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The Mouth That Roared
Norwalk dentist learns entrepreneurial lessons the hard way
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Business New Haven
1/27/2000
By:
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Have you ever had a tooth filled with a composite (white material) rather than silver? If so, the dentist probably used tools made by Centrix Inc., headquartered on River Road in Shelton, to fill the tooth. These tools, the cornerstone of Centrix' steady and continuing growth, were the brainstorm of a local dentist, William Dragan. Today, Dragan is Centrix' CEO.
The use of composites to fill cavities began to take hold in the late 1960s. At first dentists used stick-like tools to pat the filling material into a tooth. Dragan, who then had been in practice about ten years, conceived the idea of using a syringe instead. Dragan figured out a way to make a syringe that would do the job and began “manufacturing” them in his basement.
“I jerried those things up with my own two hands,” Dragan recalls. Initially he tried to interest large companies such as Johnson & Johnson and 3M in his idea, but none was receptive.
Dragan's spirits were unbowed. “I believed in it strongly myself,” he says. So he continued to manufacture the syringes in his basement, using his own money and some dollars he had raised from relatives as start-up capital, and running ads for the product in professional journals. Still, “It was a basement operation for a long time,” he allows.
By the late 1970s, Dragan had moved out of his basement and into a manufacturing plant. He had also come up with another new idea: Why not sell prepackaged syringes - syringes already filled with a unit dose of composite? Dragan showed his idea to another large company, Dent Supply, but they were not interested - at least at that time.
By 1982, Dragan had patented his prepackaged syringe. Yet that same year Dent Supply came out with a nearly identical product and sued Dragan for declaratory judgment on his patent.
It cost Dragan some $500,000 in legal fees and nine years in court to defend his patent. In the end Centrix emerged victorious, but Dragan had learned some hard lessons about what happens when an individual inventor “goes up against the big guys.”
“The patent office has become unfriendly to individual patentees,” he says. “If you've got a good idea, you're going to be ripped off. A guy who doesn't have too many resources - he doesn't have a chance.”
Dragan refers not only to the commonplace occurrence of a larger company infringing on an individual's patent and assuming they can wear the patent-holder down with legal costs, but also to the fact that patents are no longer good for 17 years, as once they were.
Now, a patentee must pay an additional fee every few years to prevent his or her patent from expiring. In Europe, the fees are annual. “We spend $30,000 to $40,000 a year just to keep our patents up,” Dragan explains.
Throughout the court battles, Centrix continued to grow. In the early '80s the company moved to a 3,000-square-foot facility on Honeyspot Road in Stratford, expanded that space to 5,000 square feet, then moved to a 10,000-square-foot facility in Milford.
In 1992 Centrix purchased its present building in Shelton, which has 22,000 square feet. Recently, ground was broken on a 25,000-square-foot addition, which is slated to be completed some time this spring.
Centrix' profits have grown apace with its facilities. “We jump up 15 percent to 20 percent a year,” Dragan says. “We should soon be in the $12 million [annual sales] range.”
Today Centrix produces dozens of different products, including syringes for an array of functions, composites, brushes and polishers. Many of these are patented. (Between them Dragan and John Discko, the company's executive vice president of sales, hold more than 60 U.S. patents.) About 50 percent of U.S. dental offices now use some Centrix product. The company has also done well internationally: 37 percent of its business today stems from overseas sales.
Despite his firm's evident success, William Dragan still maintains a small practice. One day a week he sees patients in his Norwalk office. Keeping in touch with what goes on in the dentist's chair is one reason for his success, Dragan says. “These big dental companies - they don't have a guy who really knows what he's doing.”
Advice to inventors who would follow in his footsteps: “You've got to believe in your product. You've got to put up your own money. You should start small. Don't buy any expensive or fancy equipment. If you can do it by hand, do it. You can always automate later.”
From Basement to Barn to Big Time
How Les Hoffman's commitment
to innovation kept Orange Research in the black
It didn't start out to be a business at all,” says Les Hoffman, founder of Orange Research on Cascade Road in Milford. Hoffman was an engineer who liked to tinker in his basement at night. He would build devices for friends to fill specific needs.
After designing something called a “meter mover” for one friend, Hoffman noticed that, after paying the workers who had helped him and paying the taxes he would owe, there was little left from the check his friend had given him. Financially, he recalls, “I realized we had to be a company.” And so, in 1961, Orange Research was founded.
Hoffman built a number of devices - a few of this, a couple of that. Then, in the mid-1960s, a company came to him to design a gauge that could simultaneously measure the pressure in a system on both sides of a filter. The purpose was to alert workers to when differences in pressure on the two sides reached a certain point - which would mean the filter was clogged enough to be require changing.
“I was now on home ground,” recalls Hoffman, “an area I knew.” Indeed, he had been trained as a gauge engineer, and instrumentation was his specialty. Hoffman devised the idea of using magnets to transfer information from one side of the filter to the other.
Not only was the customer pleased with the result; a friend suggested to Hoffman that he might even be able to patent the device. So he spent $50 to have a patent search done, and was amazed to hear the results: “I couldn't believe no one had patented it.”
For five years, Hoffman continued to work at night out of his basement. His wife designed a logo for the little company. His son Paul helped out from age 13 by sweeping and doing odd chores. He also had some part-time help. Hoffman placed ads in trade journals, and in response was approached by a couple of manufacturers' reps interested in representing the product. Slowly, a small customer base began to grow.
In 1968, a friend of Hoffman's at the then-Union Trust Co. began urging him to quit his job and devote his full attention to Orange Research. “'Come to the bank and get some start-up capital,'” Hoffman recalls him saying.
Even though he had two children in college at the time, Hoffman decided to take the plunge. He fixed up the barn in back of his house and moved the nascent company in there. “When I started, the word failure was taken out of the dictionary,” Hoffman says. From the U.S. Small Business Administration he got a booklet entitled The First Two Years. He took a course at the University of New Haven on “Managing a Small Business.” And, of course, “ I couldn't work too hard.” His regular hours were 6 a.m. to 10 p.m.
Even so, Orange Research fell on hard times during the recession of the early 1970s, and Hoffman had to go back to the bank and take out another five-year loan. But he learned some valuable lessons from those early years, and the business hasn't run in the red a single quarter since.
“Customers who didn't close in on us when things got tough, they got all our business,” Hoffman says. Loyal relationships with customers and suppliers have been standard at Orange Research ever since.
Hoffman also maintained a policy of continually plowing profits back into the business. “For 20 years I took no vacations. I drove a Volkswagen beetle. I put the money back in the company.”
By the mid-'70s, things were beginning to look up. “I'd had it making out those checks to the state, the federal government,” Hoffman says. “[Son] Paul took that off my hands. He was business-oriented. I wasn't.”
With an accounting degree from the University of New Haven, Paul Hoffman took over the business end of things. Today, he is president of Orange Research, while his father works on a semi-retired basis.
By 1973 the company had also grown to the point that the barn could no longer accommodate it. Orange Research moved into a 4,000-square-foot space on the Boston Post Road in Orange. By 1980, with 26 employees, that space too had become too small. So the company built its own facility, of about 10,000 square feet, on Cascade Road in Milford.
In 1984, Orange Research was in a position to buy out one of its long-time customers, Barnes Machine. Today, still located on Cascade Road, the company employs about 50 people.
Throughout the '70s, '80s, and '90s, Orange Research has continued to manufacture variations of the initial gauge Hoffman patented back in the 1960s. “We knew we had to have a fairly broad base of instruments to cover the field,” he says. So different versions were added one at a time, as the need arose.
“A customer would call and ask for, say, a bigger dial. We used this request to add another horse to the stable,” Hoffman explains. He made a point of paying all engineering costs himself in such situations so that Orange Research, and not the customer, would have future rights to the new product. The gauges today are made in a variety of sizes and materials. “Everything still works on the same magnetic principles,” Hoffman points out.
Over the years Hoffman has obtained four or five more patents in addition to his original one.
“Patents just give me the right to start,” he says. “I
don't live on patents. People copy my designs. I don't sue.” Instead, Hoffman makes a point of always having
a more advanced model in the works, so that by the
time someone is copying his last design, he is ready to make it obsolete with a newer one. “Design, manufacture, customer relations are what keep me going,” Hoffman says.
When asked if he would do it all over again, knowing what he knows now, Hoffman offers a surprising answer.
“If this were 1968? Without a doubt. But in 1998, I wouldn't go near it with a ten-foot pole. There's too much government interference - OSHA and all
the rest.”
Making
the Switch
Transwitch products in high demand as Internet, LANs, cable TV boom
Many inventors commence the business of manufacturing their inventions almost nonchalantly, and grow their home-grown companies in a haphazard, bootstrap manner.
Others, however, after devising an innovative idea, start business much more deliberately and on a larger scale. Transwitch Corp. of Shelton is a good example of how profitable the latter approach can be.
Back in the 1980s, several men who worked together in the Advanced Technology Center at ITT came up with an idea for a new kind of semiconductor chip for use in telecommunications and data communications systems. Santanu Das, Daniel Upp and Steward Flaschen were engineers; Michael McCoy was division controller at the center.
Das, Upp, and Flaschen had noticed that while the new cables, especially fiber-optic cables, were capable of moving data
at tremendous speeds, when switches were deployed, networks would become clogged, for existing switches couldn't process data efficiently enough to keep pace with cable capacity. So Das, Upp and Flaschen developed a semiconductor chip - the heart of a switch - that would enable telecommunications systems to work more efficiently.
In 1987, the ITT unit where the men had been employed closed down. So Das, Upp and Flaschen, together with McCoy, began to talk about starting a company of their own.
“At the outset, in 1987, the original concept was to build telecommunication systems,” recounts Upp. “As we worked through the details of that, it became apparent that the amount of money it would take would be too large. So we refocused. Instead of trying to build systems, we'd focus on the types
of circuits we'd developed.”
Reflecting back on the planning that preceded the launching of Transwitch, Upp says, “The key thing is to think your idea through very well.” The business concept agreed upon, Upp explains, was to build a standard set of chips and make them commercially available to OEMs (original equipment manufacturers) who made systems.
While some larger manufacturers, such as AT&T, were beginning to make their own more efficient custom chips, the three men decided to target smaller companies who hadn't the resources to make custom chips.
The former ITT engineers had a sound idea (they filed for their first patent in 1988), and considerable expertise in their field (Das and Flaschen both hold doctorates in electrical engineering; Upp a master's). But they were also starting off with financial and managerial experience as well.
Das had served as president of Micom Digital Corp. for six months before starting Transwitch. At Micom he was responsible for overseeing marketing, sales and manufacturing, as well as engineering activities. The fourth founder, McCoy, had nearly 15 years' experience in finance and administration. In addition, a fifth former ITT employee, Allan Gerard, had agreed to help as a marketing consultant.
Transwitch was formally launched in 1988 with funds put up by the four founders and additional private funding. They were also fortunate enough to be given the use of free space by Shelton landlord R.D. Scinto. The headquarters was used primarily for design and layout, with the manufacturing contracted out to foundries.
Within a few years, the company attracted venture capital from a consortium of five parties, including the quasi-public Connecticut Seed Ventures, which combines money put up by private investors as well as by the state government. Later, Transwitch was awarded a loan from Connecticut Innovations Inc., an arm of the state's Department of Economic & Community Development, whose function is to help new innovation-based businesses grow.
Initially, sledding was slow. Within the last few years, however, a combination of circumstances has helped Transwitch to accelerate that growth. The phenomenal growth in popularity of the World Wide Web has produced an acute need for better switching on the part of Internet Service Providers.
In early 1997, when America On-Line was badly clogged, it was Transwitch chips that helped to unblock AOL's system. Other telecommunications and data communications markets have also been growing: Worldwide telephone networks are attempting to offer more and more services; private companies are seeking to upgrade their Local Area Networks (networks that connect computers within an office or building complex) and Wide Area Networks (networks that span wide geographical areas and typically use circuits provided by common carriers); even cable TV companies feel pressed to provide customers with interactive video and data services.
As all of these markets are, more and more, competing for the same customers, speed of data transfer has become a key factor in winning potential customers over. Thus, speed of data transfer is also a prime focus of the companies who build and sell telecommunications systems to service providers. Many of these have come to depend on the unique semiconductor components manufactured by Transwitch.
In 1995, Transwitch went public. Its total revenues that year exceeded $16 million. In 1996 revenues grew by 13 percent to almost $20 million. This past November, the company also moved into a new and larger headquarters.
In addition, Transwitch now maintains six design centers, besides the Shelton facility. “We currently have over 100 employees and we are extremely excited about our growth since we first opened our doors,” says Das.
Das remains Transwitch's CEO, while Upp is now vice president of technology. Flaschen, nominally retired, still serves as a director. Commenting on the fact that the original inventors have remained in key positions, Upp says: “That's pretty much the rule in small high-tech companies. [They] pretty much have to know what's going on.”
Upp also attributes Transwitch's success to choosing one thing and doing it well. Transwitch has filed 32 patents in addition to their original one, but the company still concentrates on devices that help increase connectivity in the telecommunications and data communications field.
“Maintain a tight focus,” he advises others about to start up a company. “Don't go off in too many directions. Everything you do, be sure you're doing it right.”
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