Starting a business is an enormous challenge but starting a business in a relatively small, niche, capital-intensive industry can be exceptionally difficult. The situation is compounded if the company’s three founders lack many of the key ingredients for success: adequate capital (venture or otherwise), IP (disruptive or otherwise), and fundamental business experience.
Put the company in a marketplace with rigorous quality standards and long customer qualification periods and the prospects for such an enterprise become very uncertain.
This is a story about our former company, High Power Devices (HPD), which overcame these challenges to run for 12 profitable years. At its peak in 2007, HPD employed 55 people and generated $11 million in sales in a 25,000-square-foot manufacturing facility.
Scoping out the market
We started our high-power laser diode (HPLD) manufacturing company in 1995 when the competitive structure of the market seemed to offer us ample opportunities. This was the pre-telecom bubble age, so there were few suppliers in a relatively undeveloped market. Existing HPLD suppliers had enormous infrastructure to supply relatively small quantities of products, and prices were exorbitantly high. Product range was limited, and quality was unpredictable.
At the same time, several critical technologies were developing that we knew would quickly change the laser diode industry landscape by enabling many new applications.
We felt we could capitalize on both these factors and create an efficient, state-of-the-art manufacturing organization that would provide value to customers in both quality and cost.
Putting a team together
Len Hillis, John Riordan, and I worked at Laser Diode Inc (LDI) from the late 1980s to the early ’90s on the development of continuous-wave (CW), high-power, multi-mode laser diodes. Hillis was an experienced epitaxial-growth specialist. Riordan specialized in LD test and characterization, and I was an expert in laser-diode-wafer fabrication technologies. Together, we had all the necessary technical knowledge and skills to successfully develop and manufacture high-quality laser diodes.
I was the ringleader and became president and CEO. Riordan, being the most educated with MSEE and MBA degrees, became the technical director, and Hillis, with the gift of gab, made a perfect sales and marketing director.
Our business was entirely self-financed or “bootstrapped.” In early 1994, we collected all our life’s resources and then some (borrowed where we had to) and set up shop in a New Brunswick, NJ, incubator center run by Rutgers University and the New Jersey Small Business Development Center.
We started with about 600 square feet of lab space that had all the essentials to fabricate, assemble, and test HPLDs. We outsourced a few critical manufacturing processes, such as metallization and coatings to local shops. This avoided the inefficiency of tying up capital resources on infrequently used equipment but allowed us some control over quality. Within eight months, we produced our first product and shortly thereafter received our first order.
Learning from past experiences
In retrospect, our business model was very much an outgrowth of our experience at LDI, which was an excellent training ground for aspiring entrepreneurs.
We learned at LDI that investment choices and capital allocation are critical to success, especially for a capital-limited company. For instance, taking a wrong path and losing critical development time can be more devastating than losing capital resources.
We also learned that doing a little bit of everything in many diverse markets ultimately weakens a company, especially in a lean environment. Choosing a few opportunities and executing well is more important than serving all possible customers.
The third thing that we knew from working at a “do-it-yourself” company like LDI was how to be innovative in a lean environment. We had to make the most of available, sometimes outdated, materials and equipment.
Although we didn’t know it at the time, our philosophy of lean and resourceful management was a critical element of our success and longevity.
Distilling our LDI experiences yielded the basic business principles that helped establish HPD’s core values:
Invest precious capital resources wisely
Focus on specific products for specific markets
Deliver industry-leading value to customers
By combining our experience at LDI with our complete vertical knowledge of LD manufacturing, we had a special skillset that provided a solid foundation for HPD.
Our mission wasn’t to create the best laser diode technology in the world but to create products that people needed, with high quality and good value. We created an environment of innovation by encouraging ideas and creativity from every level of the company, from operators to engineers to managers to scientists.
New laser technologies and applications
Prior to the telecom bubble two decades ago, laser diodes were generally used for military applications and were one of two types: low-power, single-mode lasers or high-peak-power pulsed devices.
In the latter part of the 1980s, commercial opportunities requiring “watt class” CW multi-mode laser diodes began to emerge. Pivotal applications such as direct computer-to-plate printing (CTP) and laser-diode pumping of solid-state lasers (DPSS) were key drivers of demand and fueled the rapid progression of HPLD technology into other markets like medical where its efficiency, size, and cost offered distinct advantages over incumbent technologies.
It didn’t take long before Spectra Diode Labs (SDL), OptoPower, and other companies staked claims to these new markets. It was clear in mid 1994 that our opportunity was at hand, and in January 1995, we left LDI and created High Power Devices.
It is extremely important to recognize that our venture, and perhaps the development of high-power laser diodes in general, would not have been possible without the development of vastly improved epitaxial growth technologies such as metal-organic chemical vapor deposition (MOCVD) or molecular beam epitaxy (MBE). These new processes eliminated the “black art” (liquid phase epitaxial technology) that defined LD manufacturing through the early 1980s.
This singular development led to a fundamental shift in laser-diode manufacturing technology, and it didn’t take long for entrepreneurs to follow the new technologies. Soon, numerous high-quality “process only” epitaxial-growth foundries were established. Companies like Epitaxial Products Inc. (EPI, now IQE), Quantum Epitaxial Devices, and others provided high-quality epitaxy for a fraction of the infrastructure and overhead costs.
The epi companies really opened the door of opportunity for us and allowed HPD to compete head-to-head with larger, more established companies like SDL (since merged with JDSU), OptoPower (part of Newport Spectra-Physics), Coherent, and Spectra-Physics.
Making your own luck
Building the company in the first year was all sacrifice and extreme uncertainty with little reward. As most entrepreneurs know, the period prior to success (or failure) is an almost frenzied time in which companies "find" themselves and develop the true culture of their business.
This is where companies make their own luck.
We were very fortunate in that respect. At the end of our first year of business, we convinced an industry-leading ophthalmic company to sample our laser diodes. The incumbent vendor for this company was SDL, and the ophthalmic company was looking for a second source of laser diodes — or perhaps we were being used as leverage to get a lower price from SDL.
Much to our excitement and surprise, the two samples we provided survived the rigors of the qualification process at the ophthalmic company. Shortly afterwards, we received a production order that meant life, growth, and success.
That order accelerated our standing in the industry and greatly buoyed our confidence. Best of all, that customer is still an important and valued client 15 years later.
Hitting our stride
It wasn't long before we established a solid reputation in the industry and began developing a long list of OEM clients. We reinvested profits at every chance and soon occupied 2500 square feet in the incubator. Two years later, in 1997, we moved to a 10,000-square-foot facility.
Over the next five years, we expanded to a 25,000-square-foot facility with all the necessary infrastructure for a growing laser diode company. All improvements were self-financed, without loans or venture capital.
We were profitable every quarter -- and probably every month -- after our first year and for the next 11 years. We ran a tight ship and delivered as much value to our customers as we could afford.
We expanded our component product lines by adding high-power, single-mode laser diodes. We also expanded the wavelength window on all our components and developed fully integrated LD systems and sub-systems. All the while, we made sure the effort or investment in new products was commensurate with the return.
Endings and new beginnings
Our reinvestment of profits was carefully measured and evaluated (it was our own money), and even with economic ups and downs, HPD was always able to come out in the black. Fortunately, our investments never yielded disappointing results.
Still, we realized we needed to push the envelope to really grow. In 2006, the company opened a strategic dialogue with another HPLD company formed during the telecom boom, Intense Photonics.
Intense's great technology and our ability to generate profits seemed like a synergistic opportunity that would bring our combined businesses to the next level. So in early 2007, we joined forces when Intense purchased HPD.
Alas, as things like this usually go, we found out the 2+2 did not equal 5. We didn't see the company developing as planned, and for other reasons that could be an article unto itself, Hillis left the company in 2008, I left in 2009, and Riordan followed in 2010.
Another company emerges
I am happy to say that we have launched ourselves back into the photonics business. In 2011, we started another entity in much the same way as HPD.
We are marshaling our 75 years of laser diode experience into a new company, Laser Light Solutions, to help bring high-power laser diode systems to mass market via medical, consumer, commercial, and industrial applications.
We believe there is tremendous laser diode technology in the marketplace today but that the applications for this technology are relatively undeveloped. At the same time, we are working with strategic partners to develop laser-diode device technologies to yield products that don't currently exist in the marketplace.
Given our extensive history with laser diodes and systems, we feel we are perfectly positioned to commercialize laser diode technology, and integrate this technology into systems and subsystems.
–Tom Moritz is president, CEO, and co-founder of Laser Light Solutions.
Entrepreneurs must value top talent
One important job of an entrepreneur is to find the right talent and staff.
By 2001, HPD was able to afford a staff scientist who, in retrospect, was taking as much of a risk on us as we were taking on him.
Iulian Petrescu-Prahova was a pioneer in asymmetric laser-cavity design and laser-diode technology in general. Although we supported the technology as best as we could, our conservative investment strategy kept the technology at bay until many years later.
In this case, being a manufacturing-based company constrained us from making a significant commitment to technology leadership.
It wasn’t until we sold the company in 2007 that we realized how valuable his ideas were.
Fortunately, Petrescu-Prahova has joined us in our new venture, Laser Light Solutions, and we are now focused on LD technology development and innovation.
Companies can’t be successful without making a few mistakes.
Vast changes in market for laser diodes
High Power Devices (HPD) could never start up in 2012. The laser diode market today has many quality suppliers offering tremendous products at very low prices.
And where the market in 1995 was enabling just a few new applications, the industry today is poised to advance into a plethora of new markets.
Coupling low-cost, lean manufacturing with state-of-the-art technology put high-power laser diodes in an ideal position to enter and dominate new markets. This is already evidenced by consumer medical (Tria’s compact hair-removal system, for example) and gaming products (Microsoft Kinect uses a very high-power, single mode LD) reaching remarkably high volumes and lower prices.
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