WILLIAM J. STORCK, C&EN NORTHEAST NEWS BUREAU
Despite a couple of years of lackluster economy, punctuated by a recession, companies are still being formed every day. It's a simple process: Get an idea, talk to friends who will tell you it's just what the world needs, and file some papers. Then the hard part begins--and it is terribly difficult.
There is the business plan, lining up investors, building a plant, hiring good employees, finding customers. The list goes on. It is no wonder that the failure rate among start-up companies is so great. But if you survive all of this, which relatively few companies do, you have on your hands an emerging company--one of the adolescents of industry.
||BALANCE Emerging company Asymchem seeks to combine U.S. management practices with the low cost of production in Chinese plants, such as this one in Tianjin. ASYMCHEM PHOTO
Management experts say that some traits characterize the successful emerging company. One of these is that the head of the firm must be a great salesman--not only of the company's products but also of its vision--to customers as well as investors and the public.
Another trait--and one that many say is the most important--is the ability to innovate and, perhaps, deviate from the original plan. It is this ability, according to the authors of last year's business book, "Creative Destruction," that allows new companies to outperform their older competitors.
Older companies are hampered by what the authors, Richard Foster, senior partner and director at management consultants McKinsey & Co., and Sarah Kaplan, who was with McKinsey at the time of the writing, call "cultural lock-in," a sort of "we've never done it that way" attitude that gets in the way of innovation. New companies, unfettered by this attitude, are able to take bold chances, often providing greater returns than their older competitors.
BUT SOMETIMES it takes new owners to effect this attitude. Management expert Peter F. Drucker has often written about the man who invented ball bearings, intending them to be used in the railroad industry to replace the oily rags that were stuffed in joints to reduce friction. When the railroads balked at the new concept, the man's company went bankrupt. But Alfred P. Sloan, then a young man who was destined to become head of General Motors, saw an opportunity and persuaded his father to buy the company. Sloan changed its focus completely and sold the bearings to the budding automobile industry, thus creating a successful firm out of someone else's lack of vision.
Another example, much closer to the chemical industry, is the fate of polytetrafluoroethylene. DuPont had developed PTFE in the 1930s, but it wasn't until the 1950s that the company decided to commercialize it. After a development team studied potential markets, DuPont decided to concentrate on nonstick coatings applications such as Teflon.
However, one member of the group, Wilbert L. Gore, saw applications for PTFE in other areas. With DuPont's blessing, Gore and his wife, Vieve, started a business in their basement that led to the development of a tough PTFE coating that allowed electrical wires to be bundled.
A decade later, Robert W. Gore, their son, developed a fiber with what SRI International calls "a unique microporous structure with substantially better mechanical properties than any other commercial PTFE fiber." Thus was born W. L. Gore & Associates, whose Gore-Tex fiber, seemingly ubiquitous in outdoor clothing, is the backbone of a $1.2 billion privately held company.
The first company profiled on the following pages is using this model, making a business out of products that other firms, for whatever reason, do not want to commercialize. InterMune, a three-and-a-half-year-old biotechnology company, has in-licensed products that were not strategic fits at other biotech firms or drug companies. It already has three pharmaceuticals on the market and expects revenues of more than $100 million this year. If all goes well, it will top $400 million in revenues and be profitable by 2005.
A similar scenario is occurring at Cyclics Corp., which acquired cyclic butylene terephthalate technology from General Electric, because the potential for cyclic polybutylene terephthalate was apparently too small for GE. Cyclics, which employs about 25 people in Schenectady, N.Y., and seven in Europe, has wrapped up tens of millions of dollars in financing. Though it is not yet making a commercial product, it will open a $20 million, 5.5 million-lb-per-year plant in Schwarzheide, Germany, in 2004.
One company founder who changed his vision is Hao Hong, president of custom intermediates maker Asymchem. He started with a deal with a Chinese export company to ship intermediates from local Chinese manufacturers with which he had contracted but found that this arrangement did not work. "After one year, I realized I couldn't control the quality or the lead time," Hong says.
Then he decided to set up his own company in China as a subsidiary of the Research Triangle Park, N.C.-based Asymchem. Last year, the company opened a second plant in China, and it has set up a joint venture to make mercaptans. Other plants on the way are set for completion at the end of next year and in 2005 and 2007. Asymchem's sales through the first 10 months of this year totaled $4.5 million, and Hong expects $8 million next year.
ANOTHER COMPANY making the best of China's low cost structure is Materia Medica, a producer of chiral compounds for the drug industry. Within China, it is also providing consultation for manufacturers of active pharmaceutical ingredients to improve production processes or to develop new processes. But this commercial company is different: It was started by Albert S. C. Chan, head of the department of applied biology and chemical technology at Hong Kong Polytechnic University, to fund his ambition to develop a laboratory conducting world-class chiral research.
Ozark Fluorine Specialties is neither new nor stand-alone, but in many ways, it has the attributes of an emerging company. Founded in 1924 as Ozark Chemical, Ozark Fluorine has since 1946 been part of larger firms, including Pennwalt, Elf Atochem, and now Toxco. Under the new ownership, Ozark is expanding from a company that made only inorganic fluorides from hydrogen fluoride to one that can produce organic and inorganic compounds from both hydrogen fluoride and elemental fluorine.
In the process, it is developing new markets, especially among research chemists in the pharmaceutical industry. Philip E. Rakita, Ozark's director of business development, says he wants it to be known as the company to go to when difficult or novel fluorine chemistry is needed.
Finally, C&EN profiles three Pittsburgh-based start-up firms in various stages of corporate evolution. Thar Technologies, a maker of supercritical fluid equipment and provider of process development services, is the furthest along, with annual revenues of about $4 million. The company is also making a small profit.
Two-year-old Fluorous Technologies expects revenues of over $900,000 this year from the sale of fluorous products and separation media to pharmaceutical companies to accelerate the synthesis, extraction, and examination of potential drug candidates.
Alung, the youngest of the three, makes an artificial lung, which, implanted into an emphysema patient's vena cava, will substitute for 40 to 60% of compromised lung capacity.
On the following pages, you will read about these eight companies. Some may not make it or they may be acquired. But others may become industry adults.