Starting A Busienss Without Jeopardizing
Your Financial Security
July 2012
miltonchang@incubic.com
www.incubic.com
www.miltonchang.com
Entrepreneurship enable each of us to reach our
full productivity potential to benefit humanity
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)…
What I’ve Learned from the HBS and
The “School Of Hard Knocks”!
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Every person could benefit from knowing
something about business and management – to
provides a context to make better everyday
decisions and also an add to career options
The Book Offers Practical Insight On All Aspects
Of Starting And Running A business
Addressing two topics of interest today

The process of starting a business

Prepare for entrepreneurship and gain access to opportunity
Use Capital To Create Value Efficiently Is A
Necessary Condition For A Business To Succeed
Entrepreneurship is by definition “To create value in
an economy by moving resources out of areas of low
productivity into areas of high productivity and
greater yield.”
Starting Company The Usual Way

“Go for it!” Come up with a big idea, raise venture capital,
and gain first-mover advantage to get rich and famous.

1000 ideas 100 business plans10 funded, <5 success,
maybe one big win

The outcome is binary. This approach can provide a
handsome average return for an investor who has a portfolio
of companies. It is enormously risky for entrepreneurs
Why Is The Conventional Approach Risky?

A hot idea implies you are likely to be in the midst of a crowd.

The goal is to build out the business quickly to gain first-mover
advantage for a big win. Capital efficiency is often ignored

Big spending begins before the business model is validated and
market potential verified

Haste makes waste. Mistakes are costly.

The business can succeed if everything worked out as planned
Big Bets for Big Rewards
•
Google ($50M), Groupon ($135M), Facebook
(>$390M)
•
Segway ($150M), Soyndra (1.5 Billion)
•
In contrast, the two companies I took public:
Newport $150K, New Focus $2M,
A Practical Approach That Works Even For A
First-Time Entrepreneur

Start a niche business in an area where you are an expert
and an industry insider

The ability to serve a finite set of customers really well can
provide a strong barrier against competition

Scale the business and make a major bet only after you
are satisfied with a “business prototype”

Execute! Fine tune your operational and develop a strong
organization to achieve efficiency

Grow the business logically based on customer needs and
strategically capitalizing on your strengths
What Is Prototyping A Business?
 Do what is necessary to verifying the assumptions
why the business could succeed

Could be as rudimentary as having a product
prototype to get meaningful feedback from
opinion leaders

Getting opinion-leading customers to commit to
placing a few firm orders

Having shipped products to a few respected
leading customers
Start In Your Own Niche
Is Capital Efficient & Is Low Risk

The insight of an industry insider enables you to
avoid major mistakes

Focusing on a niche market and a few customer
make it less likely to attract competition

Low capital required makes it easier to raise funds

You can manage with common sense and gain
management acumen as you go

You are in the game when you have an established
business.

You’ll get product ideas from the marketplace,
and can raise money at an attractive valuation
when rapid expansion is justifiable
Very few businesses are suitable for the build-outrapidly approach, at least not until the business
potential is fully validated by a prototype
business. Most businesses can be successful using
the build-over-time model.
What About First-Mover Advantage?
Headline: Johnson & Johnson dropped out of the
stent business! (Even though the company was
leading in the early days)

Taking a systematic approach does not
necessarily slows you down

Instead:
 Learn from early adopter, and avoid
“pioneer gets arrows in the back.”
 Implement IP strategy to prevent being
shut out of the market
Acquisition Is A Likely Exit Scenario
 IPO presents a high hurdle
 An early acquisition is likely to produce the highest
ROI for all involved
 It is capital efficient to incubate an idea in a
startup company
 It is capital efficient to scale the business in an
established company
 It is less dilutive to the founders
Focus on building a standalone company because
acquisition is not within your control.; acquisition will
occur only when you have addressed all the issues an
acquiring company wants resolved.
Take Home Messages
 A business must use its resources to create value efficiently, and
to provide an attractive return to its investors and stakeholders
 Start in an industry you really know and understand
 Be well prepared before you start: understand the marketplace,
develop a viable business model, write a thorough business plan,
garner adequate resources, and execute.
 First prove out the business concept with a “business prototype”
 Open to an early acquisition to optimize the outcome
Prepare For Entrepreneurship
 #1 requirement: Be really good at what you do
 Become an expert to compete for opportunities
(Generalists can be entertaining, but cannot compete).
 Your job is a training ground for entrepreneurship
 Take on project management responsibilities
 Take an interest in business and management
 Strive to be successful on the job to learn what it takes
to succeed and build a great professional reputation
 Participate in professional societies and reach out into
the community
A Few Personal Advice
 Never stop learning
 Know your strengths and weaknesses. Self-awareness is
a life-long learning process
 Be proud but never arrogant
 Reciprocity is the basis of relationship: Give to get
You Can Do It!
We all have dreams;
Develop a dream into a goal,
Strive to make that goal a reality
Available at www.miltonchang.com
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You Have My Best wishes!
Milton Chang
Incubic Management LLC
miltonchang@incubic.com
www.incubic.com
www.miltonchang.com