How to Think Big and Move Fast

No one would ever accuse H. Michael Zadikian of thinking small. His new venture is called the Iris Group, and it consists of four optical-networking companies carefully constructed to tackle adjoining business challenges. Step-by-step, Zadikian wants to help telecom carriers manage high-speed data and voice traffic across every aspect of their optical networks. That is a huge problem, attracting attention from hundreds of young companies as well as industry giants like Nortel Networks and Cisco Systems Inc. Iris is still in its infancy and is less than a year away from delivering its first product to customers. But Zadikian and some powerful venture-capital backers think that Iris's unusual four-in-one approach could pay off in a big way as the industry evolves.

Here are more of the lessons he's learned.

To Create Real Value, Solve Big Problems

Zadikian didn't want Iris to be just another niche equipment company -- sought after for its patents and engineering team, but unlikely to stay independent for long. To stand apart, Iris had to solve the monster problem of expanding bandwidth effectively and inexpensively. One of Zadikian's winning concepts was this: Iris companies would create a huge bandwidth pipe that would best meet carriers' needs.

Zadikian compares the standard method of adding channels (that is, colors of light) in the optical spectrum to building a log cabin out of toothpicks: It's inefficient and unreliable after a certain threshold. He recruited a crack team of optics experts to create what Iris proposes is its clever alternative and competitive advantage: providing fatter pipes in proportion to a company's network growth.

For carriers, this could be a godsend. Essentially, fatter pipes multiply bandwidth while reducing the number of necessary switches -- and, therefore, reducing overall cost. In short, carriers using the Iris solution will be able to pay for service as usage grows rather than forecast data-capacity needs far in advance -- which they typically underestimate.

To bring the concept of proportional expansion to market, Iris spawned four separate operating companies. Each company is situated in the part of the United States that potentially could attract the most appropriate talent and customers for its area of expertise. For long-haul services, Iris launched Latus Lightworks in Richardson, Texas, near Nortel's and Lucent's optical shops. For metro access, it rolled out Metera Networks in Richardson, where it competes with the myriad optical startups serving the same market, and in Ottawa, near Nortel's home base. For necessary switching equipment, Iris created Coree Networks in Tinton Falls, New Jersey -- Lucent's backyard. Finally, Iris launched its research entity, Iris Labs, in Plano, Texas.

All four companies work together, but they concentrate on unique objectives. Coree, for instance, promises to fill a pipe with packets of information many times faster than industry pacesetter Juniper Networks does. Latus aims to maintain the quality and capacity of the long-distance network by reducing the "white noise" that gathers over long distances.

Create a Significant Barrier to Entry

Launching all four companies in tandem is a lot harder than simply introducing Monterey Networks, Zadikian's previous startup. But Zadikian believes that the quadruple threat will impress investors who are worried about competitors swooping in and snatching the industry. "Competitively, replicating one company poses few barriers," Zadikian says. "The barriers are high to replicate all the pieces." In other words, because Iris companies target different niches of the growing optical market, different competitors are unlikely to outdo Iris in all those areas.

Iris companies are also armed with exceptional, wide-ranging talent, a concentration of resources rarely found in big or small competitors. Currently, 19% of Iris company engineers and officers are from Fujitsu, 11% from Alcatel, 10% from Lucent, and the rest from Nortel and startups. The individual entities are so compelling, in fact, that CEO and other executive-level candidates occasionally spark bidding wars between two or more Iris companies.