
PLUS a few words about how to gain access to opportunity in America like everyone else
Starting Company The Usual Way
“Go for it!” Come up with a big idea, raise venture capital, gain first-mover advantage, get rich and famous.
Statistically 10 out of several hundred business plans get funded and maybe 3 would get to a meaningful exit.
This high-risk approach can provide a handsome average return to investors who have a portfolio of companies…but takes a toll on the entrepreneur.
This business model overlooks the first principle of entrepreneurship: Efficient use of capital to create value
Everyone want to gain first-mover advantage for a big win
A hot idea is often behind the wave, plus
Haste-makes-waste, mistakes are costly and unavoidable.
Hard on the entrepreneur; big win or nothing.
The Conventional Approach Is Risky
Big Bets for Big Rewards
• Software: Google ($50M), Groupon ($135M).
• Hardware: Segway ($150M), Soyndra (1.5 Billion)
• In contrast: Newport $150K, New Focus $2M,
Uniphase (Now part of JDSU) $2M.
A Practical Approach That Works Even For A
First-Time Entrepreneur
Start with a niche business where you are an industry insider doing what you are really good at
Prove out the business concept with a “business prototype” before commit to making a major investment
Develop the business strategically and thoughtfully
Develop the organization and your people
Open to an early acquisition
What Is A Working “Business Prototype”?
Spend as little as possible to validate the business model to enable you to make a logical decision, or a potential acquirer to recognize the value
Having shipped products to a few respected customers
Getting potential customers to commit to placing a firm order
Deciding on the right next step
A Company Must Put Capital To Work To Create Value Efficiently
You have industry insider insight to provide a valuable competitive advantage
Low initial investment makes it easier to raise funds
You can manage with common sense and gain management acumen as you go
You can get new product ideas from customer to expand without taking product risk
You can raise money at an attractive valuation when rapid expansion is justified
What About First-Mover Advantage?
Headline: Johnson &Johnson dropped out of the stent business! (even though the company it acquired pioneered the procedure)
Taking a systematic approach may not slow you down
Instead:
Learn from “pioneer’s” mistakes
Develop IP to prevent being shut out of the market
Acquisition Is A More Likely Exit Scenario Today
IPO presents a high hurdle
An early acquisition is likely to produce the highest ROI for all involved
It is capital efficient to incubate the idea in a startup company
It is capital efficient to scale the business in an established company
Acquisition is not within your control. Focus on execution; Acquisition will occur only when you have a proven business prototype with high potential
Take Home Messages_ Starting A Business
A business must use its resources to create value efficiently to provide an attractive return to its investors and stakeholders
Be well prepared before you start: Understand the marketplace, develop a viable business model, write a thorough business plan, garner adequate resources, and execute.
Start in an industry where you really understand
First prove out the business concept with a “business prototype”
Open to an early acquisition to maximize ROI
Work for a well managed company to practice entrepreneurship
Succeeding In America
Think long term. Rome is not built in one day#1 requirement: Be really good at what you do!
Become an expert in something. A generalist cannot compete effectively for opportunities
Cover your bases __ The first step is being successful on the job Express yourself well Expand your reach.
Never stop learning Develop relationships/network
Build bridges between your origin and America
Preparing For Entrepreneurship
Develop self-awareness Take an interest in business and management Work for a well managed company Choose work based on learning and growth opportunity Take on project management responsibility & engage a mentor Build reputation and network Participate in professional societies
Useful General Principles
Choose a project that capitalizes on your strengths Do not take on any task unless you have a high level of confidence that you can succeed…Once you take it on, work to a meaningful completion Give to get Find a mentor; be receptive to inputs Before you disagree with a viewpoint, first understand what is behind the idea.
A
Available at www.miltonchang.com
Top Related