In this column, I interview Victor Liu, president of Focuslight (Xi'an, China), a maker of high-power laser diodes, about being an entrepreneur in China.
Milton Chang: Tell us your educational background.
Victor Liu: I got my BS degree in physics from Shaanxi Normal University, which is a school to train teachers. I was able to enter Beijing University, where I studied physics. I got my PhD in materials science under Professor G.Q. Lu at Virginia Tech, who has a joint appointment in electrical and computer engineering.
After graduation I worked for Corning in New York for five years developing high-power diode lasers for erbium-doped fiber amplifiers for the telecom market. Corning changed direction to address high-power industrial application of diode lasers when the telecom bubble burst in 2002. I later moved to Coherent to work on laser diode bar products, and was recruited to nLight Photonics about a year later to help set up their engineering capability in Shanghai. The job was demanding, requiring me to travel monthly between its headquarters in Vancouver, BC, and Shanghai. We decided to move to China in 2007 so my wife could take care of my mother-in-law, who required medical attention.
MC: Then, you decided to start a company?
VL: I joined Xi'an Institute of Optics and Precision Mechanics of Chinese Academy of Science and did research there for a year while working for an existing small diode laser company that was not very good at manufacturing. I took over the company and changed management in 2008. Our initial seed capital came from the Institute and some friends, totaling about ¥10M (about $1.5M US).
MC: That's not a lot to start a high-power diode laser company.
VL: We only do packaging. We buy bare chips and bars from companies in the U.S., Germany, Finland, and Japan. Initially, we only worked on "open packages" such as products with bars mounted on conduction-cooled heatsinks or microchannel coolers. We raised two additional ¥10M rounds of capital in 2009, one additional ¥10M round in 2010, and an additional ¥30M round recently. We were able to get a 30–40% uptick in valuation each time because we are profitable operationally and revenue was growing nicely. We had to raise investment capital because we are spending over 20% of our revenue on R&D and we have to increase manufacturing capacity, which means buying new production equipment and hiring people. However, we kept each round small to just what we needed to minimize dilution of our ownership, buy new production equipment, and hire more people.
We are too small to get U.S. or other foreign investors interested, so our investors are all Chinese. There is no lack of interest, given that business is good.
MC: Give us an overview of your products and business.
VL: Focuslight has several series of CW and quasi-CW high-power diode lasers using conductive and proprietary micro-channel cooled packages. Our products are competitive, but we do not have high-end fiber-coupled devices yet. Being able to customize is our strength. Over 30% of our employees have advanced degrees and we are willing to invest what is necessary to customize.
MC: What are the applications of your high-power diode lasers?
VL: The biggest market for our high-power diode laser is medical and beauty, including hair and wrinkle removal and dental applications. These are mostly large systems used in clinics or hospitals. Heat-treating such as cladding and hardening is another area, as well as pumping. The market for large-area infrared illumination for security application is emerging. About 65% of our customers are domestic and 35% are overseas.
MC: Say something about company culture in China compared to the U.S. companies you worked for.
VL: We now have over 220 employees; nine of us are educated in the U.S. or Europe, some have worked overseas, and others are recent graduates. Traditionally, the management style of Chinese companies is top-down; subordinates are expected to follow orders without question. And employees working for state-owned companies are more concerned with appearance than quality and profits.
We try to create more of a U.S. work culture, where we solicit input and encourage discussion or even debate. And we select our employees carefully. Workers who graduated in China have technical skills that are quite good, but they tend not to be as innovative and creative as workers trained overseas—again because of the culture they grew up in. They were expected to obey their parents and follow orders.
MC: How well do you compete with domestic companies?
VL: We emphasize quality, reputation, long-term relationships, and repeat customers. Many companies here have beautiful websites, but in reality resell inferior products competing on price. I am also saying you have to be careful when you select your suppliers.
MC: I understand state-owned companies have advantages.
VL: Relationship is very important in doing business in China, as are reputation and brand. Companies that are state-owned find it much easier to get support. We are considered privately owned because the Institute is only an educational institute. There is also a distinction between high-tech companies and conventional businesses—we pay 15% income tax compared to 25%. But that has to be reviewed and approved by the Ministry of Science and Technology every three years.
MC: What are your plans going forward?
VL: We will continue to focus on R&D to achieve higher power and higher brightness products. We are now pretty good in the "open packages" that are not fiber-coupled, such as conduction-cooled mounts, water-cooled packages, and vertical stacks, but are behind in fiber-coupled products. So we are putting more effort and investment there. We are also working on a kilowatt-level diode laser head for cladding and surface treatment application. Based on what I know, we have a lower cost advantage because we have 10–15% higher yield, 2–3% lower return rates, and a lower labor cost. We will continue to refine our manufacturing to enhance those advantages, and to cater our R&D effort to meet the needs of our customers.
Milton Chang
MILTON CHANG of Incubic Management was president of Newport and New Focus. He is currently director of mBio Diagnostics and Aurrion; a trustee of Caltech; a member of the SEC Advisory Committee on Small and Emerging Companies; and serves on advisory boards and mentors entrepreneurs. Chang is a Fellow of IEEE, OSA, and LIA. Direct your business, management, and career questions to him at [email protected], and check out his book Toward Entrepreneurship at www.miltonchang.com.