The Good Ol’ Days of Laser Entrepreneurship

Dr. Milton M.T. Chang, !%Incubic Management LLC%!

History is useful only if we can draw useful generalizations from it. And there was a lot to learn from building companies in our industry, especially in the early days.

My laser career began in 1963, in my senior year at the University of Illinois, when, while working as a part-time student lab technician, I took on the assignment to build a ruby laser to study laser cavity modes. After receiving my graduate degrees, I began my entrepreneurial career in 1971, joining Newport Corp. as its seventh employee. And I was an active angel investor when I was running Newport and New Focus Inc.

Starting a company way back when

In the early days of the laser industry, before the word “photonics” was made popular by Laurin Publishing Chairman and CEO Teddi C. Laurin, a technical person like me could successfully start a company without any business experience simply by using common sense and capitalizing on his or her expertise. All you had to do was identify a need in your area of specialization and work hard at it. You didn’t even have to worry much about established companies breathing down your neck because there were only a handful of them, and they had plenty of opportunities without bothering to lock horns with you on your niche technical turf. And there were plenty of investors wanting to jump on the glamorous laser bandwagon who were willing to provide capital.

HeNe lasers from Uniphase became the gold standard, thanks to the company’s focus on continuous improvements to manufacturing processes. Courtesy of Dale Crane, founder of Uniphase (JDSU).

Against that backdrop, opportunities were abundant. I was fortunate to have caught the wave for a very long ride: I was involved in founding, running or serving on the boards of several companies – Newport, Uniphase and Cyonics (later JDSU), Iridex, Lightwave Electronics, CyberOptics, NEOS, Laser Power Optics, Questek, Cleveland Crystals and Rochester Photonics – before I started New Focus.

Uniphase

Once upon a time, HeNe lasers made by Optics Technology Inc. were the ones to buy. They had a “compact” functional design, with the laser mounted on top of the power supply. The lasers looked nice, but output power would drift as the power supply heated up the laser tube. The company soon came to an end when Spectra-Physics introduced its beautifully engineered line of HeNe lasers supported by its professional sales force.

Then, in 1979, came Uniphase, with Dale Crane at the helm, sweating every detail in manufacturing. It was the only company that could respond to Symbol Technology’s demand for a rugged, reliable and low-cost laser to make handheld laser scanners.

Uniphase invested in a new manufacturing facility to increase capacity, and it improved quality and lowered costs by making continuous improvements in its manufacturing processes. With Dale on top of every aspect of the business, the company reduced the rate of reject and rework from the industry norm of something like 8 percent to less than 1 percent.

Shown is a Uniphase HeNe laser, the Lexel 88 argon-ion, and its power supply. Courtesy of photographer Gregory Maxwell.

Spectra-Physics eventually abdicated to buying lasers for its scanner division from Uniphase – and the rest is history. The lesson learned is that the technology is important but that novelty wears off, and every product competes on quality, performance and price.

Iridex

This company, originally Iris Medical, set out in 1989 to build ophthalmic therapeutic systems that use semiconductor lasers to replace the cumbersome argon laser systems. The founders, Theodore A. Boutacoff, David M. Buzawa and Eduardo Arias, had little doubt that their product would replace existing systems because theirs would fit so well into doctors’ offices – especially if the selling price were comparable to the replacement cost of argon laser tubes.

David M. Buzawa, vice president of engineering at Iris (now Iridex), puts together a prototype in the garage of Theodore A. “Ted” Boutacoff, the company’s president. Courtesy of Iridex.

But semiconductor lasers were difficult to produce at the time – and therefore very expensive – and users were placed on allocation. The company knew that all that would change based on the pricing history of DVD lasers and decided to forward-price the system; i.e., they priced the system based on the cost of the laser projected out a few years. That affected early profits but enabled the company to prevail in the long run. The lesson learned is that technology is a necessary but insufficient condition to succeed in business. You also need a sound business strategy.

Newport

This company started in 1969 with about a $150,000 investment from the uncle of John Matthews, my California Institute of Technology schoolmate who co-founded it with Dennis Terry. We bootstrapped our way to an initial public offering without additional capital infusion.

We worked hard. John was president, responsible for engineering, Dennis was responsible for manufacturing, and I was responsible for marketing and sales. Our average workweek was more than 14 hours a day, six days a week – sometimes more. John and I would brainstorm about every aspect of the business and technology long after midnight, not paying attention to how time flew when we were having fun.

We took care of our customers. Everyone at Newport (and, later, at New Focus) knew that the phone had to be picked up within three rings and that customers were not to be kept waiting more than 24 hours to get an answer. Over time, our attitude of service helped, and I made many friends over the years, some of whom have stayed in touch to this day.

At Newport, Milton Chang learned that just having a technical edge is never enough for success. A company must focus on customer service, engineering, manufacturing and more.

We strove to stay ahead of the competition. John had majored in physics but had a knack for engineering. He designed all the mechanical hardware, including manufacturing toolings, but his pride and joy was the innovation he made in the tabletop damping system, which really made a big difference in optics research.

John’s uncle, a conservative Chicago banker, taught us how to be fiscally responsible, and all three of us were by our very natures careful spenders. We grew the company rationally, using only cash actually generated by the business, and we increased profitability by investing in manufacturing processes to reduce cost.

For example, we invested in an expensive stamping tooling to make the vibration isolators out of steel plates instead of aluminum castings, which gave us a better product at lower cost. And we designed and built a multispindle head to drill and tap tabletop mounting holes on 1-in. centers to reduce manual labor a hundredfold.

The lesson learned was that a technical edge alone is never a sufficient condition for success. Your team must be able to execute a plan with the right attitude toward customers, and with engineering and manufacturing expertise, adequate capital, business and management acumen, marketing finesse – and the list goes on.

Starting a photonics business today

Opportunities in photonics are still in abundance. But given that the laser industry is now 50 years mature, you have to look harder, maybe even using your special photonics expertise to get into an emerging field and find startup opportunities. And when it comes to having to compete with established companies in a mature industry, follow the adage “If you can’t beat ’em, join ’em” by working toward an early acquisition instead of trying to take your company all the way to revenue.

Looking back

What I miss the most is the pleasure of seeing investors and management working collaboratively as a team. It is a big loss for everyone when the starting point is on opposite sides of the table, as it often is today. You can still find investors who are statesmen. Their hearts are in the right place, and they want to build great companies.

The starting point is you, the entrepreneur, with the intention of serving each customer well. You must see wealth generation as a derivative of having built a great company. I hope you will respond to my call to rejuvenate the entrepreneurial spirit of the good ol’ days.

Meet the author

Dr. Milton M.T. Chang, who is semi-retired, spends time mentoring entrepreneurs. He has been an investor in the photonics industry and was CEO and president of Newport Corp. and New Focus Inc. prior to forming Incubic Management. He is a fellow of the IEEE, LIA and OSA and was past president of LIA and LEOS; e-mail: miltonchang@incubic.com