This article is part of our September 2015 special report on startups, which highlights IEEE’s efforts to attract more entrepreneurial types to the organization.
After taking two high-tech startups public and helping to incubate nearly a dozen more, IEEE Life Fellow Milton Chang is now an angel investor in Los Altos Hills, Calif. He welcomes new investment opportunities in exchange for equity in the company, of course, but he says most people who come through his door aren’t ready to start their own ventures.
“Business is not a game,” Chang says. “Most business plans I see focus on technology but lack detail on how to move the company forward and grow. They are based on assumptions instead of verified data.”
Chang should know what he’s talking about. The first startup he was involved in, Newport Corp., became a leader in photonics technology. Other startups he has invested in—including JDS Uniphase, an optical communications company, and CyberOptics, a leader in 3-D sensors and scanning—have also gone public. He now runs Incubic, an investment firm focused on biotech and photonics companies, where he is currently working with five new ventures.
Six of the companies he personally invested in have gone public, and the rest have been acquired. None has failed—an impressive feat considering that more than 90 percent of startups go out of business.
His self-published book, Toward Entrepreneurship: Establishing a Successful Technology Business—available at MiltonChang.com—is used as a textbook in business classrooms at several universities. He writes a monthly business and management column for Laser Focus World magazine and mentors aspiring entrepreneurs. Last year, he received the IEEE-USA Entrepreneur Achievement Award for Leadership in Entrepreneurial Spirit, which recognizes an individual who has been instrumental in furthering entrepreneurial growth and enthusiasm in the United States.
How has Chang been able to help startups succeed when so many others have failed? “With an engineering approach,” he says.
becoming an ENTREPRENEUR
Coming up with a good business idea is not about jumping on the bandwagon of a “hot” technology, Chang says. Trendy ideas might seem like great opportunities at first, but they often cool quickly. Such startups might also face better-equipped competition.
Instead, Chang suggests using your experience as an engineer to identify an untapped market that you—and perhaps only you—know how to fill. That’s how Chang made his mark. He launched his first startup, in Irvine, Calif., after he did research in lasers and holography, which was what he studied as a Ph.D. student at the California Institute of Technology, in Pasadena.
At first, Newport Corp. produced just a few laser and optical components, which Chang knew were needed by research labs. The company expanded slowly until it had an entire catalog of products. All the while, Chang maintained close ties with those in the field, which allowed him to get feedback and understand their needs. He was elected president of both the Laser Institute of America and the IEEE Photonics Society.
“If you use your engineering expertise to identify a need, and it’s in a niche market that you know well, then you’re not taking a huge risk,” he explains. Serving a relatively small market also means you need less capital to start. And you can take time to hone your business and management skills instead of getting overwhelmed with demands and making hasty decisions.
Once you have identified an opportunity to serve a specific market, do your homework. “Verify who your customers will be and their specific needs, as well as the market size,” Chang says. “Walk through every detail of how customers make a buying decision; make sure you know what is required to make your venture a success.”
He calls this his “business prototype.” Similar to product prototyping, which allows engineers to work out kinks before moving into volume production, business prototyping lets startups verify that their products or services fill a real need by attracting their first sales before investing heavily to build out the business. “It makes it a lot easier to attract the investment capital you need at that stage,” Chang says.
CAPITALIZING ON YOUR IDEA
Raising capital for a new business is not easy, Chang notes, adding that contrary to popular belief, “venture capitalists are not risk takers for risk’s own sake. They’re smart investors who can quantify risk and determine whether the risk justifies the reward.” They don’t invest on speculation, he adds. They make an investment only if they’re confident that a company is likely to succeed.
Chang and his cofounders at Newport received financial help from family members. He and his team worked long hours filling multiple roles for small salaries while the company established itself.
Most startups, he says, should try to attract at least some financial assistance early on. “Having financial backing can sometimes be more important than technical merits,” he says. “Every business makes mistakes along the way; you’ll be able to recover from them only if you have the money to keep moving forward.”
NEVER STOP LEARNING
Entrepreneurs should always be ready to learn something new, he says, adding, “The secret to success is knowing what you don’t know.”
You need to stay humble even after you enjoy some measure of success. “Arrogance makes you think you are better than you really are,” he says. “That’s when you’re going to make mistakes.”
Chang suggests that technologists learn the whys and wherefores of business practices long before they start their own ventures. He did so before launching his first company by taking classes, attending seminars, and reading as many business articles and books as he could find. He suggests enrolling in business and management courses at a college or online and taking on entrepreneurial challenges that turn up in your current job before you set out on your own.
Learn from people in your company, including those in finance and marketing, and understand how products are commercialized. “That way,” he says, “when you launch your startup, you will already know many of the aspects of how to run a business.”
To be successful, Chang advises, you must be practical, understand the market, and fulfill a customer’s need. “This approach is proven and empirically verified,” he says. “This is the formula for starting up your own venture and having it succeed.”
This article originally appeared in print as “Getting Schooled on Startups.”