Sarnoff Makes, The World Takes

nVention Spins Off The Spinoff Concept

Corrections or additions?

This article by Barbara Fox was prepared for the January 24,

2001 edition of U.S. 1 Newspaper. A minor change was made after the

paper went to press. All rights reserved.

Spinning from Sarnoff’s Web — Part I

In an effort to enhance the reputation of New Jersey

as a global center of technology, efforts are underway to position

New Jersey as the "Innovation Garden State." Any view of an

"innovation garden" must consider greater Princeton as one

of the big hothouses — it has academic institutions like Princeton

University and Rutgers that are helping technology grow, but it also

has the for-profit companies that are bringing technology to market.

Among the most influential of these for-profit companies is the

Sarnoff

Corporation, which made significant progress in 2000. For almost 15

years the 800-worker Sarnoff Corporation had been chug-chugging away

at a conversion challenge, converting from being a not-for-profit

scientific think tank to a self-supporting engine that makes profits.

Now, just when many others are starting to predict economic problems,

the Sarnoff people think they are ready for a growth surge. And the

recently announced plans for developing the center into a major

corporate

campus is just part of the strategy.

"We are spending a lot more time and energy trying to identify

where the strategic marketplaces are, and then how to get into

them,"

says Jim Carnes, Sarnoff’s CEO. "The real strategy here is that

we are in several different marketplaces. We specifically avoid

getting

overweighted in one area."

A recent spate of promotions heralded Sarnoff’s progress. Among them:

Satyam C. Cherukuri was made executive vice president in charge

of operations; he oversees the contract

research that Sarnoff performs for corporations and government

agencies.

Carmen Catanese has been given a new title, executive vice president

for corporate strategic development.

Anne VanLent now has the title of executive vice president for

"portfolio

management," for tending to the stock that Sarnoff gets from its

spinoff companies. She also is in charge of licensing core technology.

Norman D. Winarsky (also a new executive VP) now

heads nVention, a brand-new incubator for spinoffs from Sarnoff and

outside companies.

Dan Koloski, vice president of Sarnoff products, is now president

of HiTek Manufacturing Company — Sarnoff’s wholly-owned

manufacturing

subsidiary — and reports directly to Carnes.

These three areas — contract research and licensing, creating

value through spinoffs, and manufacturing products — can be

thought

of as representing three legs on a stool of Sarnoff’s strategy.

They have also been compared to the three parts of a good investment

portfolio: bonds, money markets, and equity stocks.

Doing contract research or licensing intellectual property

for third parties is like having bonds in your portfolio. You clip

the coupons and turn them in for cash.

Making products in-house brings in cash flow — the

nearest-term cash that Sarnoff can access. This method for

commercializing

intellectual property is like having money markets in your portfolio.

Spinning off companies to commercialize a technology might

create value for the mother company — or might not. This is like

having equity stocks in a portfolio.

First, a look at Sarnoff’s manufacturing operations, which had

almost no public profile. Then, a preview of Sarnoff’s new incubator,

which is making big news. Finally, the list of spinoffs: Where are

they, what they do, and who is in charge.

Top Of Page
Sarnoff Makes, The World Takes

Inside the bowels of the Fisher Road headquarters are

extensive manufacturing facilities, not only for making semiconductors

but also for manufacturing prototypes and small quantities of special

products.

"Sarnoff has a very healthy product orientation along with its

spinout thrust, and that is a profitable segment for Sarnoff,"

says Dan Koloski, president of HiTek Manufacturing Company, Sarnoff’s

wholly-owned manufacturing subsidiary. It makes prototypes and

low-volume

specialty products for government agencies and commercial companies.

Koloski is also vice president of Sarnoff Products and manager of

Sarnoff’s integrated circuit center, model shop, and materials

functions.

"Having slow volume production keeps us in touch with

manufacturing

needs," says Koloski. "Clients want one-stop shopping and

accountability. This benefit has put a great sales tool in our tool

kit."

For example, if early editions of a product are being made at Sarnoff,

and the product is not quite right, the Sarnoff team can go back to

the drawing board and find out why. "Otherwise, we don’t know

if the R&D wasn’t done properly or the manufacturer screwed up,"

Koloski says. Once the manufacturing process has been stabilized,

Sarnoff can do a technology transfer to the client’s factory.

Sarnoff has not received much publicity for making products and models

and chips. "Sarnoff has always been involved in products, but

that has always been a well-kept secret," says Koloski.

"Products

— 90 percent for external clients — are on the rise and are

among the most profitable programs."

"HiTek, over the last four years, has grown to the point and

established

credibility to the point that we are looking for new business,"

says Koloski. In the fourth quarter of 2000 HiTek booked its first

customer for non-Sarnoff business. Though it has no sales force, HiTek

has successfully relied on engineers to network with their peers and

sell the services.

HiTek’s high volume products include the speed sensors for locomotives

for GE Transportation Systems. This is a highly sophisticated

speedometer

with Doppler radar, the shape of a two-pound coffee can, that hangs

underneath a locomotive and allows the operator of a train to know

its true speed. HiTek assembles about 1,000 per month or 12,000 per

year. Products that are produced in even higher volume are laser

diodes

for the telecommunications marketplace. This production line has a

dedicated team of 10 people.

Koloski came from a career in the semiconductor industry. He was

raised

in Wilkes Barre, where his father worked for the IRS, and stayed in

town to attend Kings College (Class of 1976) and earned another

undergraduate

degree, in electrical engineering, from Penn State. He also has an

MBA in operations management from St. Joe’s in Philadelphia.

Four years ago Koloski had a high pressure job running the

semiconductor

division for Commodore, a 350-person company that was doing high

volume

production 24 hours a day, seven days a week, in Valley Forge,

Pennsylvania.

He was recruited by Sarnoff’s CEO Jim Carnes, and finds himself

challenged

by the wide-ranging technology that Sarnoff covers.

"From the heart, I have to say I am having more fun now than I

ever had in my career," says Koloski. "Sarnoff is just

a fascinating place for a technologist to be."

Top Of Page
nVention Spins Off The Spinoff Concept

Since 1992, when the engineers at Sarnoff began to teach

themselves the venture creation business, they have spun out more

than 19 companies and have forged excellent relationships in the

investment

community.

Now Sarnoff is spinning out the spinout idea. With a self-funded,

formal incubator, it has opened the doors to outside entrepreneurs

for the first time. "We are taking some of the activity we did

centrally in the company and spinning it into a wholly-owned

incubator,

called nVention," says CEO Carnes.

Norman Winarsky, one of the new executive vice presidents, was put

in charge of this new incubator and must find young companies in three

business areas related to the Internet: multimedia and broadband

solutions,

Internet connected devices and systems, and smart services that

provide

customized responses to individual user needs. He aims to raise $20

million to fund 20 companies in the next four years.

This latest spinoff strategy also involves building the recently

announced

— and somewhat controversial — corporate park for incubating

companies on its own campus.

Already Winarsky has landed an unusual grant from the state —

half a million dollars from the New Jersey Commission on Science and

Technology (See Life in the Fast Lane, page 59). He has also lined

up first-rank venture capitalists that can invest new money, up to

$1 million per company.

"These are top tier VCs," says Winarsky, naming such West

Coast firms as Mayfield Partners, Morgenthaler Partners, and US

Venture

Partners, among others. "As a top tier technical company working

with top tier VCs, we will create billion dollar opportunities."

(If a company can make $100 million in three to five years, he

explains,

the stock is probably worth $1 billion).

Winarsky emphasizes that nVention is opening its doors, that it is

fully funded, and that it has already quietly launched some companies.

These companies have not yet been presented to the venture board,

but that will be remedied at a meeting on Thursday, February 8.

Winarsky helped start the very first spinoff, Sensar, in 1992. From

that first try, the path from thinking like an engineer to thinking

like an entrepreneur was paved with lots of mistakes, Winarsky admits.

"It’s a whole new vocabulary and a new way to think — values

based, and not technology based," he says. "Dollars and not

bits. Markets. Customers and what their needs are. Value, and the

proposition to the customer. It really did take us eight years —

and the Internet revolution — to learn about the venture creation

business."

Early on, Sarnoff structured a spinoff policy that encouraged its

own workers to stay. Its own spinoff companies generally hire a

management

and technology team from outside. To profit from its intellectual

property, and to keep its employees happy and at home, Sarnoff

negotiates

an equity share in every spinoff. Every Sarnoff worker gets some

fraction

of five percent of that share, but key contributors to a particular

company divide up 15 percent of Sarnoff’s share. Thus members of the

technical staff can build a portfolio of companies and can even make

a substantial profit if one company hits the big time.

Sarnoff also clung to the idea that engineers can pick up marketing

and sales skills on the fly. "I have never gotten my MBA, but

I can do contracts and licensing as well as anybody," says

Winarsky.

Everyone learns by doing. "We began to build companies with 20

to 30 people into the building process. Now those 20 people have done

it once — they’ve gotten a taste of blood, and their wives and

families have gotten a taste of stock. They become the seed for the

next ones," says Winarsky. "Eight years later, we have 19

companies, each with 20 builders."

Surely Sarnoff’s timing is off. Look at the stock market! No problem,

insists Winarsky. "The dot com crash was the best thing that could

ever happen to us." The crash, he claims, weeded out the chaff

and made Sarnoff look good. "When I put together my team of

venture

capitalists and board members, we were the prettiest girl on the

street,"

he says. "We were oversubscribed with VCS who wanted to work with

us."

He refers to a popular Sarnoff analogy: "We learned how to be

a venture engine, to take the fuel (the intellectual property) from

Sarnoff, then apply our learned strength in marketing and business

analysis, and then take the "air" that comes from venture capital

to make the engine run."

Norm Winarsky has his own brand of fuel, personal

energy,

a trait he inherited from his father. "My father radiated energy

— he was passionate about everything he loved to do," he says.

His grandfather — a Russian Jew who was a Cossack horseman and

had a horse farm in Mount Freedom, New Jersey — died young. His

father built a newspaper photography business and also died young,

when Winarsky was just 17. To save money, he entered college on

scholarship

straight from his junior year in high school, earning his bachelor’s

degree from the University of Chicago in 1969 and staying for his

master’s and PhD degrees.

While he was in Princeton for a year at the Institute for Advanced

Studies, he met his future wife, Lisbeth, a Dane who was then working

as an au pair for Anne Reeves, founder of the Arts Council of

Princeton.

The Winarskys have three children, one still at Princeton High, and

just celebrated their silver wedding anniversary in Denmark.

Winarsky joined Sarnoff in 1976 as a mathematician, working on an

electron gun and then on Sarnoff’s proprietary picture tube

technology.

As a group head he was part of the merger team when the company was

acquired by General Electric in 1986. Promoted to director, he ran

the computer vision, information technology, visualization, and

electron

optics groups and was promoted to division vice president and

corporate

vice president, responsible for information (Internet) technologies.

He co-founded the National Information Display Laboratory and helped

to found five of the Sarnoff spinoffs: Sensar, VideoBrush, Pyramid

Vision Technologies, LifeClips, and WaveXpress.

Among the seed-funded companies that nVention already hosts is

Semandex,

established in March, 2000, to develop the next generation of

"semantic-aware"

Internet use.

"When we create Internet-based companies, we will get new venture

capital money, up to $1 million per company," says Winarsky.

"If

entrepreneurs from outside of Sarnoff have a great business idea that

needs core Sarnoff enabling technology, we want them to come with

us. We have funding, a venture board, and a great business."

Sarnoff wants to leverage the technology it has, not start from

scratch.

So new companies might focus an application of Sarnoff technology

on a new product. "Essentially we add a great deal of energy and

value to the venture creation and process in the Internet space,"

says Winarsky.

"nVention is going to be a huge success. I believe we will create

four or five Internet-based companies per year, real value companies.

Not dot com companies, as in "dot gone," but those based on real

technology. We are looking for great business ideas for real

entrepreneurs,

and we are also looking for great management — we will be hiring

CEOs and CTOs for each of the companies we create.

"nVention is going to bring great value to all of Princeton and

all of New Jersey by creating many companies a year," says

Winarsky,

"and a good fraction of them by history, have stayed in New

Jersey."

Sarnoff’s staffing is down, at the moment, from its usual 800 people

to just 750 workers at Fisher Place. Not including the companies that

moved out of state, which employ 214 people, the spinoffs account

for 459 jobs in central Jersey. Bottom line: Sarnoff is boosting

employment

by more than 1,200 good, high paying positions.


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