Swapping Optical Benches for Boardrooms
Transitioning from research spectroscopy into the business world can be a daunting prospect – here I offer some tips from my journey with Innovative Photonic Solutions to help you on your way
Scott Rudder |
Discussions of business and entrepreneurship are not all that common in the scientific field. Like many of you, I dreamed of starting my own business, but was afraid to quit my stable job to “take the leap” into start something of my own from scratch. To most analytical thinkers, it’s a scary concept to make such a big change in our lives. I guess most people in our field are largely risk averse, and – despite their great ideas and clear talent – are hesitant to take the plunge without some sort of guidance. As it stands (at least in my own experience), career scientists are often not given the appropriate skills to traverse easily into the world of entrepreneurship. When kickstarting a business, there are a number of questions you should consider…
Jump – don’t step!
Sometimes it is easier to explain a concept with a metaphor… That’s the purpose of this section’s title. When starting a business, it is important to recognize that the founder needs to “jump out of a window” – they need to commit themselves fully to their plan. They cannot “step out” carefully – stepping out of the window allows for reflection, and fear and doubt can creep in. It is impossible to fully commit to a path when you have a safe alternative to retreat to when times get tough (which they inevitably will). The key point in this metaphor is that an entrepreneur needs to take a leap of faith – jump out of a window – but this is not done blindly. The entrepreneur needs to “know what floor they are on before they jump.” Just how risky is this business opportunity? Is it a leap out of a first or second floor window? Or is it a bigger risk – a leap from a higher floor. This refers to a more challenging business plan that requires a lot of capital investment to be successful. In this case, you need a parachute, by which I mean investors are needed to help you mitigate the risk of the fall. No matter the plan, however, the entrepreneur needs to take the jump out of the window in order to be successful!
Is my idea the right one?
Step one in any business plan is to decide on the product or service you will be providing. Once you understand this basic requirement and expose it to entirely different views from peers, it can open the door to untold opportunities for the analytical community. I think this question can be particularly tricky to answer for us analytical thinkers.
My business training came from my time in the army. I worked for the United States army for 12 years or so, and my boss at the time sent me to business school, where I was exposed to lots of professionals with financial backgrounds and incredible worldviews. These people seemed to speak a completely different language to that I was used to, and I learned a lot about myself through mixing with them. The biggest lesson I learned there: there’s not always one answer to a question, there are many, and each is right for completely different reasons. Be sure to speak with people from both engineering and science – as well as finance and marketing or sales backgrounds – to truly understand the different ways that your business plan could be successful – then pick the one that suits your exit strategy.
What do I want to get out of it?
When starting a business, you should know exactly what your exit plan is: will you run the business for the foreseeable future, would you like to sell it once you reach a certain stage, or would you like to take the company public? It is important to define your exit strategy when starting a business, because this decision will drive the way the business is organized and managed. For example, it makes no sense to try to raise capital from an investor if there is no plan to ever sell the business. Furthermore, the type of corporation you establish (S-Corp, C-Corp, LLC., etc.) needs to align with your exit plans in order to minimize both tax consequences and paperwork issues in the future. If you’d like to take your company public, then you’d best prepare for this far in advance; you’ll need at least three years’ worth of books to successfully pass a financial audit. Ultimately, no matter what exit strategy you decide to adopt, it should be a main priority in your business plan. You’re much more likely to get to where you need to be if you mold your strategy around that endpoint from the beginning. In some ways, defining and documenting the exit strategy when you start the business is more important than the idea itself.
Who should I go into business with? “The rule of three”
That’s up to you! But one thing I will say is that I think it’s important to go into business with a minimum of three people (yourself included) – something I call my “rule of three.” It’s important that the three of you have differing mindsets that work well together to avoid mistakes in key decisions, and if one of you has to take a step back for a short while or has a difficult day, then you have two close partners who can support you and continue dealing with important affairs. This emotional support is just as important as the business knowledge itself – there will always be difficult days, and it means a great deal to have somebody there to reassure you that everything will be okay.
In addition to the three business founders, you also need a board of directors to help guide the business. I believe that there should once again be a minimum of three members on the initial board of directors. This assures that there are others with which to socialize ideas, and that there are no “ties” when difficult decisions need to be made.
Where can I obtain financial support for my business?
Larger ideas require access to venture or investment capital. Smaller ideas, however, can be “boot-strapped” and self-funded. But what is the difference between “small” and “big” idea? This is an integrally financial question. Many in our community would think that an investment of $250,000 to $1M would be a large sum, but this is far too small of a figure to be of interest to a venture capital or private equity firm – and even most Angel investors would not express interest. Realistically, you must be looking to raise figures of $10 million or higher to interest the commercial investment community.
So, what do you do if your idea just isn’t that big? You “boot-strap” the company, of course. In this case, each of the founders put in their own money and search for a company that would be willing to put up some small investment in your firm in exchange for first mover advantage and equity.
When my partners and I started Innovative Photonic Solutions (IPS), we put our own money into the company, and we identified a commercial partner who supplied some equipment and a small amount of money in exchange for access to the product and a small equity stake. We had no safety net whatsoever, and we didn’t take salary for around nine months – but we had our first customer! In terms of investment, we took the smallest amount of angel investment we probably could to keep us going at the start. It took a year and a half or so for us to become financially stable and stop worrying about making our own payroll, and the rest, as they say, is “history!”
How important is my business plan?
From the beginning to the end, the business plan is one of your most valuable resources. Think of it as a living document – it must evolve constantly, both with yourself and the business. Use it to continuously check whether or not you are on track for your original (or adapted) aims, and adjust your approach accordingly. It is important to recognize that your business plan can change… But these changes should be conscious, not fallen into. If, upon periodic review, you find that you have strayed from the original plan, try not to worry too much. Compare the new plan with the original, and decide which is better and correct your strategy. Sometimes your new path may be better than the original – but it’s important that you constantly reassess if this is the case.
In the case of our business, I was on a skiing holiday when I suddenly realized that there was a huge problem with our current business plan – the time that we had projected for adoption of our technology into the market was not at all realistic. The customer base was going to take longer to develop than we anticipated; by the time the customers were ready to adopt our idea, there would likely be a fair amount of competition and we would have run out of funding. We adjusted our plan by focusing in on a smaller market. That allowed us to target buyers with an immediate need more effectively, and our new product offering was much less price sensitive than we had initially envisioned. Ultimately, the business changed direction toward a smaller opportunity, but we survived, whereas we might well have perished if we stuck to the original plan.
When should I sell the business?
It depends! In our case, we sold IPS to Metrohm two years ago, almost 14 years after starting up. In that intervening period, I learned that the exit is less about the money offered, and more about the culture match between the acquirer and the acquiree. You must consider carefully at this stage exactly to whom you are going to sell your company; there’s no point making a lot of money if an overly demanding company takes over and makes your life miserable. No amount of money is worth that. For this reason (any many others), it’s important that you choose your “dance partner” wisely – you will likely be required to stay on and help with the transition for quite a while, and you might as well be happy during that period!
Give yourself “real options” and “date around”!
When faced with difficult decisions, analytical thinkers often go with the lower-risk option, which can seriously limit (and frequently eliminate) the upside potential of an opportunity. In this situation, you need a “real option” to take a risk and allow yourself to say YES! People often deprive themselves of this option. For example, you see a job listing that sounds interesting, but before applying you complete a list of potential negatives (bad location, poor money, and so on) and never apply for the position – you never really had a decision to make in this example, as you said NO to the job before it was even offered. Instead, you should allow yourself the option to say YES. This concept is critical when starting your own venture; you need to leave all possible options available in order to choose the best fit.
My final piece of advice I often share is to “date around.” Involve yourself in many different types of technologies or business before committing to one – find out what you don’t like. And, like with dating, avoid what you already know is not a good fit for your personality or goals.
I urge you to “jump out of the window.” Entrepreneurship is exciting and rewarding. If you can overcome the barrier of fear of “falling,” you can open the doors to untold opportunity for yourself and your colleagues.
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