Optical Distortion Incorporated

EXECUTIVE SUMMARY

THE COMPANY

Concept: Make and market red-tinted contact lenses for egg-laying chickens, altering their behavior so they will fight less, eat less, and produce more eggs -- increasing egg-ranch profitability

Projections: Eventual pretax net margins of 25%; 1989 sales of $329,000; 1992 sales of $24 million

Hurdles: Persuading historically conservative egg farmers, operating on thin margins, to risk money up front for an unproven product; sustaining the company in the face of slower-than-expected product acceptance; defending an easily copied product from competitors likely to enter after the market has been opened

Randy Wise's decision to sell contact lenses for chickens is not the result of a sudden impulse. He's been preparing for this since he was a teenager in California.

Back in the the early 1960s, his father, a chicken rancher, got involved with a similar venture. The idea then was to reduce the cannibalism of egg-laying chickens with a lens that distorted their vision. The business flopped, but the goal -- improving the economics of egg production -- is something Wise didn't stop thinking about.

At Harvard Business School during the early 1970s, he wrote a popular case study that evaluated his father's ill-fated experience and outlined the opportunity for a new company. It explored the economics of egg ranching and examined the options for marketing the new lenses. Even today, the case (which sells about 6,000 copies annually) is used in business schools all over the country to highlight pricing and marketing questions.

Wise hoped to launch the business right after business school, but he couldn't get the financing. "Investors had a hard time relating to egg production," he recalls. Fifteen years later, with money in the bank, he's raring to go again.

Wise thinks the odds of success have improved with time. For one thing, plastic molding technology has moved way ahead. Chicken farmers, too, are a little less resistant to newfangled ideas than they once were. And, having built one successful business, Wise believes he knows how to build a second. Initially, for example, he's got a team of just three full-time employees, and he's resisting every impulse to spend money in advance of sales. "I'm a lot smarter than I was when I wrote the business-school case study," he says.

So what does he worry about? These days, Wise says, the biggest danger may be overconfidence. "The way I see it, the next 12 to 18 months are critical. As much as we believe in this, we have to sell it. You can't believe it's going to happen until it actually happens.''

Financial view

The basic economic premise that the business addresses is a reasonable one, but I sense that Wise and his people have miscalculated the uniqueness of their selling proposition from the point of view of the people they're selling to. Wise seems to believe this product really can and should sell itself, because it's so overpoweringly valuable and important that customers shouldn't be able to resist it.

Well, I think the reality is that producers in this field are constantly bombarded with ideas for improving their cost/output ratios. A lot of these products come with the same pitch: "Your margins are very low, this can decrease your cost, so it'll multiply your profits by a lot. Buy some." I think Wise doesn't have enough respect for the volume of such opportunities that are presented to producers, who are very conservative people. They have a complex system, which works. And they don't take altering it lightly.

I think Animalens probably needs to spend a good deal of money sponsoring extensive, repeated field trials, putting together a database that encourages leading producers to say, "It really is worth doing my own test.''

I think it will be very hard to sustain the 25% pretax margins that are projected. These farmers who work for pennies a bird are people who force their suppliers to work for pennies per bird, or minimum possible profit. And that pressure backs up through the entire system in the poultry industry. If you don't have a real proprietary position -- and you don't if you're not selling anything more than an injection-molded plastic product -- then you can be sure that there will be alternate suppliers.

My guess is that Animalens needs more money to do what it expects to, but I'd probably not invest. If it were a clearly proprietary and protectable product, we might be interested. As it is, it looks like a one-shot nonproprietary technology.

I think Animalens as a product may well succeed -- if it works and if it produces the kinds of benefits to cost outlined in the article. Whether the company will succeed is not necessarily the same question.

Observer view

The best thing Wise could do is live with the people who are testing the product and do whatever he can to help things run smoothly. It will take a lot of hand-holding. The success of any test depends on more than the product -- it's how the rancher is