Friday, July 10, 2009

How photonics can learn from Two Buck Chuck

Recent news about the crash of the Australian wine business fulfills a prophecy I heard years ago, and highlights parallels to the photonics business. How so? For starters, both carry a certain prestige, but deep down, wine is really about agriculture and photonics is really about manufacturing. Let me explain.

One of my favorite characters in the wine industry is Fred Franzia, famous for his Charles Shaw wine, better known as Two Buck Chuck. He's the guy that Napa Valley loves to hate, and he loves that they do. He boldly claimed several years ago that the Australian wine business would one day crash because they were planting too many grapes and financing with debt. At some point the world market would go through one of its inevitable cycles, prices would fall, and they wouldn’t be able to meet their fixed costs.

Sound familiar? A recent article cites some other familiar factors: relatively high labor costs, an unfavorable exchange rate, and over-association with a single, lower-end brand.

All of this has been said at one time or another about photonics companies. Especially the part about overplanting. Who in photonics doesn't dream of starting a company developing high end cool stuff, ramp quickly, and make a ridiculously prosperous exit. It's happened enough to prove that it can. However, the reality is that it usually takes years to build up the business, and a lot of it is about as glamorous as pulling weeds.

In the wine industry, you don’t start by selling high end wines to collectors. You start by selling bulk grapes. Maybe you can begin making your own wine, or at least contract it out. Then maybe you do some bottling and run a small tasting room on the side. Eventually you may be able to get out of the low-end grapes altogether, except to sell off overstock. That’s if a downturn doesn’t force you to sell out to a large corporation.

I hate to say it, but the photonics business could learn a lot from Fred Franzia. I hate to say it because Franzia is on a crusade to take away the pretense in wine, while many people are obvioulsy willing to pay top dollar for pretense. And in photonics, too, not only is there is a place for suppliers of low volume, specialty products, but I'm hope that everyone can enjoy the highest margins possible.

You can learn everything you need to know from Fred Franzia in this colorful interview in 2007.

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