That was, of course, just after they all had bought the business. "It was kind of strange to have to say, 'Oh, by the way, guys, you're going to work 20 hours a day," says Lau. But on the other hand, everyone knew it could be a turning point for the organization. And many of the employees were part owners, which helped. Says Lau, "We all knew the company needed to build a reputation."
It did.
The next year Lau Technologies was one of a handful of companies to win a U.S. Army Contractor Excellence Award. That endorsement signaled to the world that the company was a new player. Lockheed Martin, which at one point had done as much as $7 million a year with Bowmar/ALI, had a project it needed done fast, and company management decided to give Lau Technologies another chance. Before Bowmar/ALI had been bought out, it "had quality issues, delivery issues, pricing issues -- they had lost the formula," says sourcing director Bob Morin, but the new company did a job in 1991 in 10 weeks that normally would have taken a year. "They were making real-time decisions," Morin says. The Lau team worked with a professionalism, he adds, "as good as I've seen in over 20 years in this business." Lockheed Martin now does more than $10 million a year with Lau Technologies.
Joanna Lau's minority status helped secure that work. The 37-year-old was not shy about using her status as an Asian American to her advantage, getting a targeted SBA loan guarantee to buy the business and letting her defense-contractor customers know that she could help them fulfill their obligation to give a percentage of work to minority-owned companies. But customers say that the company's minority status is just icing on the cake, following well after quality and price as a criterion. "Our involvement with Lau Technologies initially was on a critical business need," says Morin. "We had already met our parameters for SDB [Small Disadvantaged Business] measurements. But on the other hand, as we've grown that relationship, they're one of five suppliers that make that requirement very easy for us to fulfill."
The way Lau Technologies produced during the Gulf War was its first test. Its second test was also a big risk: it began looking for nondefense work. "This company is not worth a lot without a product," says Lau. "We're a manufacturing service company -- you give us the drawing, and we'll build anything you want. But we needed a product to build equity."
Finding a new technology and market to serve would work only if the company was extraordinarily thorough, and it was. In 1992 it committed $300,000 to the process, 35% of the year's $860,000 in retained earnings. Managers drew up a list of about 10 areas and researched them through discussions with industry sources and professors from places such as MIT. The next year's research-and-development budget surged to $1 million -- almost the entire profit on that year's $32 million in revenues. Five people worked full-time on finding a new business.
Being privately held made it easier. "We didn't have to answer to Wall Street," says Lau. "We just had to deal with employees and explain why we had to do this." It was a bet, and it represented a lot of money for the company, but "actually not a lot when you're going after completely new technologies," Lau says.
The area Lau Technologies ended up focusing on was digital imaging -- systems that make identification cards and store the images digitally. In two years it has won contracts with departments of motor vehicles in three states to produce drivers' license photos; in Massachusetts it beat out Polaroid, the state's supplier for 25 years. "The technology we selected is far superior to the current 'sandwich-type' system of license production," says Massachusetts Bureau of the Registry spokesman Aubrey Hazner. And in Ohio, where Lau Technologies won a contract last fall, registry controller Jim Spurrier says, "Quite frankly, they blew the socks off the competition."
With one corporate client signed on as well, the new business already accounts for 25% of the company's revenues, and by next year that figure should reach 40%. Lau Technologies recently won an $8-million contract to produce ID cards for immigrants, and another contract, for $1.6 million, to make security systems based on facial recognition. Its goal is to be 50-50 in defense and nondefense business.
The credit for the newly energized operation, says co-owner and manager Jim Bender, goes to Lau herself. "The bottom line is Joanna. She runs the place, she's totally in control of the MIS -- she's a genius when it comes to computers -- and she's really a genius when it comes to handling people, motivating them. She's unique."
CUTBACKS, LAYOFFS, PLANT CLOSINGS
After peaking at 3.7 million in 1987, the number of workers at primary and subcontracting defense companies has declined to just 2.2 million, and it may drop by another 500,000 to 750,000 in the next five years, according to the National Commission for Economic Conversion and Disarmament, based in Washington, D.C. Total defense procurement dollars have been halved in the last decade, from $90 billion in 1985 to $45 billion in 1995.
For companies that have served that shrinking market, help exists -- sort of. The federal Technology Reinvestment Project, for instance, funds the development of technologies that are applicable not just to the military but to commercial markets as well; its fiscal year 1995 appropriation was $208 million. And many states have programs within their economic-development offices for industrial reinvestment. But "defense conversion" is, as one Department of Defense spokeswoman puts it, more a state of mind than any kind of program a company can plunk into place.
Lau Technologies, for one, began its conversion from subcontractor of defense electronics to manufacturer of digital ID-card systems for civilian uses without targeted conversion help. Its change started internally, where neither the government nor anyone else could have ushered in a transformation. "A company has got to have the will to change," says president Joanna Lau. "You have to say, 'OK, I'm going to walk out of this comfort zone and into a totally unknown black hole." Her business was ready. But also, it didn't look for government money because the paperwork seemed too overwhelming. Instead, it spent 35% of its profit one year and almost 100% the next on research and development.
Competing in the defense business has actually been excellent preparation for competing outside it, Lau says. "When you're a military contractor, you can't get high margins, because most of our contracts are a fixed price or cost-plus -- expenses plus either a fixed percentage or a flat fee. So when we bid on civilian projects, we pretty much leave a lot of money on the table."
