A Laser Focus: Three Questions With nLight CEO Scott Keeney

If anyone can ever build a real lightsaber like the ones from “Star Wars,” it will be Scott Keeney. The co-founder and CEO of Vancouver, WA-based nLight has expertise in high-powered semiconductor lasers, and he has shown some serious business chops by leading his company from early uncertainty to profitability in the past few years.

Based on this momentum, nLight raised $10.7 million last month in a new round of venture financing from existing investors Oak Investment Partners, Mohr Davidow Ventures, and Menlo Ventures. Getting the funding, which is being used to expand product development and sales, is impressive enough. But what’s really interesting is how a company involved with semiconductors and fabrication has managed to thrive in the current climate.

It all starts with the man at the top. A little-known fact about Keeney is that around 1997, he helped Seattle investor Nick Hanauer and others write the business plan for the online advertising company that became aQuantive (which was bought by Microsoft for $6.4 billion in 2007). Keeney had also worked for the Hanauers’ pillow and bedding company, Seattle-based Pacific Coast Feather, after graduating from the University of Washington. He learned a valuable lesson there. “High-tech entrepreneurs have a tendency to disparage low-tech, but for younger managers, you can learn a lot more in low-tech,” Keeney says. “Because the only way you win in low-tech is by out-executing your competition.”

Keeney started nLight in Seattle in 2000, initially with a focus on telecommunications. When that industry went through its downturn in 2001, nLight had to adjust (a bit like another Seattle company we profiled this week, Impinj). The laser company quickly expanded to customers in other markets like defense, medical, and industrial material processing. Today, nLight makes powerful lasers and fiber optics bought by original equipment manufacturers, and used for everything from welding plastic and cutting auto parts to military optics and surgical tools.

The company’s key advantage is its production method: it uses nanometer-sized particles that take care of both the waveguiding (light transmission) and active-ion (amplification) aspects of building a laser. The result is a cheaper, more energy-efficient, and brighter laser than what can be built using the conventional technique, which is called solution doping.

In 2002, nLight moved to Vancouver, WA, to be closer to manufacturing facilities. The company has an assembly plant in Hillsboro, OR, as well as offices in Germany, Finland, and China. It has more than 300 employees worldwide, about 200 in the U.S., and it first turned profitable in 2007, Keeney says. In 2008, nLight made a couple of acquisitions that didn’t add to profits right away, but he predicts the company will be back to being profitable in 2009.

Here are a few more highlights from our recent conversation:

Xconomy: Tell me more about the strategy shift in the early days of nLight.

Scott Keeney: We started the company focused on telecom, and that went through a miserable downturn. I had to go back to the board in late 2001-2002, and say, ‘This telecom market doesn’t make sense. It’s not going to come back, or provide the industry structure we need.’ Our initial idea didn’t work…We’d always planned to go beyond telecom. So we were prepared in that sense. In telecom, we were concerned from the very early days. We put plans in place to make a transition [to other markets] earlier than our competitors. We hunkered down to 20 employees, down from 80, and we barely survived.

X: So how have you managed to survive in a terrible economic climate for semiconductor companies, in particular?

SK: Our performance features are better than the competition. We’re the leading company in this space. Other companies are broader-based, or vertically integrated. We focus solely on high-powered semiconductor lasers…Our industry is really driven by a completely different set of economics. There’s a broader base of applications from telecom to defense, medical, industrial. It’s a much smaller market, on the order of a couple billion dollars. But it’s growing nicely.

While the near-term outlook in almost every industry is bleak now, I’ve never been more optimistic about where lasers will play in the longer term. The performance [cost per watt of power, efficiency, brightness] has improved by an order of magnitude every 5 years—that’s our version of Moore’s Law. It has driven much greater penetration in our markets…It’s daunting with the automotive downturn. But we still see growth.

We’re being pretty cautious, heads-down. We’re keeping personnel costs down, as lean as possible. In product development, we’re focused that much more on products for the near-term. Our development cycle is a minimum of six months, usually 12 to 18 months. But the really big opportunities are three to four years out.

X: With all you have learned in the past 10 years, what’s your management advice to entrepreneurs?

SK: Focus on aspects of the team. The core management, the technical team. Hire for strong athletes. Think about how a person will fit in, in the longer term. Also, entrepreneurs don’t think enough about investors as part of the team. Venture capitalists can be challenging and have an appropriate role. And there’s big differences in VCs. Make sure you get good ones who are experienced. Early on, we got VCs who had been around and been through downturns.

It wasn’t one specific piece of advice, but it’s an ongoing counsel throughout the process. I made mistakes, or they had advice that wasn’t always quite right. It’s an ongoing corporate governance process. I always think when I see Series A PowerPoint pitches that look so nice and tight and elegant—I don’t know of any company that actually followed that plan.

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