MEMS Commercialization Report Card, Part 7: Creation of Wealth, Part One

Roger's Report Card by Roger H. Grace

Introduction

The motivation for creating a MEMS Commercialization Report Card was described in part 1 of this series, where the author was asked to participate in a panel at the 1998 Hilton Head MEMS Conference "Rump Session" where the topic of discussion was why aren't there more MEMS millionaires. To better understand the rationale for this, I developed a market research project, which led to creating the MEMS Commercialization Report Card.

The creation of wealth is one of the most important of 14 critical success factors/topics determined to be the root cause of MEMS commercialization success or lack thereof. Because of the overall interest in the creation of wealth versus the other 13 factors, it has been decided to present it in two parts.

To truly illuminate the creation of wealth topic, I deep dive into the subject with personal interviews of several of the most successful MEMS millionaires.

As a result, we obtain their personal insights into why they have been successful and suggest how others can do likewise. The second part will include a summary of these in-depth and insightful interviews.

Discussion

The report card continues to show lackluster grades for wealth creation, weighing in at a grade of C+ for the past three years. On this topic, it is my opinion that there have been more employee millionaires recently created by either Microsoft or Google than those created for employees in the entire MEMS industry since its creation over 50 years ago.

It is interesting to note that the key to creating wealth in any business can take several routes: grow the business, create profits, and reinvest the profits to continue the process. Essentially, to quote the old investing firm ad, "make money the old-fashioned way, earn it."

Alternatively, it is the hope and dream of every entrepreneur to go public with an initial public offering (IPO) and create wealth. Another scenario, an exit strategy, is to be acquired by another organization. This latter approach has been the prevailing industry strategy for MEMS companies with many of the founders and key employees of these organizations reaping great rewards (see figure 1). Analysis shows that there have been well over 30 acquisitions of MEMS companies since the first acquisition of Integrated Sensor Transducers (ICT) by the Foxboro Company in 1978.

To the best of my knowledge, there have been a very small number of pure- play MEMS companies that have gone public, e.g., MEMSIC, which decided to go private in 2013, Invensense, Cephied, and MEMSCAP on the French exchange. Of these, Invensense is the success "poster child" of the group, going public in 2012 and having made, as stated by Steve Nasiri, Invensense founder and former CEO, "over 100 millionaires of its current and past employees." Unfortunately, this successful IPO situation is rare in the MEMS industry and as a result, it has created a great deal of trepidation for entrepreneurs and investors.

 

Fig. 1: The preferred approach to create wealth in the MEMS industry has been to be acquired by a strategic partner.  Starting with the sale of IC Sensors to the Foxboro Company in 1978, there have been at least 30 such deals, with only three US companies going public during that period. Shown is a partial list of companies sold.
Fig. 1: The preferred approach to create wealth in the MEMS industry has been to be acquired by a strategic partner. Starting with the sale of IC Sensors to the Foxboro Company in 1978, there have been at least 30 such deals, with only three US companies going public during that period.
Shown is a partial list of companies sold.
  (Click image for larger version)
 

Results

2013 Grade=C+, 2012 Grade=C+, Change=0, Standard Deviation= 1.90 (based on 85 respondents), Standard Deviation=2.10(based on grades from 1998 to 2013)

Fig. 2: Grades for the creation of wealth have tracked the economy and stock exchanges rather closely with high grades in the 1999 to 2001 period and low grades in the 2008 to 2010 period. Its Standard Deviation at 2.1 over the 1998 to 2013 report period is quite high versus all 14 topics and is only exceeded by VC Attraction (2.38) and Industry Roadmap (2.37) grades.

Fig. 2: Grades for the creation of wealth have tracked the economy and stock exchanges rather closely with high grades in the 1999 to 2001 period and low grades in the 2008 to 2010 period. Its Standard Deviation at 2.1 over the 1998 to 2013 report period is quite high versus all 14 topics and is only exceeded by VC Attraction (2.38) and Industry Roadmap (2.37) grades.

Verbatims

  • It will definitely be creating wealth in the future based on the growing numbers of devices and applications.
  • Supplier side improvements e.g. Invensense. Customer side flat or down e.g. Apple. Nest is a positive.
  • It is difficult to start something new in the actual MEMS industry space. I think there are still good opportunities to create wealth through the applications that MEMS technology opens up.
  • I still remember stories of secretaries at Microsoft becoming millionaires. But look at even the most successful MEMS business and there are very few rich people behind them. There are a few and recently seem to be some more, but this is still very low. Creation of wealth for individuals still seems fairly low, however as an industry, a great deal of wealth has been created, and that is my reason for the increase in grade.
  • No MEMS IPO has gone 50x yet
  • At Invensense we created well over 100 multi-millionaires
  • Compared to other industries, wealth creation in MEMS remains rare.
  • Some MEMS companies have been acquired and people are making money.

Further Discussion

Creation of Wealth, Part Two will feature summaries of the interviews conducted with several MEMS millionaires who will share their secrets of success. These millionaires, who collectively represent 200+ years of MEMS industry experience, include:

  • Sandeep Akkaraju: Early Executive Management at Intellisense, Founder of Jyve
  • Janusz Bryzek PhD: Founder of NovaSensor, LV Sensors, Transparent Optical Networks, LV Sensors, Jyve, and Trillion Sensors Initiative
  • Job Elders PhD: Founder of TMP, C2V, Kymata and X -Sense
  • Jim Knutti PhD: Founder of Transensory Devices, Silicon Microstructures, and Acuity
  • Steve Nasiri: Founder of Transparent Optical Networks and Invensense
  • Richie Payne: Early Executive Management of Cyrano, Polychromix, Pixtronics, and OMM
  • Kurt Petersen PhD: Founder of NovaSensor, Cepheid, Verreon, and SiTime
  • Joe Brown: Founding team of NovaSensor, founder of SiTime

Summary

The Creation of Wealth grade peaked in 2001 at A when the optical telecom boom drove many major telecom companies to acquire optically-based MEMS startups. In 2009, as a result of the international financial crisis, the grade fell to D+. Over time, the grade has followed levels of the NASDAQ, Dow Jones, Standard and Poor's, and other financial market indices.

With rare exception, it has been difficult to create wealth with MEMS with the exception of startups that are fortunate enough to be purchased by organizations that see a strategic fit. The consensus is that making money selling MEMS devices will continue to be problematic. It will be necessary to increase value by integrating functionalities and proprietary software while creating product differentiation and escaping the commodity business.

Traditional companies that create wealth by selling products at a good profit will continue to grow steadily and the ones that seek niche applications e.g. Internet of Things (IoT) will stand a good chance to create wealth for its owners and employees. The recent acquisition of thermostat company Nest by Google in 2013 for $3.2 Billion dollars validates the philosophy of selling a value added, sensor-based product company to a strategic partner for a high ratio of acquisition price to annual sales.

There was a great deal or consensus when the MEMS millionaires where asked, "What does it take to be a successful MEMS entrepreneur and to create wealth for you and your company's employees"? A short summary of their answers includes:

  • Anticipate business trends and tie them into sociological and psychological drivers.
  • Do your homework. Market research is critical in understanding the unfulfilled needs of the customer.
  • Have a superior product in areas that matter, i.e., price, performance, and utility, and demonstrate/communicate product differentiation to the target audiences.
  • Don't rely on technology to create success; you need to have an applications and market pull versus a technology push strategy.
  • Add maximum value to what you provide. Just having a MEMS chip will put you at a serious disadvantage

In the next part, you'll have the opportunity to read about their secrets of success and their words to the wise.

About the Author
Roger H. Grace is president of Roger Grace Associates (Naples, FL) which he founded in 1982 as a marketing consultancy serving the sensor, MEMS, IC and capital equipment markets. He holds the B.S.E.E. and M.S.E.E. (as a Raytheon Company Fellow) degrees from Northeastern University where he was awarded the Engineering Alumni of the Year Award in 2004. He was a visiting lecturer at the University of California at Berkeley College of Engineering from 1990 to 2004. He can be contacted via email at [email protected].

Related Articles

Read the first five parts of Roger's MEMS marketing manifesto.

The 2013 MEMS Industry Commercialization Report Card: Barriers to the Successful Commercialization of MEMS

MEMS Commercialization Report Card Research Project, Part Two

MEMS Commercialization Report Card, Episode 3: Technology Clusters

MEMS Commercialization Report Card, Episode 4: Industry Associations

2013 MEMS Commercialization Report Card, Part 5: Standards & Roadmaps

2013 MEMS Commercialization Report Card, Part 6: MEMS Infrastructure & Market Research

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