Profitability by Fighting the Hype to be Big in a Small World

November 12, 2003

Chris Lumb
President & CEO, Micralyne Inc.
Edmonton, AB, CA

Tell us what you do (or what your team or organization does) and the specific challenge you faced.

Micralyne is in the world of small tech. We’re a pioneer and leader in manufacturing MEMS (micro-electro-mechanical-systems) for product companies worldwide. MEMS are miniature 3D mechanical devices fabricated using traditional semiconductor manufacturing technologies. Some MEMS examples would be sensors for automobiles, optical switches for telecommunication networks, and implantable microchips for drug delivery. If you take a look at the MEMS industry over the past few years, you will see the majority of companies were surviving on venture financing, a ridiculous amount of red ink, and several firms closing their doors. If MEMS is the technology bridging the gap between the hyped-up nanotechnology (3 magnitudes smaller than MEMS) and the real world, why is there so much turmoil? I believe it is because of misguided business strategies. MEMS companies set grand visions of the future; put their R&D into creating the next killer app; raised huge amounts of money; spent vast amounts on equipment and facilities; they were lauded in the press and by analysts and deemed as the next big thing. “These companies are remarkable”, the media said. A couple of years ago they would have been considered shining examples of the next generation of technology leaders. Conversely, Micralyne seemed decidedly plain as it focused on the bottom line; didn’t raise huge investment dollars; only invested when it was required to serve a real customer; it did not develop its own killer app. The press and analysts said: “What’s wrong with you guys – you’re too boring, how do you expect to survive!”

What was your moment of truth?

My management team often had discussions questioning our strategy of being a dedicated foundry model and focusing on incremental growth. We asked, “should we develop our own killer app, should we go after VC financing to build greater capacity?” Our “moment of truth” was when we as a company refused to capitulate to the ‘get big fast’ pressures of the late 1990s and concentrated instead on profitability. The competition continued to build businesses based on needing more and more financing to offset operating losses: we instead concentrated on serving our customers well and building profitability from day one. Thus, Micralyne continued to stand out from the herd – by being conventional and operating with basic sound business practices. When mass commercialization did not happen to the extent predicted the competing MEMS companies were left with significant overcapacity and a very narrow business focus. It showed us that outstanding performance does not always mean exponential growth that is not sustainable in the current state of an industry. MEMS based products have amazing potential, from automotive sensors to miniature biomedical instruments, but too many companies were, and some still are, building companies based on hope versus the current reality. I am proud of my management team because we took the time to understand and commit to the realization that the true business opportunity would be in building a financially sustainable company that handles MEMS fabrication for innovative firms – across several industries. Micralyne made the decision from day one that it would always operate with a profit; a decision to most that seems like business sense, but in this industry it turns out to be unique.

What were the results?

Since its inception in 1998, Micralyne has had both strong top line growth, an average increase of 17% per year, and annual profitability. This is unheard-of in the MEMS industry! Micralyne is one of the few profitable dedicated MEMS (micro-electro-mechanical-systems) manufacturers in North America, and possibly the world. Our competitors continue to go out of business generating an increasing level of customer prospects for Micralyne to evaluate. We are currently “choosing” what customers to take on. As a result, Micralyne has developed a specific customer checklist to ensure it only contracts with “ideal” customers. Thus, if a customer is shaky financially, is not now or potentially a market leader, has poor product vision, or does not have a significant long-term manufacturing opportunity, Micralyne now has the flexibility to turn them away. We are looking forward to the years ahead with great enthusiasm as we continue to establish Micralyne as a global MEMS manufacturing leader.

What’s your parting tip?

“Build a culture of profitability and customer orientation from day one”

Comments that Fast Company readers made about this submission:

Sounds like the “One Habit of Highly Effective Companies”. You guys should write a book!
Rodney

I enjoyed reading this story because I feel there are several industries that could learn from this simple but powerful message: don’t forget to make the business profitable.
Alexander Smith – Edmonton, AB, CA

Great strategies–great company!
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It is exciting to see this Edmonton-based organization on the path to identifying itself on the global stage.
Natalie Spence – Edmonton, Alberta, Canada

This story shows how positive results happen when a management team is focused on a common goal and persist through challenging times.
Cyril Smyth – Edmonton, AB, CA

These guys have it right – when the VCs were bending over backwards a few years ago to fund any company that moved, they forgot a fundamental premise of business: you have to be profitable! For some reason, many companies (and VCs) seemed to forgot this. I know about MEMS and it is a very exciting field. It can make components smaller, faster and cheaper and has the potential to revolutionize a lot of industries. It has been hyped up in the past but it looks like companies like Micralyne are making a business out of it.
Ben Jackson – San Jose, CA

Being an Edmontonian, I can attest that Micralyne practices what Chris Lumb is preaching here. At the end of the day, solid business is fast!
George Irwin – Edmonton, Alberta, Canada

This item left me wanting to know more. Where are the current customers, what specific industries? Micralyne’s experience will be of great interest to your readers. Obviously this article addresses a common dilemma faced by management teams, that is, how to effectively manage growth. It should be useful for others who run technology-based companies and must decide on how to secure capital and what risks to assume in order to accelerate expansion.
Brad Guthrie – Edmonton Alberta Canada

They are right on!
H. D. Barber – Ontario, Canada

Hurray for Micralyne. This company continues to move forward, ensuring a place for Edmonton and Alberta on the world’s technology map.
Cheryl Croucher – Edmonton, Alberta, Canada

Excellent strategy for success!
LF – Canada