Life by Misadventure''

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Life by Misadventure..
US Experts Talk

• Larry Marshall
• Formerly CEO Light Solutions, Lightbit,
  Translucent, Fiberbyte
• CTO Iridex, Iriderm
• Currently Chairman AOC, Intersymbol

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So who does this guy think he is?

• Left Oz 17yrs ago..never lose the accent
• PhD in Sydney, ended at Stanford
• Startup Fibertek, 5 years later
• Co-founded ran Light Solutions
• Formed IRIDEX, went public in 96 on Nasdaq
• 1st investor in Shanghai Land, Transvascular,
  Exploramed, MBA Vision
• Co-founded IRIDERM to spin out
• Co-founded AOC, Fiberbyte
• Founded ran Iridex OEM group to sell
• Co-founded ran Lightbit, bought IOA ? sold
• Co-founded ran Translucent ? sold
• Always made for investors

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Light Solutions

• Founded 1993, in a Recession
• GREAT VCs
• B of A, Citibank,

• Funded 250k, from 37 credit cards
• Founders drew no salary for 2 years
• 1st year employees worked for equity
• Worked out of my basement bedroom

VISA, Mastercard

• Classic Aussie bootstrapped Startup, in US
• Invented the holy grail of lasers (at that
  time)
• Strong IP barriers, 2-3yrs ahead of competition

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Whats wrong with this Business?

• Where is the Customer?

• CUSTOMER 1st
• NOT Technology 1st
• Never be a solution looking for a problem

• Startups dont fail because of bad
  technologythey fail for lack of
  a CUSTOMER

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Betting big ? IPO Iridex

• Had to find a PARTNER
• 1st Partnered with, then Merged with Iris
• Iris had great SM, but no Technology
• Created IRIDEX ? IPO in Feb 1996
• Returned 12x to Investors at IPO (the shoe)

• Kevin wants to buy company for 20 premium ?
  cites synergy growth vision
• Should we sell?

• Company was JDSU, Kevin (Kalkhoven)
• If wed sold to JDSU, would have returned 70x

• .. if you think thats badDave offered to buy
  1 year later

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Bootstrapping AOC Corp.

• Its great to think Big, but small works too
• Most Aussie companies have to bootstrap
• AOC is a classic Oz company, but its US, in
  Silicon Valley
• Funded 100k from Founders in 99
• Could have raised VC in bubble, but didnt need
• Founder wanted to be his own boss ? VC means EXIT
• Optical components for Cable
• Cable was deserted for Telecom
• More earnings than most public Telcos
• Growing at 17...... even in this _at_T market
• Returning 1M/y tax free dividends to founders ?
  small works!
• Customer, Customer, Customer ? FOCUS
• No Technology, just CUSTOMER focus, great
  Execution

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Leaky Pipes

• Most Startups fix the customers leaky pipe
• Problem is that most Startups pipe leaks at the
  source..the CUSTOMER
• Great Product development, but lousy.
• Customer Development

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Customer Development
Has Has problem Trying to fix Knows its
Hard PRICE not an ISSUE

• FIND CUSTOMERS
• Filter out users from visionaries
• Validate Customers.with POs other.

• UNDERSTAND CUSTOMERS
• Who decides to buy Why ?
• Create Sales PROCESS

• VALIDATE SALES PROCESS with Customers
• Go through process with many customers
• Iterate until PROCESS works

• CREATE CUSTOMERS
• Apply the PROVEN process
• Mine the space vertically, then horizontally

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The Key Listen

• Aussies feel a little intimidated in US, tend to
  talk even more than usual
• Cant out talk an American.. so listen instead
• A great salesman talks 20, listens 80
• Customers, Employees, Investors will tell you
  what you need to know if you
• ASK THE RIGHT QUESTIONS
• Listen carefully to the answers
• People like to be listened to, want to be
  understood
• 1 Mistake telling the customer his problem
• Wouldnt you prefer to do business with the guy
  who listens to your problem genuinely wants to
  help?
• Lee Iacocca vs. Darwin Smith

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Technology

• Aussies have great education. little debt
• Maybe we dont appreciate it so much.
• Is Technology the key to a Tech startup?
• Light Solutions AOC say NO!
• But, Translucent says sometimes.
• Transparent Electronics ? 400B TAM
• Demonstrated optical gain in Silicon 2004
• Signed Partnership with major US Semi-Co
• PARTNERING Completed value chain ? SOLD
• Partnering enabled sale of just technology

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Know When to Change, Sell

• 2000 Lightbit is a 1B company with unique
  product that fills missing piece tier1 VCs.
• c.f. 2-3B acquisitions for tunable, AOXC.

• 2001 offered 100M by big Chip Co.
• What !?! Take a 10x ROI in a space where peers
  have done 100x
• 2002 offered 50M by big Telco.
• You idiot why would VCs take a measly 5x ROI
  rather risk it all
• Meanwhile - Repositioned into Biotech very
  quietly..

• 2003 offered 4M by 2 Public Co.s..
• End 2003 sold to Chinese consortium for 3x
  Industry avg.
• Because we shifted focus had a key customer
  they needed
• .. because they got 100M from China govt., for
  doing it!
• can fix Technology, never the Market
• Be Focused, but dont wear blinders

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Team

• VCs invest in Teams, not Dreams
• Markets always change, so your idea will tooall
  companies evolve
• The Team must be able to adapt
• 1st decide Whose on the Bus
• then Where are they sitting
• then..work out Where to Drive
• .. know when to get off!

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Technology Evolution

• All these companies were at various stages on
  . the Technology Evolution curve

Market Growth
Time
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Making it Harder

• Lead with price
• Dont take from early adopters
• Over-promise under-deliver
• Not understand Marketingthink its on the ground
  in a cow paddock
• Separate Marketing from Engineering
• Implications for Oz/mid-west companies
• Arasor sells in US China, by having SM RD
  in both places
• Be far away from Customer..Oz
• Enter Foreign markets too early
• Classic mistake made by most US startups
• Not understanding real Partnering
• Toothless partnerships no resources, ,
  leverage
• Bad branding - Metalaser Koala /eagle

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Why Startups shouldnt lead with Price

• Downturn funded only if you deliver a 10x
  reduction in price
• Whats wrong with this picture?
• Lowering price shrinks Market
• Unless there is price elasticity (only in growth)
  
• Need early adopters to embrace (pay for) new
  technology dont leave home w.o. them
• Champion your cause.pay your NRE
• Tech Startups should focus on Performance
• Real customers want the unfair advantage
  willing to pay for it
• Shouldnt care about price
• Problem In a down market everyone cares about
  price
• Steroids only work in a boom, need Aspirin in a
  bust ? Internet
• So instead, Find another Market that values you

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Marketing

• This is really hard in Australia because
• Markets are a mile wide but an inch deep, so
• There are so few true Marketing people
• So make this a strength..always lead with your
  strengths
• Use Oz to find the best niche perfect the
  PROCESS
• Then take the best niche to the US market..but
  remember its a different culture
• It costs 2-3X more to Market Sell than develop
  a product
• Expect to PAY for it.Aussies dont like to pay
• Why does Intel advertise?
• Classic Push-Pull breaks down the barriers
• Arasor sells to system Vendors (Huwawei, Siemens,
  Pirelli.)
• But markets to End User Carriers (China Mobile,
  China Netcom.)
• Won China wireless markets by convincing
  Carriers, who then told their suppliers to design
  Arasor in

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Partnering .

• Great technology, no Customer engagement
• Fixed product after real customer interaction
• Difficult for company in Chicago, c.f. Oz
• 1. Marketed to Customers customer ?
• They convinced our customer to design us in
• ? 1st design win, 1st revenue, 1st volume PO
• 2. Partnered with Company in different segment
• Proved can use our chip to make their 5k product
  for 1k
• 3. Value ?
• Chip revenue Product value ? 1 3.
• 4. Exit
• Partner is also your most likely buyer

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Value

• Aussies tend to focus on whats the other guy
  getting from me ..is he ripping me off?
• VCs want too much equity
• Consultants want too much
• Americans focus on what is he doing for me
• Can I get there faster with VC
• Can I make the opportunity bigger
• Focus on making the Pie bigger
• Aussies are great at bootstrapping, and
  conserving
• ..But you cant save yourself rich
• Share the wealth with Investors, and Team
• At TVI, gave away best idea to drug companies, to
  get a win for our core
• Create real value by making your Customers pie
  bigger
• Cutting his costs is OK, but expanding his
  business is HOW YOU WIN
• Know your value proposition respect others

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Networking

• Its just business.one of the most misquoted
  lines
• PASSION fuels startups, not just
• Your startup is your baby, it doesnt get more
  personal than that

• Form relationships friendship mutual leverage
• Make customers, employees, investors enjoy being
  around you.then theyll stick
• Friendly exchange of influence opens doors
• Introductions beat cold calls ? value chain
  PARTNERS
• Aussies dont do this well.. if at all
• Do you have a Mentor?,.1 for each key element?
• Do you have a local CEO forum, monthly?
• What will you do at the end of these talks?
• You gotta give
• Be willing to give 1st,..even if its not your
  shout
• and pay back when someone gives to you 1st

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Fear Failure

• Amercians love to win, but have no fear
• Love a winner, respect a guy whos not afraid to
  try

• Aussies hate to fail
• Even tend to enjoy watching others fail..tall
  poppy
• Its OK to fail - if you fail, fail fast move on
• Probability of failure is high if win is large
• Mediocrity/Purgatory is worse than failure
• Its how you respond to a setback that decides..
• Once you leap, there is no failure
• Weve all been raised to be good employees
• Education in Oz focuses on making us more
  employable
• It takes tremendous courage to break out as an
  Employer

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Location, Location, Location

• SM must be near customer
• RD should be near SM
• And engineers should interact with Customers.
• Its hard to build a tech company in Chicago, let
  alone Australia.
• Plan to recruit in, then move your company to,
  the US
• Start building a US Network NOW
• Anyone who can succeed in Oz, can succeed in
  US..or China
• You have already managed to serve such diverse
  (thin) markets make doing it
• Americans can learn a lot from what youve done
• Make sure you LISTEN to them, learn, too

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Thankyou PERTH
Larrymarshall_at_sbcglobal.com
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Thankyou BRISBANE
Larrymarshall_at_sbcglobal.com
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Thankyou SYDNEY
Larrymarshall_at_sbcglobal.com
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Thankyou MELBOURNE
Larrymarshall_at_sbcglobal.com
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Thankyou CANBERRA
Larrymarshall_at_sbcglobal.com
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Thankyou ADELAIDE
Larrymarshall_at_sbcglobal.com