Entrepreneur in Action: Michael Tao of AZN Optics

In this past week, I took the last exam of my academic life, officially finished my structured education going forward, anddd bought a new shirt. While I enjoy these last 2 weeks at Georgetown before it's off into the real world, please take a look at the great story of Entrepreneur in Action: Michael Tao.

B.S. degree in Computer Engineering from University of California, San Diego
M.S. degree in Computer Science from Cal State University Fullerton
Current Work: 

Project Manager with the Department of Defense

AZN Optics was spawned through the Mercedes forums, w204 subforums to be precise. When the w204 first came out back in late 2007/early 2008, we were a small tight knit community here on MBWorld. Most of us were first time Benz owners so kind of grew up together in the brand. We would explore and mod and learn together. One thing that we all shared was a hatred for our yellowish eyebrow lighting. We searched far and wide and could not find an LED solution that would meet the needs of the w204 due to a unique characteristic no other LED retailer knew... that when you drive the car, there's a voltage shift that causes the LED to either blow or turn purple. After numerous group buys and failed promises, I was finally fed up and sourced out a manufacturer and contacted their lead engineer. Together we worked on this issue with me tapping into my limited electrical engineer background to provide him with the data that he needed to build an LED from the ground up that would suit our needs. The results were a huge success. Initially I was just planning on making one batch for all interested through a group buy, but one batch turned into two, then three as word spread and more and more people wanted these. Eventually, others of different models caught wind and started asking me what other products I carried. At that time, just that one line, but in the back of my mind, the seeds were planted on how I could transform this into a viable business. I slowly stared expanding my line and hitting up local shops who also expressed interest in my LEDs due to the positive feedback they've been hearing and my aggressive price point. The turning point was when I finally applied for sponsorship on MBWorld and started investing roughly 10-15k on this business in inventory, packaging and shipping overhead, advertising fees, and testing tools. And that was how AZN Optics was born.
AZN Optics Founder Michael Tao
AZN Optics is a side venture that I plan on growing to perhaps someday replace my current job. Right now I am able to manage both at the same time and it's actually a blessing as I can afford to take chances with AZN Optics without fear of putting myself in huge financial risk as I always have my DoD job income to fall back on. I have lots of ties to the aftermarket auto community from being on one of the largest and most publicised international Euro show teams in the world Europrojektz, which has allowed me to network with various other industry leaders. My family also owns a well established motorsports shop, Promax Motorsports which gives us a brick and morter install and distributing location. AZN Optics was born through the forums though and I draw our guiding principle from the earlier Google days motto, "Don't be evil". I make sure each and every one of my customers receive the best service. If I take a loss, that's not a problem. Money can always be made up, but reputation once tarnished, can never be made back up in my opinion. We are auto enthusiasts first and businessmen second, which resonates with our audience and directly leads to our success.
1. Like many great companies, yours started with trying to solve an problem that was bugging you directly. How did you go about contacting different manufacturers and convincing them to work with you?
This was a long and lengthy process, but a critical one. I had contacted and worked with various manufacturers and distributors throughout the world spanning Germany, Sweden, UK, USA, Japan, Korea, and Hong Kong. At first I was working with first line distributors trying to come up with a product that would meet my needs and those of my fellow Mercedes enthusiasts. However, it quickly became apparent to me that these distributors weren't interested in expanding their product line to include anything that would meet our needs and quite honestly, didn't know crap about the technical aspect of their products. By going to automotive trade shows like SEMA, I was able to get in contact with some manufacturers who were much more interested in building something from the ground up to suit my needs. I spend several hours working with their engineers and tapping out my own electrical engineering knowledge to come up with a design that worked perfectly me. I've a great working relation with my manufacturers and have since made contact with other manufacturing facilities and work with them as well to ensure I don't have a single point of failure should something like a natural disaster strike or the plant get shut down.
2. Many part-time business owners hope to turn their side ventures into their full time source of income down the line. Do you have any quantitative or qualitative goals or benchmarks you have set for when you would transition from your DoD job to AZN Optics full time?
My plans are to grow this as a family business. Right now I'm taking the reins on this as we grow, but I'll eventually be transferring some of the control over to my wife who will continue most of the day to day operation. I don't plan on leaving my DoD job, but my wife will be leaving her medical job for this. The beauty of e-commerce is we don't need to dedicate anyone to run any office space or do any billing. Our smart phones are our offices. We leverage e-commerce tools out there to handle all our billing, and a good chunk of our shipping and receiving. Customer service calls/emails/posts get instantly forwarded to our smart phones, facilitating rapid responses.   
3. How did you go about finding a reliable manufacturer for your product, and work through issues that arise with collaborating with vendors abroad?
Trade shows really are the best way to meet manufacturers. Most distributors guard the identity of their manufacturer very closely to protect their interests which I understand, but made breaking into the industry rather difficult. Then it was just a matter of getting past their sales people to the real engineers and start brainstorming. Another difficulty I ran into was time and language. We had a very short window of opportunity to speak in person due to different time zones, and when we did talk, there were times where we had to bring out the translator to convey certain messages. They were fluent Chinese, spotty English and I was fluent English, spotty Chinese.
4. Do the majority of your sales come from individuals or via distributors? Which of these sales channels do you view as the most important to developing down the line?
Most of my sales come from individuals, but we're expanding our list of distributors both domestically and internationally. Luckily for me, I was already heavily involved with the aftermarket automotive industry so was able to hit upon several shops and distributors to carry our product line. We currently have 12 distributors domestically that carry our products and 4 internationally. They are all equally important in their own way. Distributors are important because they give me a steady rate of commerce, while individuals give me real world feedback and comments/concerns to help me make continuous improvements as well as determine what new products to bring to market.
5. What are the most effective marketing tactics or strategies one should follow in the automobile after-market parts industry?
Michael's show car
For automotive after-market parts industry, I’d have to say combination of grassroots, guerilla, and viral marketing. Technology is a wonderful thing and with tools like social networking and forums, I’m able to tap into my consumer base instantly. By offering quality products, great customer service, and reasonable pricing, word spreads virally from forum to forum, network to network, country to country. It helps that I’m not just some guy who came in and is just trying to make a buck. I’ve built a reputation over the years, even prior to starting up AZN Optics, as someone who is willing to help anyone who needs it. I’ve been in the aftermarket scene for years as well building and competing show cars. I’ve been able to leverage that good reputation towards building credibility.      
6. How have you dealt with protecting your intellectual property and lighting designs when dealing with an outside manufacturer who helped you develop your product initially?
Unfortunately, I have no way of enforcing intellectual property with my manufacturer. Although we came up with the design jointly and have a written agreement that this design will not be shared with any of their other distributors, I have no way of knowing if they do or not. And you cannot physically look at a competitor’s product and just know off the top that it’s the same as yours. You’d have to really break down each component and reverse engineer it to find out. Even if my manufacturers didn’t share my specs with others, my competitors could very easily reverse engineer my products and find out. As such, although I might have first to market, I’m not resting on my laurels. I’m continuing to make improvements to stay one step ahead.  My manufacturers also realizes this and also knows that I work with several other manufacturers and if I catch wind of possible leak, I have no problems moving to a different manufacturer, branching out improvements from whatever baseline the excommunicated manufacturer might currently have. This might not affect them in the short turn, but in the long run, their product would become obsolete.  
7. What are some things you know now that you wish you knew when starting AZN Optics, and any past mistakes that can today provide insight to other entrepreneurs?
Don’t be afraid to take calculated risks. When I first started out and for the first year of business, I had a very narrow product list. Actually, I only had one product, my 194 Wedge LED. This was because this was the specific product that I saw as a need in the Mercedes community so developed. I had many people ask me what other form of lighting I carried, and I’d have to each time turn them away to my competitors because I simply did not carry the product. To be honest, I was not sure if this was going to be a business or a hobby when I first started it, but eventually I had to make a decision as to what direction I was going to take this. I started out slowly, expanding out my inventory offerings, but eventually ramping up to where we are now and we’re still growing. We listen to what our customers want and go out and make it. The amount of revenue has tripled and quadrupled since and I look back and wish I hadn’t been afraid to take a chance and grow the business earlier. We’re looking to launch our AZN Optics HID lighting lineup soon which I’m hoping will be another boon for our business.
8. Do you have advice for those whose product depends on developing relationships with distributors (be it clothes, parts, foodstuffs, etc)?
The distributor network is kind of like a pyramid scheme…. You don’t want to be at the bottom. The closer you get to the manufacturer, the better your profits. The deeper you are in the distribution chain, the more the product will be marked up, the less you make. If you’re a first line distributor like I am, you don’t just maximize profit, you also have the flexibility of dictating pricing, manage production flow, and share/contribute in the intellectual evolution of the product line. So my advice is, don’t be a bottom feeder. Run, climb, and crawl to the top of the food chain and the opportunities will come.
9. Your educational background is in engineering. Where have you turned to learn the business skills necessary to running AZN Optics?
Although I’m an engineer by trade, I’ve always had an entrepreneur mindset. I had planned on pursuing my second masters in business administration and had taken all the requisite business courses leading up to entering the program.  I had a few small ventures with other friends that either didn’t pan out, or I left due to other interests. People might think that starting a business is easy, but there are legal and tax issues that have to be addressed. My previous ventures gave me an understanding of what it would take to get this off the ground correctly. Also, due to my engineering background, I actually worked in the past as a developer for e-commerce companies which exposed me to some of the common pitfalls (business and technical) with running an e-commerce company.
10. Does AZN Optics have any employees, and do you have advice on how to hire the right people if so?
Currently, it’s just me, but as I said, this will eventually be a family business. If we ever get to the point where we hire employees, it will probably be in the shipping and receiving end. Although most business owners hate customer service and would rather delegate that out first to whomever they hire, I thrive on it. It’s what puts me in touch with what my customers want and need, or don’t like. Complaints are just opportunities to improve and fine tune either my product or an aspect of my business. If I was to lose touch with my customers, I become stagnant. This would be the hardest thing for me to hire someone else to do. It all comes down to trust, competency, and desire when I hire. Luckily, I’m involved in the hiring process with my current DoD job building the project teams I lead, so I get to fine tune my interview and people reading skills.
11. What are some of your best practices for managing your time between your day job, AZN Optics, and the rest of your life?
This is obviously hard. There are only so many hours in the day so something has to give. I have been blessed with a wonderfully understanding wife who is willing to give me the time to devote my off hours outside my day job to manage and grow AZN Optics. My advice for others is to make sure you have a good support structure in place, be it family or friends. Sometimes that can be hard as once you make something of yourself, people seem to want to take a piece of it. Be humble, but have the resolve to be firm. Surround yourself with good people. Also, always be on the lookout for efficiencies. I’ve adopted Lean Six Sigma methodology with the mindset to not just save costs, but to gain time to spend with those important to me.
12. You are obviously following your passion for automobiles and tuning in the creation and running of your company. What advice do you have for others who want to turn their passion for something into a viable business?
If you’re blessed with the opportunity to channel your passion into a viable business, never lose sight of that passion. At times business decisions might clash with your passion, but don’t be afraid to lose some business/capital if it means not compromising your passion. Always remember, your customers share that passion and are who you were before starting your business. Never lose sight of that. Your customers will see and recognize the sacrifices you make by not selling out and you will earn their loyalty. Anyone can get a job and make a buck, but don’t squander your opportunity to marriage that with your passion.  
And finally, what are the 3 most influential books you have ever read?
Does Harry Potter and Twilight count? lol. It’s hard to say as I’ve ready so many, but probably Art of War, The Mythical Man-Month, and The Hitchhiker’s Guide to the Galaxy.