Starting A Busienss Without Jeopardizing Your Financial Security July 2012

1. Starting A Busienss Without Jeopardizing Your Financial Security July 2012 miltonchang@incubic.com www.incubic.com www.miltonchang.com

2. Entrepreneurship enable each of us to reach our full productivity potential to benefit humanity

3. 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)… Companies I Started/Incubated

4. A What I’ve Learned from the HBS and The “School Of Hard Knocks”!

5. 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

6. Addressing two topics of interest today • The process of starting a business • Prepare for entrepreneurship and gain access to opportunity The Book Offers Practical Insight On All Aspects Of Starting And Running A business

7. 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.” Use Capital To Create Value Efficiently Is A Necessary Condition For A Business To Succeed

8. “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 Starting Company The Usual Way

9. 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 • Haste-makes-waste, mistakes are costly and unavoidable. Why Is The Conventional Approach Risky?

10. 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,

13. 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

14. 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 What Is Prototyping A Business?

15. 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 Start In Your Own Niche Is Capital Efficient & Is Low Risk

16. Very few businesses are suitable for the build-out-rapidly 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.

17. 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 What About First-Mover Advantage?

18. 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. Acquisition Is A Likely Exit Scenario

19. 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 Take Home Messages

20. #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 Prepare For Entrepreneurship

21. 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 A Few Personal Advice

22. We all have dreams; • Develop a dream into a goal, • Strive to make that goal a reality You Can Do It!

23. A Available at www.miltonchang.com

24. You Have My Best wishes! Milton Chang Incubic Management LLC miltonchang@incubic.com www.incubic.com www.miltonchang.com