Executive Cases: Interviews with Senior Executives of Early-Stage Companies:
Polyera – USA
Prepared by George Foster
Polyera is a materials science company enabling next-generation electronic products. The company’s current focus is the development of flexible display technology that will enable the future of consumer electronics. An example of such products would be a tablet (like iPad) that can be rolled up and slipped into a pocket. Polyera’s business model is to supply its specialty materials along with associated knowhow to manufacturers. While these materials can be used in a wide range of applications, Polyera’s current focus on display technology means that most of its customers are based in South Korea, Taiwan, China and Japan.
Prakash Ramachandran is the Chief Financial Officer of Polyera Corporation. Prior to Polyera, he worked as chief financial officer in a number of companies including Nordic Windpower, Novariant, Sonicity and Sonex Group. Ramachandran is a Chartered Accountant from India and holds a Master’s degree in management from The Graduate School of Business, Stanford University.
Q1: What was the source of the initial idea, and how did that idea evolve into a viable, growing company? How did it change over time?
“At heart, the vision and business model of the company has remained consistent since the founding. However, we have greatly improved our focus and our understanding of applications and markets over time. The potential of our materials is to enable the printing of electronics in much the same way you print a newspaper, and to allow these electronics to be plastic-like in their mechanical properties (e.g. plastic, unlike a glass display or silicon chip, is flexible and will not break if you hit it with a hammer).
“One of the applications that initially came to mind was item-level RFID tags, i.e. printing RFID tags on every item in a store the same way a bar code is printed on every item. In 2005, when the company was founded, RFID was a hot sector. In 2003, Wal-Mart had declared its intent to have its top 100 suppliers tag every pallet and case. Many analysts were predicting the widespread adoption of RFID technology, but as it turns out, adoption has been much slower than anticipated.
“Another application which was in our sights was flexible displays. In this case, the context has evolved in an incredibly positive direction. The introduction of the iPhone in 2007 and iPad in 2010 has created a huge demand for mobile computing and consequently there is incredible interest in more advanced displays that are lighter, thinner, more robust and eventually flexible. The recent emergence of wearable electronics as the next wave of hardware has even further increased this interest. These trends are very likely going to be sustained over the coming decade, and we have positioned Polyera to take advantage of them.”
Q2: What were the major growth accelerators for your company in the early years of high growth?
Inagaki: “When Polyera was founded in August 2005, we found ourselves in a common situation for a university spin-out. We were developing a platform technology with very large potential markets, but there was a lot of uncertainty around the amount of time it would take us to reach first commercialization. Because of this uncertainty, we did not even attempt to raise venture capital. Instead, we focused on exploring corporate partnerships under which we could receive significant development fees.
“In February of 2007, we were able to close a multimillion dollar partnership with BASF, the largest chemical company in the world. Our discussions with BASF began in December 2005, so it took a little over a year to finalize a deal. Our key focus in the negotiations was ensuring that at the end of the collaboration’s term in September 2009, we would be free to walk away and continue to build our business independently if we chose to do so. This entailed careful crafting of the intellectual property terms of our agreement.
“As it turns out, this approach was critical because we did end our collaboration with BASF in 2009, despite good faith efforts on both sides to negotiate a continuation. Our collaboration was viewed as a success because we hit every technical milestone ahead of schedule and BASF continued to have interest in the field, but a few factors made the discussions quite difficult. One was that in April 2009, BASF had closed on its acquisition of Ciba, a specialty chemical company which happened to have some research activities in printed and flexible electronics. To be clear, BASF’s decision to acquire Ciba had nothing to do with their research in printed and flexible electronics, as this was a small pre-revenue effort within a US$ 5 billion+ revenue company, but all of Ciba’s research activities had to be merged as part of the acquisition. In other words, the lengthy and complicated integration of a US$ 5 billion+ company became relevant to our discussions with BASF because that business happened to have some exploratory research in printed and flexible electronics.
“Today, while both Polyera and BASF continue to have research activities in related fields, our strategy, focus and technology portfolios are very different and so we are neither collaborating nor competing significantly. That being said, our partnership with BASF and other large corporations were definitely strong growth accelerators in our early days. So, I am a strong advocate of young technology start-ups pursuing corporate partnerships, as long as it is done with eyes wide open.”
Q3: What role did key aspects of the entrepreneurial ecosystem surrounding your company play in the growth of your company?
Inagaki: “Because we spun out Polyera from Northwestern, we decided to establish our labs just a few miles away from the university. Such close physical proximity was a big advantage to the company in its early days as we were able to leverage equipment at the university at low costs and avoid significant capital investments. In addition, Northwestern’s material science department consistently ranks as one of the top 10 in the world, and the university has been a great source of talent. We also continue to sponsor research at the university and benefit from new ideas which originate from these programmes.”
Q4: What key aspects of the entrepreneurial ecosystem surrounding your company that were absent (or existed only in a weak form) created the greatest challenges for growing your company? Please describe and discuss how you met/were impacted by these gaps in the ecosystem and their resultant challenges.
Inagaki: “Chicago’s ecosystem for funding high-tech ventures is much less developed than that of other areas such as Silicon Valley or Boston. However, the most challenging gap has been the fact that the US does not manufacture flat panel displays, and therefore it is extremely hard to find engineering talent with a deep understanding of display manufacturing domestically. We have addressed this gap by opening an office and laboratory in Taiwan, but looking back, the company would have benefited from adding more ‘hard-core’ display process engineering talent early on.”
Q5: At what stage did you invest significant resources seeking to grow your company internationally/beyond your domestic country or region? What factors were pivotal in deciding when to seek growth internationally and where to seek that growth?
Inagaki: “After beginning some joint development programmes focused on the commercialization of flexible displays, not only did we realize that we needed much more display engineering talent within our company, but we also realized that we needed to be physically much closer to our customers in order to make rapid progress. This meant opening a technical facility in South Korea, Japan, Taiwan or China. Taiwan had a combination of the right talent pool, display partners and a reasonable cost structure. In addition, while the top display companies were historically based in Japan, South Korea and Taiwan, it was clear that China was rising quickly and likely to become the largest display manufacturer over the coming decade. Building up in Taiwan would give us a pool of Chinese-speaking talent which could assist our future expansion into China.”
Q6: What were the biggest challenges in building growth internationally? How did you meet or adapt to those challenges?
Ramachandran: “Once the decision to expand into Taiwan was taken by the company, the first biggest challenge was to identify a leader who could run the operations in that country. It was not easy to find a leader who had a strong track record in the industry, who could culturally fit into our start-up values and who shared the same vision as us for the flexible display market. We were lucky that a very strong candidate became available at the right time, and we acted very quickly to recruit him.
“The second challenge was to have access to high-quality equipment and facilities that were needed by our Taiwan team for using our core materials (that were developed in the US) to develop process expertise and build demonstrators that could be shown to potential customers. Initially, we rented lab facilities from a Taiwan research institute to get started quickly, and then we gradually built our own facilities within the first year of expansion.”
Inagaki: “The biggest challenge from my perspective has been to align two teams across the world to work in a very fast-paced, high-pressure environment, especially given the culture difference between the sites. In addition to the obvious East-West cultural differences, our technical talent in the US has a mindset focused on innovation, while our technical talent in Taiwan has a mindset focused on advanced manufacturing. As we cross-fertilized these mindsets, our company has gained a strong competitive advantage over other materials suppliers.”
Q7: What major role, if any, did key aspects of the ecosystem in the country (or countries) you first sought international growth either promote or impede your ability to grow in those international markets?
Ramachandran: “One of the key aspects of the ecosystem in Taiwan is that there are a lot of display manufacturing companies that were target customers and partners for our products. These companies have a track record of partnering with young companies to launch new products using new technologies. Having a strong local presence helped us gain traction with some of these key potential customers in Taiwan.
“There is also a very strong talent pool of display engineers in Taiwan who have had a rich experience with these display manufacturing companies. We were able to attract high-quality employees at competitive salary levels. They brought a tremendous amount of credibility with our target customers and their work ethic has been phenomenal.
“Another aspect of the ecosystem is that the other major display manufacturing countries (like South Korea, China and Japan) are easily accessible from Taiwan and hence customer development and customer support in those countries became easier for us.”
Q8: Seeking international growth often has both high moments and dark (low) moments. Briefly describe one high moment and one dark (low) moment in seeking international growth.
Inagaki: “One of the dark moments was that early on, after setting up operations in Taiwan, the wrong material sample was delivered to one of our Taiwanese partners and caused several days of R&D to be wasted at the customer site. This came about because of inadequate internal processes between our US and Taiwan sites and was quickly addressed, but it caused tensions within the company and embarrassment towards the customer.
“One of the high moments was that after starting our Taiwan operations, we were able to produce a display demonstrator with our materials in an outstandingly fast time (approximately eight weeks). We also quickly achieved great success in business development, often securing partnerships and joint development agreements where our competitors had failed to do so.”