Purgatory

This is a two-parter. Those of us who cut our teeth on the laser business have a unique perspective on Purgatory. For VCs it’s the biggest fear in investing--there are three outcomes of any deal: Win, lose, or ... nothing--the company manages to scrape together enough customers to survive and extend for years, and years, … and years, but never grows. In the last tech crash VCs sought to “hibernate” companies but learned too late that technology has a finite shelf life--you grow or you die, you get big or you go home ... like the Roman empire, or the Greeks, or the Persians, or ... the US?

In the laser industry Purgatory was always the status quo: so when the tech bubble burst it actually didn’t feel quite so bad, and interestingly laser industry guys had a unique advantage in how to navigate it ;-)

For the benefit of non-laser people, laser companies are usually driven by technologists who create a wonderful unique new technology (such as a diode-pumped laser producing green or blue, or doubled diode, or direct visible diode): It's amazing, no one can believe it was possible--it's the holy grail. So now, what do you do with it? Initial customers love it, pay big $ to get it, and after a while you figure out that their app is a medical device, or industrial, or mind reading. There is a unique characteristic to your laser that even you didn’t understand and your customer has worked out how to use that to solve a really important problem. So they get paid well for that and grow. You grow too, albeit more slowly, being a components guy.

Now I know that in the telecom bubble things got inverted and components were king for a while--but this is rare (unless you are in semiconductors where all the value is in the chip, not the consumer product). Your customer starts having success, then other really smart technologies jump in and start coming up with other products and technologies to serve him, and you become marginalized. The other unique characteristic of the laser industry, probably because it's so sexy ;-) is that there seem to be way more competitors and small startups for every opportunity than in any other industry--i.e., if a normal vertical can feed five competitors, the laser vertical will have 20 … so you get stuck in the dreaded chasm (Moore).

When we are in the middle of the chasm, we'll do almost anything to try and get to the other side. Raising venture funds can be a good way to do it if you can really scale, but all too often you get stuck in purgatory--get to breakeven but not to the other side. You are still stuck but now you have angry VCs on your body and they are going to hammer you until you succeed … or break. Having suffered through this a few times, I have an idea of what to do.

So how do you get out of Purgatory? Well it involves a lot of Hail Marys … but, at Iridex we integrated up the stack from component to end-user product. We had the unique visible semiconductor laser component that made a unique, and more revenue, and higher margin ophthalmic laser; we had the high-brightness high-power diode subsystem, which made a much better hair removal laser than a component. Clearly, the closer you get to your customer the more of his $ you can earn!