I was born and grew up in northeast China, and at 17 years old, I left my hometown to study lasers at Tianjin University, located in northern China approximately 100 km from Beijing. This was 1981, which was a new and exciting time to be studying lasers and optics. As a young man, I was lucky to be chosen for that, because at the time there were only two or three universities specializing in optics and lasers in China, and students were more or less picked by the universities.
After receiving my BS and MS there, I went on a scholarship to Canada to continue studying laser spectroscopy at the University of Waterloo. Even in graduate school I was very interested in the practical side of engineering. I found that academia just wasn't for me, and instead pursued the business side of optics.
My career plan coming out of graduate school was to change jobs not too often, but not to stay very long at any one company. My goal was to learn new things, contribute enough, and then after three or four years, move to the next level at a new company.
I started out on this path working for two Canadian companies. In my first job we made large laser-based instruments for use in research labs, which used lasers and spectrometers to measure compound semiconductors. The second job I had was related to using near infrared spectroscopy to measure blood non-invasively.
Next, I moved to the United States to work for Leica in Buffalo, NY, where I designed lasers for optometry measurement devices. Then I took a job at Thermawave, making the move to Silicon Valley where I worked again in semiconductor metrology.
As you can see, the areas I was working in had nothing to do with communications, which is the field of BaySpec's products, but had a lot to do with applying optics in different fields. The idea was to learn from different businesses, allowing me to experience different aspects of various optics applications. Each new experience taught me another facet of the practical side of optics, which was very valuable.
I had been working at Thermawave for two years and was very happy, when out of the blue an old friend called. Jeff MacCubbin was in optics sales and marketing, and was working at the time with people at Bell Labs who where looking for a special type of grating-based WDM device. This grating-based device didn't yet exist, but Jeff knew this was an area of expertise for me, and that I might be able to help. He described what they were looking for, and it sounded possible.
Turns out that the Bell Labs team was looking for a mux/demux device based on a volume transmission grating. The device required large channel counts and performance under some wide temperature ranges without thermal compensation, which makes a highly efficient transmission grating ideal for that. No one had created this type of device before, but I felt that I could design one with my past expertise designing spectroscopic devices.
So I spent a couple days thinking, doing a little bit of estimation, then called up Bell Labs and told them I was confident it could be done. They were surprised, and invited me to their headquarters to discuss the device more; so I took two days off work, flew to New Jersey, and met with Bell Labs representatives.
After just a two-hour presentation and discussion, they offered me $100,000 to make two or three prototypes. I was positive this was feasible, so of course I said yes.
On the plane trip back, I thought a lot about the next steps I should take. First I thought it was really something that Bell Labs, who were always on the forefront of research, were interested in my ideas. Second, that after just one talk, they were willing to give me $100,000 for development.
Even though I wasn't in telecommunications, I did know the optics side of the story well, and realized that not only was this device interesting and potentially very valuable, but it must also be patentable. Right then and there, flying back to California, I made up my mind that I was going to patent this device and start up my own company.
Like many other businesses in Silicon Valley, BaySpec began in a garage. When I got the contract from Bell Labs, I called up my classmate from the University of Waterloo, Charlie Zhang, to see if he would be interested in working with me on this. He subsequently quit his job and drove out to California---coming to Silicon Valley was so tempting, he couldn't resist!
One of the keys to BaySpec's growth and success has been frugality, which we demonstrated from the start. Equipment in the telecom industry is very expensive, and we needed to use the initial $100,000 very carefully. So I borrowed some equipment from contacts I had in the industry to outfit my garage lab. By starting simply and frugally, this gave us the time to build the prototypes, write up a business plan, and show different people the prototypes and how they worked.
My humble experience showed me that three things were helpful when attracting seed money: passion, patents, and prototypes. Investors and companies that invest often look at the founders enthusiasm as a first positive sign. Investors also often hire experts to examine the technology, and experts are amazed when they see a device really working. In this case, knowing the mux/demux device wasn't available on the market and was a breakthrough was key.
In January 2000, BaySpec had $2 million in seed funding, and by the end of 2000, our second round of funding closed at $18 million, which really made the company take off. At the same time, the market started to slow a bit.
Ups and Downs
The boom and bust of the telecom industry affected many companies. Even though we were young at the time, we made it through for a few reasons. First, the boom time brought us the funding to help us stand on our feet, and get the company out of the garage and into a good facility. When the downturn hit, we hung on because we continued to be frugal, we were tenacious, and we had intellectual property (IP) and very competitive technologies.
We were persistent in pursuing this product, and we were frugal in managing our cash flow. As for intellectual property, in our first three years, we were issued 18 U.S. patents, so we knew we had a corner on the devices we were making.
Toward the start of the downturn, in December 2001, Finisar---a minor shareholder of BaySpec---began pursing a merger with us. After much discussion, the definite agreement was filed in March 2002. Unfortunately, the market started dropping after March, and since this was a stock deal, the appeal of merging withered. Their stock price dropped dramatically between March and May, when the government approved the merger. Our investors would not have made any money on the deal, so we mutually agreed, very amicably, not to merge. We still work together, and they are still investors, but we understood there was no reason for Finisar to buy us if there was no way to make money on the deal.
I learned some important lessons from this experience. My humble two cents of advice is that if you are interested in merging, which can be a good thing for new entrepreneurs, make sure the company you are attempting to merge with is a good fit. In our case, Finisar was a great fit. The lesson I learned the hard way is to take the opportunity to use your influence to speed up the merger process. You have some control to make the closing procedure faster; this is not the time to take a wait and see approach.
The silver lining of the non-merger is that I might have made a million dollars if we had merged, but the lessons I learned instead were worth much more than that.
Planning for the Future
As a small business, the plan is first to survive, then to grow, which means success. The strategic planning, then, is mainly to get the company to break even, and increase the valuation of the company.
When we began BaySpec, we considered our possible threats or challenges to our business (see sidebar). As time has gone on, these challenges have changed. Instead of a multitude of competitors creating similar devices, with technology changing so quickly, there is the possibility that a new technology will emerge to take our market.
If we do not do enough R&D, and open doors to new directions, our main product areas might suffer. So we commit some money---even though we are small---on R&D. We are constantly looking for new technologies to see if we can brand it in to our product area. I highly encourage every company to allocate some portion of their budget to R&D, because businesses have to evolve to survive and be successful.
The fact of the matter is, in this business, if you make a profit, there will be other people who try to enter your market. You have to use your IP, develop more IP, or look to new technology to fend off the threat.
Over the years, BaySpec has modified our products to really fit the needs of the telecom market. We still have our initial product offering, but today we are the world leader in optical performance monitoring. So we're still using the base technology, but we've adapted over time.
BaySpec has survived and is succeeding, but if I could go back there are so many things I would do differently. For example, I would have made some business decisions less emotionally. There are so many decisions to make in the first few years that are too easy to make and not separate the emotion. This includes hiring employees and legal consultants, making business decisions, and making product decisions.
I am a very passionate person, which is a major plus for attracting investment---to be passionate about the technology---but while running the business, you need to have a little cooler head.
The main factors of BaySpecs survival are tenacity, frugality, and teamwork. Those three factors have really contributed to our humble success.
BaySpec has been a wonderful opportunity for me personally. I enjoy interacting with people; founding and operating BaySpec has given me the opportunity to meet many different people from all over the world. I'm very happy about the opportunity we've created here to meet different customers, to supply their demand, and to make them happy.
Going from a working engineer to running my own company has been challenging, but very rewarding. At BaySpec I have some authority in that I can apply my research to real things. I have some freedom here to guide the company into the R&D areas that I personally enjoy and believe could become wonderful products. As an engineer, you do not always have the environment to do things beyond the boundaries of your job responsibilities. This is part of my dream, to control my own destiny, and I have enjoyed the freedom that BaySpec has afforded me.
Keep it Complicated
At the beginning, when we chose our product, we knew that competition from China was a possible threat. We were very careful going into the market, and we felt that with robust intellectual property, a strong trade secret, and engineering know how, that it would not be easy for a company in China to commercialize the technology.
As a young company, we knew that given the lower labor costs and great number of good optical engineers in China, we had to do something technically advanced to compete.
The device we make is so sophisticated that the labor only takes a few percentages of the product cost. Since we could semi-automate the production line here, labor is not an issue to us. That's why I strongly encourage my fellow engineers who want to start a company, to begin with something high-tech and highly sophisticated. This way basing the operations in the United States will not be a competitive disadvantage.