How To Start Your Business
Without Taking A Huge Risk
miltonchang@incubic.com
www.incubic.com
What I’ve Learned from the HBS and
The “School Of Hard Knocks”!
A
Companies I Started/Incubated
1971
Newport (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… Now
Precision 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.
The Conventional Approach Is Risky

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.
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.
Available at www.miltonchang.com
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With Best wishes!
Milton Chang
Incubic Management LLC
miltonchang@incubic.com
www.incubic.com