Is This Company Beyond Repair?

Four years ago, Mooradian, now Novalux's chief technology officer, figured out how to create a tiny semiconductor that could produce a laser beam both powerful and perfectly round. That was a big deal. It promised to be more powerful than anything as cheap, and much cheaper than anything as powerful. That calculus was enough for Jack Gill, a respected partner at Vanguard Venture Partners who had scored big with Ciena, another optical-networking investment. He became Novalux's first backer, and, he says, "We bet the whole ranch on telecom."

Mooradian and Gill convinced Malcolm Thompson to join the fledgling company as chief executive officer. Thompson's previous venture, a Xerox spin-off called dpiX that developed liquid-crystal-display technology, never turned a profit and was purchased by a consortium of its customers. And he was not a telecom guy. But as former chief technologist at Xerox's fabled Palo Alto Research Center, the British physicist brought sterling credentials. He exuded passion for technology and for building an organization from scratch.

The plan: Novalux would quickly ramp up production for long-haul optical networks, blowing out clunkier, pricier devices. Over time, it would work to transfer its technology to health-care and lighting applications and, ultimately, to the massive video-display market. It was always a hell of a risk -- even in boom times. "One wonderful thing is, we have a totally unique technology," Thompson said. "But that's also the bad news. We have to solve problems that no one knew existed. We're constantly being surprised."

The Reality: "You're never done"

By last summer, one surprise in particular had seriously changed the game: Novalux's initial strategic gamble -- targeting long-haul telecom -- was going to fail. Jane Li arrived in June as the company's new vice president of marketing and sales, following a five-year stint at Corning. After pressing Novalux's initial target customers, she concluded that they wouldn't commit anytime soon to new technologies. "We had started with this perfect laser device," she says. "But we were focused too much on long-haul."

"Where did that leave Novalux?" Gill asks. "In a skyrocket trajectory, adding people and foundry capacity, and rushing to market with products at a time when everyone was pulling in their horns." Li and chief financial officer Douglas Norby, a veteran of Fairchild Semiconductor and LSI Logic Corp. who was enjoying one final tour of duty before retirement, proposed that Novalux switch gears. It still would pursue the long-haul opportunity. But it would also start developing lower-powered lasers for so-called metro markets -- the local networks that long-haul fibers feed. They guessed that metro demand would rebound earlier than long-haul.

Within Novalux, that strategic pill was tough to swallow. "Everyone's reaction at first was the same," says Thompson. "Our advantage was in high power -- so this seemed to be a total contradiction in strategy." And apart from the technology issues, the new plan was a wound to the company's collective ego. Novalux had expanded aggressively, anticipating an imminent move to commercial production. Now, it would have to throttle back: Given Li's sales projections, the company did not have the cash to support its burn rate. "Getting people off the old curve was more difficult than anything else," Norby says, "because everyone was pedal to the metal."

In more than 25 years in the technology world, Thompson has seen this all before. It's what he loves: turning ideas into companies, then shaping those businesses to meet evolving challenges. "You're never done," he says. "It always looks like you're near the finish line, but there are always new opportunities along the road -- and new obstacles you'd never thought of. That's part of the exploration -- constantly looking at the next problem and the next solution."

On October 1, 2001, Novalux announced a new suite of lasers targeted at metro optical networks. One week later, Thompson gathered his employees to report on the company's prospects -- and to drop the other shoe. He had worked the numbers 18 different ways. "You don't do things like that nonchalantly," he says. But the hockey stick was too long. There would have to be dozens of layoffs. (Novalux won't specify exactly how many.)

Donna Ferris, Novalux's human-resources director, spent the day escorting tearful workers to their cars. A few weeks later, she points to a framed photo of grinning employees at the opening of Novalux's first offices, in May 2000. "I love that picture," she says. "That was the day we told the world, Here we are." That's why layoffs hurt. Not because they weren't necessary, but because they inflicted a whiff of mortality on an organization for which everything had been going so right.