T.J. Rodgers' Startup Strategy

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Subsidies' Benefits Disputed

Such investments are a far cry from the forces that have driven the solar industry since its inception. The main source of funding has been government subsidies to partially or entirely offset the cost of solar panels in hopes of reducing pollution and easing the strain on local power grids. "The availability of [private] funds makes a big difference," says Mapes. But, she adds, "a lot of it [still] comes from government incentives."

How does that funding model square with Rodgers' vehement dislike of government subsidies? Although subsidies would appear to benefit Cypress, he argues they've hurt the solar industry. Without subsidies, he says, solar companies would have been forced to develop cheaper equipment sooner. But so long as the government is doling out subsidies, Rodgers won't hurt his company or shareholders by refusing them. "Certainly the subsidies have made it viable earlier," says Rodgers. "At the same time, I wish neither my company nor any other had them."

His determination to reduce expenses for the design, production, and installation of solar panels is evident on SunPower's Web site, where the company confidently promises to compete with retail electric rates by 2012, a move that would require it to reduce equipment costs by 50%.

New Markets Get the VC Treatment

But Cypress' successes include more than a winning solar bet. Rodgers' risk-taking spirit has produced other lucrative opportunities. "Love him or hate him, he is a very dynamic individual," says Chris Crotty, a former Cypress employee who is now a market analyst at research firm iSuppli.

Rodgers lauds Silicon Valley's venture capital model as the best entrepreneurial system in the world, and Cypress' approach to new markets is based on that model: Rather than create a new internal division, Cypress funds an existing startup or a brand-new company with outside staff. Each such venture has its own board of directors, which always includes Rodgers. Once a company is generating $10 million in quarterly sales, with profit margins of 25%, Cypress decides whether to keep it as a subsidiary or "turn it loose" by selling it or taking it public, says Rodgers.

Since founding Cypress, Rodgers has funded SunPower and six other startups with varying success. He prefers to run just one at a time. "They are crying babies," explains Rodgers, adding that startups often don't have the organizational systems in place to manage seemingly simple matters such as hiring and compensation changes. "You've got to get up every night at 3 in the morning." Of its six other startups, Cypress has sold one, microprocessor maker Ross Technology, to Fujitsu for $23 million in 1993.

Reliable Chips and Ventures

The startup strategy has yielded another big win: Cypress' PSoC (for Programmable System-on-Chip), which Apple (AAPL) used in designing the iPod click wheel. The PSoC translates analog data, such as finger touches on the wheel, into commands a device can respond to, as in "turn up the volume."

Cypress recently shipped its 250 millionth PSoC. The PSoC unit has grown from a $16 million business in 2003 to $96 million in 2006. New PSoC designs have started to win Cypress contracts with other devicemakers, including Hewlett-Packard (HP), Lenovo, Nintendo (NTDOY), and Pentax.

Rodgers' latest venture is Cypress Systems, which he recruited Honeywell International (HON) executive Harry Sim to head in 2006. The company, which builds custom computer systems that rely on Cypress chips, is generating sales already. Without Cypress' infrastructure, Sim estimates it would have taken twice as long to bring in revenue. "It's the best of many, if not all, worlds," says Sim. "When you are a little startup, you struggle just to get your payroll and office set up. You have no brand. When you try to get loans, creditors won't sell to you. Now that we are part of Cypress, we are up and running right away."

With the PSoC and SunPower successes under his belt, Rodgers finds himself facing a different problem than he had in 2001, when he was trying to persuade the Cypress board to invest in SunPower. Today, Cypress' board of directors wants Rodgers to find, and fund, more startups. "I get the question, 'What's next?'" says Rodgers. The board wants to know "what the next miracle is."

Holahan is a writer for BusinessWeek.com in New York.