Garage Shop Era is Over for Power-Supply Industry

Jul 1, 2008 12:00 PM
By Mohan Mankikar, President, Micro-Tech Consultants, Santa Rosa, Calif.

The power-supply industry could have been characterized as a “bunch of garage operations” at one time. A group of engineers with some new idea would start a small design/assembly operation in their garages, an initial friendly order would pour in from another friend and voila, they were in the power-supply business. There were no grand themes, no industry-changing proclamations, and no press releases or advertisements.

Many times the business would be a family affair. Relatives would pitch in and usually the family name was used as the company name. Just think about Kupferberg Brothers' Kepco, Lester Dubin's Lambda, Paul Todd's Todd Products and Robert Okada's RO Associates. Many successful companies still operate that way. But they're a dying breed and the emerging business models are quite different.

The 21^st century business environment has created an altogether different paradigm in the power-supply industry. The way businesses are created and sold is a far cry from even a few years ago. Now when an idea is germinated, it is paraded through venture capitalists and other financial/investment community stakeholders. There is talk of patents, exclusivity, product positioning, global changes and industry-altering paradigm shift. If the idea has merit — or in the financial parlance, return-on-investment (ROI) potential — money pours in.

There is no need for a garage. One can start an entire operation with a gleaming building, state-of-the-art machinery and designated personnel to fill all positions within the operation. Financial institutions will pour in money to build a full-fledged operation, and their names and funding strategies will appear on the companies' Web sites to give credence to the organization and its operation.

The financial community has not only been influential in the creation of startups, it also has affected acquisitions. Recent acquisitions such as GORES purchasing Tyco Power, Ripplewood buying Alcatel Converters and Audax Group acquiring Astrodyne illustrate a trend in the industry.

In the past, there have been many power-supply companies owned by financial institutions. However, the true interest of the financial community in power supplies started with the Stephens Group, when in 1995, it created equity partnership with Power-One. The Stephens Group's initial investment (60% ownership for $35 million) ballooned when Power-One went public a few years later.

The financial community took notice and participated aggressively in funding many startup companies. Although after the telecom/datacom bust of 2000, such exorbitant enthusiasm has subsided, the financial communities' interest has not waned completely. In fact, in recent years it has increased substantially.

One significant difference between the entrepreneurial startups of yesteryear and the financially backed companies of the present is the longevity of the companies. Consider Kepco, Tectrol and Pioneer Magnetics where ownership is in the family and the companies are still running. There may not be such longevity in investor-supported companies, as ROI and payback period are important investment criteria that can threaten corporate longevity.

One can argue that companies that are operated by or overseen by members of the financial community are better run from a business standpoint and they are more efficient. In my opinion, they are just run differently. Nevertheless, the 21^st century definitely belongs to the business models that favor the financial community.

The financial community has arrived in the power-supply world. Though a little late, because of the power-supply industry's low profile, the imprint of the financial community and its influence are nonetheless unmistakable and inevitable. This influence cannot be underestimated as it affects the development of the industry structure, market consolidation, product development and the ability of companies to do business globally.

Though the power-supply industry owes its beginnings to the pioneering engineers who struck out on their own, the days of the garage shop startup are by and large over. For those looking to take innovative ideas to market these days, the ability to meet the requirements of the financial community will be as important as any technical breakthroughs.

Mohan Mankikar has been a part of the power-supply industry for more than 25 years and has written numerous articles.