Crystal Systems Inc: It Pays to Know Your Strengths

December 2014

In 2010, Fred Schmid was living every entrepreneur’s dream. GT Solar, a leading, global provider of furnaces for silicon for the solar industry, acquired his Salem-based firm, Crystal Systems Inc. (CSI). CSI specialized in producing sapphire furnaces for the rapidly emerging Light Emitting Diode (LED) industry.

Schmid launched CSI in 1971 to develop and commercialize the crystal growth technology he’d invented a couple of years earlier while in the military and stationed at the Army Material Research Center in Watertown. Using a breakthrough technology called the Heat Exchanger Method (HEM), Schmid was able to produce sapphire crystals and extend the process to silicon production for lower energy costs. In 1974, the oil embargo led the U.S. government to form the Energy Research Development Agency (ERDA), whose goal was to achieve energy independence. CSI was awarded a contract by ERDA to produce low-cost silicon crystals using HEM.

In 1982, as most energy research funding was terminated, including HEM, CSI was able to commercialize the technology for production of silicon crystals. “It was apparent that this would be a very large consumer market—well beyond the capability of a small company like CSI—so we licensed the HEM silicon growth technology to GT Solar,” says Schmid. CSI sold its silicon technology rights to GT Solar in 2006, which allowed GT Solar to go public and sell thousands of furnaces in China, South Korea, and Taiwan.”

By 2010, the solar market was saturated and GT Solar was seeking another large market for crystal growth furnaces. At that point, Schmid notes, the market for furnaces to produce sapphire for LEDs was growing rapidly and the HEM technology was a perfect fit. “After owning CSI for 39 years, I decided to sell CSI outright to GT Solar,” he says. After buying CSI, GT Solar changed its name to GT Advanced Technologies (GTAT) and sold thousands of HEM furnaces.  Eventually, enough HEM furnaces were sold that the market for producing sapphire for LEDs became saturated. 

With the furnace market tapped out, GTAT decided to enter into sapphire materials production for Apple iPhone touchscreens. Unfortunately, it was unable to produce quantities in line with the needs specified in its contract with Apple and, less than four years later, GTAT forced to file for Chapter 11 bankruptcy.

Lessons Learned

In Schmid’s view, part of the reason GTAT was unable to sustain its growth was because the furnaces needed upgrading and time constraints limited the innovation required to make significant improvements. “Time is money,” he adds, “and innovation takes time. Yet, the goal is typically to maximize the products produced in the shortest possible time.”

A fundamental principle in starting your own business, he avers, is that over 50 percent interest is needed in a company to control its destiny. “To maintain that control, the company must become profitable as quickly as possible—and remain profitable—which simply means you have to make more money than you spend,” he says.

Here, he notes, is where the most friction occurs: There should be maximum time allowance for innovation and rigid time constraints for business success. Time constraints cause innovators to focus on what can be done in the time allotted, rather than analyzing how a process or product could be—and should be—improved. The process often takes more time than money. Yet, for large-scale, profitable production, speed-to-market drives maximum revenues in the shortest possible time.

“Clearly, the time requirements of innovation and production are diametrically opposed,” Schmid says, “and that is why many innovators fail when they shift to full-scale commercialization, and why most large companies are not good innovators.”

In essence, it’s critical that entrepreneurs know their strengths and weaknesses. There are very few people who are both good innovators and successful in large-scale production. “It’s ironic that my goal was not to become rich, but to be innovative and advance technology,” Schmid concludes. “That is my strength and I had to understand that I couldn’t do it all. I had to hire people who could. Once you accept the fact that you do not have the aptitude to transition from innovation to all-out production, you must find people who have a proven record in a business similar to yours. Once you’ve put together a production team, you must let them do their thing, even if it is different than what you would do. My financial success did not result from the 20 patents I have, but from knowing what I don’t know and teaming with people who knew what I didn’t.”

Salem Five Resource

Keep More of What You Make

For more than 30 years, Fred Schmid, founder of Crystal Systems Inc., relied on commercial lending from Salem Five to help innovate and commercialize its products and technology. “We had a long relationship based on Salem Five’s confidence and understanding of our operating style, innovative products, and worldwide recognition,” says Schmid. As a result of working with the bank, he says, Crystal Systems was unique in that it did not have any other outside financing and held over 90 percent of the stock when it was sold to GT Solar in 2010.

Learn more about how partnering with Salem Five can help you get the financing you need to grow and keep more of your money should you decide to sell.