|
Items in cart [4] |
Questions? Call 888-624-8373 |
| Copyright © 2009. National Academy of Sciences. All rights reserved. Terms of Use and Privacy Statement |
Below are the first 10 and last 10 pages of uncorrected machine-read text (when available) of this chapter, followed by the top 30 algorithmically extracted key phrases from the chapter as a whole.
Intended to provide our own search engines and external engines with highly rich, chapter-representative searchable text on the opening pages of each chapter.
Because it is UNCORRECTED material, please consider the following text as a useful but insufficient proxy for the authoritative book pages.
Do not use for reproduction, copying, pasting, or reading; exclusively for search engines.
OCR for page 13
II
INTRODUCTION
OCR for page 14
OCR for page 15
Introduction
Small business is widely believed to be a significant source of innovation
and associated employment growth in the American economy, a perception that
has considerable basis in fact.) Certainly in the 19th century, the individual
inventor played a central role in American economic development. More recently,
the role of the small start-up firms in regions such as Silicon Valley have rein-
forced the notion that small business is an important driver of economic growth.
Yet the question of firm size and economic growth has been subject of debate
for much of this century. The early part of the century was marked by the rise of
the large-scale enterprise in the United States, and the conventional wisdom held
that large firms had compelling advantages in most performance measures, from
profitability to productivity. It was widely accepted that large firms could operate
at sufficient levels of scale to produce efficiently and generate the resources to
develop new innovations that would perpetuate market dominance. In 1950
Schumpeter, while pointing to the small entrepreneur as the vanguard of the wave
of "creative destruction" that spurred innovation, nonetheless posited that large
firms, with substantial resources available for R&D, would come to dominate
~ A recent report by the Organization for Economic Cooperation and Development (OECD) notes
that small and medium-sized enterprises are attracting the attention of policymakers, not least because
they are seen as major sources of economic vitality, flexibility, and employment. Small business is
especially important as a source of new employment, accounting for a disproportionate share of job
creation. See OECD, Small Business Job Creation and Growth: Facts, Obstacles, and Best Practices.
Paris, 1997. For specifics on job growth, see Steven J. Davis, John Haltiwanger, and Scott Schuh,
"Small Business and Job Creation: Dissecting the Myth and Reassessing the Facts," Business Eco-
nomics. Vol. 29, no. 3, 1994, pp. 113-22.
15
OCR for page 16
16
INTRODUCTION
capitalist economies. Galbra~th later argued that the source of innovation was
more plausibly the large firm, which has the resources available to invest at suffi-
cient scale, not the individual innovator.3
Concentration and centralization in research and development also charac-
tenzed the beginning years of the 20th century, and seemed consistent with the
ideas about firm size and innovation hypothesized by Schumpeter and Galbra~th.
The great corporate research laboratories were established at companies such as
DuPont, General Electnc, and AT&T. In the post-war years, RCA's Sarnoff
Laboratory was established, and IBM's Yorktown lab and Bell Laboratones en-
joyed their heyday, generating innovations in computing and communications
that have had profound effects on the U.S. economy and lifestyle.
By the 1970s, most data indicate that the story began to change, with small-
firm growth accelerating. From 1975 to 1984, employment in firms with be-
tween 20 and 99 workers grew by 3.64 percent annually, while employment at
firms with more than 1,000 workers grew at only one-third that rate, or 1.25
percent.4 From 1980 to 1987, the average real GNP per firm decreased by 14
percent, from $245,000 to $200,000.5 As The Economist noted in 1989,1arge
firms are shrinking in size and small ones are proliferating; in terms of the source
of employment growth "ET]he trend of a century is being reversed."6 With re-
spect to large research laboratones, as Rosenbloom and Spencer have noted, a
similar reduction in size has occurred, as IBM's Yorktown facility was severely
downsized in the l990s and as the breakup of the Bell System in the 1980s
changed the character of Bell Labs.7 Investment in long-term R&D is seen by
many as the primary casualty of these changes.8
Even before the break up of the large R&D laboratones, there was a growing
recognition of the role of small business in furthering technological innovation.
The 1980s saw the emergence of rapidly growing companies such as Microsoft
2 Joseph Schumpeter, Capitalism, Socialism and Democracy. New York: Harper and Row, 1950, p.
110.
3 John Kenneth Galbraith, The New Industrial State. Boston: Houghton Mifflin, 1957. In fact,
evidence from the post-war era seemed to support these notions; from 1947 to 1980, the average real
gross national product per firm grew from $150,000 to $245,000; see Zoltan J. Acs and David B.
Audretsch, Innovation and Small Business. Cambridge, Mass: MIT Press, 1991, p 4.
4 Ibid.
5 Ibid., p. 3.
6 "The Rise and Fall of America's Small Firms," The Economist, January 21, 1989, pp. 73-74.
7 Richard Rosenbloom and William Spencer. Engines of Innovation: U.S. Industrial Research at
the End of an Era. Boston: Harvard Business Press, 1996. Irwin Lebow supports this view, observing
that in the opinion of many, the most significant change brought about by the AT&T divestiture was
that Bell Laboratories no longer operates under conditions as favorable to the pursuit of fundamental
research, the results of which will not be evident for some time in the future. Information Highways
and Byways, op.cit. pg. 157.
~ Ibid.
OCR for page 17
INTRODUCTION
17
and Apple Computing. That decade also saw the rapid growth of the U.S. venture
capital industry, which facilitated the contribution of small firms in exploiting the
commercial potential of promising new technologies.9 To some extent, science
and technology policy in the 1980s and 1990s has reflected this emphasis on the
innovative role of small business.~°
In addition to the growing recognition of the importance of small business
for innovation and employment, there is also today a better understanding of the
problems that small businesses face in financing growth. One type of problem
has to do with imperfect information in the market for start-up financing. As
Lerner notes, asymmetries in information between entrepreneurs and financiers
are likely to work to the disadvantage of small firms. Even though providers of
funds have strong incentives to gather information about the small business in
which they may be investing, the entrepreneur especially in technology
startups is likely to be the only person with in-depth knowledge of the technol-
ogy and the market opportunity. And that knowledge is likely to be insufficient
to perfectly predict potential payoffs. The result is "statistical discrimination"-
it makes sense for financiers to withhold funds even for promising opportunities
because it is too costly, and often impossible, to gather the information to assess
potential payoffs.
A second problem involves the appropriability of R&D results. The eco-
nomics literature has long recognized that knowledge is "leaky", that is, new
knowledge often transcends the boundaries of firms and intellectual property pro-
tection, so that the creator of that knowledge cannot fully capture the economic
value of the knowledge through the price system.~3 Moreover, several case-
study analyses of small businesses suggest that appropriability problems may be
9 For discussion of the relationship between innovative activity and firm size see Acs and Audretsch,
op.cit. chap. 3. They maintain that it is important to recognize that small firms are not necessarily
more innovative than large firms. The relative contribution depends on the sector, market structure,
capital intensity, and rate of innovation. Acs and Audretsch emphasize that both large and small firms
bring advantages to the innovative process. Large firms have the resources for long-term R&D in-
vestments and benefit from substantial advantages, such as economies of scale, investment, and the
market power necessary to recoup R&D investments. Small firms tend to have a higher tolerance for
risk, are characterized by rapid decision-making, and often focus on innovative activity as a core
strategy. op.cit. pg. 39-41.
in David Audretsch and Roy Thurik, Innovation, Industry Evolution, and Employment. Cambridge:
Cambridge University Press, 1999.
ii See Joshua Lerner, "Public Venture Capital: Rationale and Evaluation" in the Annex of this
volume.
i2 Ibid.
i3 See Edwin Mansfield, "How Fast Does New Industrial Technology Leak Out?" Journal of In-
dustrial Economics. Vol. 34, no. 2, pp. 217-224 for a discussion of the rationale for firms locating
R&D facilities in foreign countries, one of which is to absorb leaky R&D information from firms in
those countries.
OCR for page 18
18
INTRODUCTION
particularly acute for small businesses.~4 In other words, it&D-generated inno-
vations may escape the organizational walls of small firms with relatively greater
ease than large businesses.~5 At the same time, ideas not valued and pursued in
one firm are often the reason an entrepreneur starts a new firm.
ORIGINS OF THE SMALL BUSINESS INNOVATION
RESEARCH PROGRAM
By the late 1970s, the growing prominence of small businesses and the
recognition that they were playing an increasing role in innovation led to policy
responses by the Federal government. As Roland Tibbetts, generally regarded as
one of SBIR's founding fathers, recalls in panel 1, federal commissions dating to
the 1960s recommended directing R&D funds to small businesses, but such rec-
ommendations were not acted upon due to opposition from other recipients of
federal R&D funding. It was not until 1976 that any formal action was taken to
channel federal R&D funds to small business. That year the National Science
Foundation increased the share of its funds going to small business. Small firms
were enthused with this initiative, and proceeded to lobby other agencies to fol-
low NSF's lead.
There was no immediate response to these efforts and small businesses there-
fore took their case to Congress and higher levels of the Executive branch. One
result was a White House Conference on Small Business held in January, 1980
that explored specific ways to respond to small business' concerns. From that
Conference came a recommendation for legislation that eventually became the
Small Business Innovation Development Act of 1982, the bill that authorized the
SBIR program. One reason the conference's recommendations received a sym-
pathetic hearing was the mounting evidence of the decline in the share of federal
R&D going to small businesses, as well as broader difficulties among small busi-
ness in raising capital. At the same time, contemporary research suggested that
small business were a fertile source of job creation further improved the climate
for SBIR legislation.~7
GOALS OF THE LEGISLATION
The legislation authorizing SBIR had two broad goals from the outset.
According to the report language accompanying the legislation:
i4 Lerner, op. cit.
15 Ibid.
i6 David B. Audretsch, Innovation and Industry Evolution. Cambridge, MA: The MIT Press, 1995.
i7 David L. Birch, "Who Creates Jobs?" The Public Interest. Vol. 65, 1981, pp. 3-14.
OCR for page 19
INTRODUCTION
"The purpose of the bill is twofold: to more effectively meet R&D needs brought
on by the utilization of small innovative firms (which have been consistently
shown to be the most prolific sources of new technologies) and to attract private
capital to commercialize the results of Federal Research."
More specifically, the 1982 act creating SBIR listed four program objectives:
19
1. To stimulate technological innovation
2. To use small business to meet Federal research and development needs
3. To foster and encourage participation by minority and disadvantaged per-
sons in technological innovation
4. To increase private sector commercialization of innovations derived from
federal research and development.
THE SBIR SET-ASIDE
To carry this out, the act required federal agencies with R&D budgets in
excess of $100 million to set aside 0.2 percent of their funds for SBIR. This
totaled $45 million in SBIR's first year, fiscal year 1983. Over its first six years
of operation, the percentage set-aside increased to 1.25 percent. Modeled largely
on the NSF's small business initiative, SBIR grants had three phases. Phase I,
essentially a feasibility study, was a modest grant (in the neighborhood of $25,000
in 1983) to assess the technology's potential. Phase II, whose value was approxi-
mately seven times that of Phase I, was for more extensive development and
prototype development. Phase III involved no federal funds, but was the stage in
which award recipients were expected to receive private sector financing for com-
mercialization.
Today, Phase I grants can be as high as $100,000 and Phase II grants are
typically approximately $750,000. Across all agencies, SBIR's funding for FY
1998 totaled $1.1 billion, with the Defense Department having the largest pro-
gram at $540 billion and the National Institutes of Health following with some
$266 million in FY 1998.~9 Since the program's inception in 1983, SBIR has
made over 45,000 awards, totaling $8.4 billion in 1998 dollars.20
i~ U.S. Senate, Committee on Small Business (1981), Senate Report 97-194, Small Business Re-
search Act of 1981, September 25, 1981.
i9 See HtmlResAnchor http://www.acq.osd.mil/sadbu/sbir/overview.html for information on DoD' s
SBIR program. For information on NIH's SBIR program, see HtmlResAnchor http://grants.nih.gov/
grants/funding/sbir.htm#sbir.
20 For an overview of the origins and history of the SBIR program, see the recent article by James
Turner and the late Representative George Brown, former Chairman of the House Committee on
Science, "The Federal Role in Small Business Research," Issues in Science and Technology. Summer,
1999, pp. 51-58. This article provides a critical appraisal of the program, highlighting a number of
issues raised in the symposium.
OCR for page 20
20
INTRODUCTION
THE 1992 REAUTHORIZATION
Congress made two major changes to the SBIR program in the 1992 reautho-
rization. First, the set-aside rate doubled to 2.5 percent. Second, Congress in-
creased the emphasis on commercialization of federal R&D as a program goal.
Whereas the original SBIR legislation specified that Phase I grants should dem-
onstrate "scientific and technical merit," the 1992 reauthorization stated that Phase
I should demonstrate "scientific and technical merit and feasibility of ideas that
appear to have commercial potential."2i
With respect to Phase II, the 1992 SBIR legislation substantially increased
the importance of commercial potential. In evaluating Phase II applications, agen-
cies were directed to assess a technology's commercial potential as evidenced by:
1. The small business' record of commercializing SBIR or other research;
2. The existence of second phase funding commitments from private sector
or non-SBIR funding sources;
3. The existence of third phase, follow-on commitments for the subject of
the research, and;
4. The presence of other indicators of the commercial potential of the idea
(GAO, 1999~.
This legislative language reflected Congress' desire to encourage a higher
commercialization rate for SBIR-funded technologies.
SBIR REAUTHORIZATION
The SBIR program is scheduled to expire on October 1, 2000 and the Con-
gress held reauthorization hearings on the program in 1998 and 1999. Because of
the size of SBIR, its emphasis on research and commercialization, its goals of
meeting agency research needs while contributing to economic growth, the pro-
gram represented an ideal starting point for fact-finding phase of the STEP
Board's project on "Government-Industry Partnerships for the Development of
New Technologies."22 It is in this context that the Board on Science, Technol-
ogy, and Economic Policy (STEP) organized a one-day symposium to review the
program. The objective of the symposium was to review the history, rationale,
operational issues, and current academic research regarding the program.
2i For more information on the points raised in this paragraph, see Robert Archibald and David
Finifter, "Evaluation of the DoD SBIR Program and the Fast Track Initiative: A Balanced Approach,"
in National Research Council, The Small Business Innovation Research Program: The Fast Track
Pilot. Washington, DC: The National Academy Press, 1999.
22 See the Preface for an explanation of the project's origins and objectives.
OCR for page 21
INTRODUCTION
2
CRITICAL PERSPECTIVES ON SBIR
While the SBIR program generally enjoys bipartisan support, it is not free
from criticism and controversy. First, SBIR is seen in some quarters as a tax on
R&D funds. Given the demands for extramural R&D funding, some object to
that 2.5 percent of this total must be allocated to the SBIR program. A second
and related concern involves the different constituencies for R&D and small busi-
ness. In the Congress, the science committees see themselves as the stewards of
the public dimension of the nation's scientific and research enterprise. To some
extent, SBIR can be seen as serving a different constituency, namely small busi-
ness, although it can also be seen as a means to commercialize the results of
publicly funded R&D. Some members of the university research community see
SBIR as a drain on R&D resources that might be better utilized within a univer-
sity environment and better allocated through traditional channels. In addition,
some economists object to the SBIR program as an unwarranted and unnecessary
intervention into capital markets.23
AN OVERVIEW OF THE SYMPOSIUM24
In opening the symposium, Mark Myers, vice president for research at Xerox
Corporation, pointed to one virtue of the SBIR program, which is bringing small
business into the family of companies doing business with the federal govern-
ment. This not only promotes the growth of small businesses, an important source
of innovation in the U.S. economy, but it also opens up the government to new
ideas in the procurement process. At the same time, Dr. Myers noted that although
the SBIR program has been around for a number of years, the close scrutiny of
the day's program might well shed light on ways to improve SBIR.
Duncan Moore, associate director of the White House Office of Science and
Technology Policy, framed his opening remarks both from his perspective as a
public official and from his own experience as a one-time SBIR award winner. A
firm he founded in 1980 when he was a university professor was unable to obtain
venture capital or bank financing. Dr. Moore's firm turned to SBIR, which served
a vital role in the technology's development. While very important to his firm,
Dr. Moore also recalled how the gap between Phase I and Phase II funding was a
problem; his firm, for example, had to turn to consulting and other work not
central to its mission to weather the period of time between grants. From a per-
sonal perspective, Dr. Moore said that the issue of "SBIR mills" firms that seem
to exist only to win SBIR grants, but not commercialize technology should
23 See, for example, Scott Wallsten, "Rethinking the Small Business Innovation Research Pro-
gram," in Branscomb and Keller, eds., Investing in Innovation. Cambridge, MA: The MIT Press,
1998, pp. 194-220. This view is not shared by other researchers; see, for example, Josh Lerner's
paper in the Annex to this volume.
24 This section summarizes the proceedings of the conference held on February 28, 1998 in Wash-
ington, D.C. at the National Academy of Sciences.
OCR for page 22
22
INTRODUCTION
somehow be addressed. He suggested that firms be required to write business
plans that outline how the technology will be commercialized as a condition for
receiving an SBIR award. Dr. Moore also said that, while some university pro-
fessors see SBIR as a tax on R&D funds that reduces research funding for them,
academicians should see SBIR as an opportunity for them to spin-off their
research into companies.
History and Legislative Perspective on SBIR
In recalling the early years of efforts to direct federal R&D funds to small
business, Roland Tibbetts said that as early as the mid-1970s, many members of
Congress understood that small businesses were a potentially fruitful source of
innovation. However, government agencies were wary of funding high-risk tech-
nologies that showed commercial promise. In fact, using the term "commercial
potential" in an SBIR application was likely to do more harm than good for the
applicant. A desire to encourage commercialization has emerged among many
agencies in recent years, and Mr. Tibbetts characterized this as a promising devel-
opment. Referring to his own research, Mr. Tibbetts affirmed his belief that the
NSF SBIR program has been successful in generating innovations and job cre-
ation among small firms.
In commenting on Mr. Tibbetts remarks, Paul Cooksey and Patricia Forbes,
majority and minority staff directors respectively of the Senate Committee on
Small Business, noted the widespread popularity of the program. Ms. Forbes
reminded participants that SBIR successes could be found not just in high-
technology states such as California and Massachusetts, but across a wide range
of states. Mr. Cooksey commented on the bipartisan support that SBIR enjoys,
but noted that because SBIR is not a high profile program, its supporters must be
vigilant in cultivating support and inviting enough scrutiny so that SBIR is not
seen as "stealth" program.
From the perspective of the House Committee on Science, James Turner said
that even though SBIR is a dispersed program, it is substantial in size. At $1.2
billion, it should be subject to the same level of scrutiny as any large program. He
also noted the "schizophrenic nature" of the SBIR program namely the program' s
charge to support agency research needs while at the same time promoting pri-
vate commercialization suggesting that was one area which might usefully be
explored in deliberations on SBIR. Mr. Turner encouraged rigorous assessment
of SBIR, and he concluded by saying that the House Committee on Science, as
advocate of research and competitiveness, could contribute to strengthening the
program.
Research Perspectives on SBIR
In introducing his research, Joshua Lerner of the Harvard Business School
OCR for page 23
INTRODUCTION
23
concurred with Mr. Turner' s view that SBIR has received little attention from the
research community, given the program's size. Dr. Lerner said that he found that
SBIR awarders generally grew at a greater rate than comparable non-SBIR
firms whether measured by employment growth or job growth. The greatest
job growth is associated with regions of the United States, such as California or
Massachusetts, with significant high-technology entrepreneurial activity. The
picture that emerges from the research is a program that is working effectively
and appears to be playing a positive role in stimulating small-firm creation. Dr.
Lerner said that an SBIR award appears to have a "certification" function, acting
as a stamp of approval for young firms to obtain resources from outside investors.
From a policy perspective, Dr. Lerner said that the rationale for this type of
"public venture capital" program rested on two economic arguments. First, there
are significant knowledge spillovers associated with R&D, that is, the benefits of
R&D do not accrue only to those making the R&D investment. Second, informa-
tion problems hamper investors' efforts to identify promising technologies. The
large number of companies seeking financing, coupled with the technological
sophistication and business uncertainty involving innovative business proposals,
pose significant challenges for potential investors, challenges that may result in
underinvestment in new technologies. This problem may be especially acute for
small firms.
Case Studies
While aggregate measures of the SBIR' s impact are valuable, the next panel
reviewed the experiences of firms that have received grants, bringing together
venture capitalists, award winners, and government officials. This panel pro-
vided useful insights into the program's contributions to small business growth,
as well as ways in which the program could be improved. Gary Morgenthaler,
now a venture capitalist, described a software firm he founded on the strength of
three SBIR awards, totaling $650,000, that eventually grew to a company with
$160 million in revenue and 1,300 employees. Dr. Morgenthaler observed that it
is important to know how to win grants, but that the best way to win several SBIR
awards is to achieve promised goals. As a venture capitalist, Dr. Morgenthaler
noted the difference between how SBIR operates and how venture capitalists
evaluate opportunities. The SBIR program places a greater emphasis on good
science in evaluating applications, whereas a venture capitalist looks to commer-
cial potential and supplies management and marketing expertise to companies
that receive venture funding. Echoing Dr. Moore, Dr. Morgenthaler also ad-
dressed the funding gap between Phase I and Phase II grants and the issue of
"SBIR mills." Dr. Morgenthaler said that the 18 month period between the initial
application and Phase II is "an eternity" in today's market. With respect to SBIR
mills, Dr. Morgenthaler said that the existence of firms that receive between 50
and 300 awards, with modest commercialization records, may not be the best use
OCR for page 24
24
INTRODUCTION
of taxpayer funds. However, he did suggest that closer collaboration between the
venture capital industry and the SBIR program might improve the chance that
good research will be coupled with effective management and adequate funding.
Richard Carroll, of Digital System Resources, described how a small busi-
ness such that establishes a relationship with an agency through SBIR can con-
tribute innovative ideas to the agency as the business grows. Digital System
Resources, which developed a significant new SONAR technology for the U.S.
submarine fleet, uses "innovation focus groups" among its 200 employees to
develop new ideas to meet the needs of the Defense Department. Using SBIR,
the Navy has procured innovative technology from his company, and Digital
Systems has had a steady customer for its technology as the firm has grown.
Operational Challenges
In discussing program administration and issues in SBIR's rationale, Dan
Hill of the Small Business Administration (SBA) recalled a discussion that took
place at SBIR's 1982 authorization hearing. An NSF official said that creating
SBIR would amount to establishing a new set-aside program. In response, Sena-
tor Warren Rudman asked how many NSF grants went to small businesses and
the NSF official said that none did. Senator Rudman then responded that SBIR
did not constitute the creation of a new set-aside program, but the destruction of
an old one. In this context, Mr. Hill said that SBIR should not be viewed as a 2.5
percent tax, but should instead be compared with the 97.5 percent of federal R&D
conducted outside the SBIR program. As the SBA assistant administrator for
technology, Mr. Hill identified the following operational challenges for SBIR as
the program went through its upcoming reauthorization:
· Commercialization: the extent to which commercial potential should be
weighed in the award process.
· Cost-sharing: the extent which agencies should decide awards on the
basis of the amount cost-sharing provided by the applicant.
· Multiple award winners: how to address the SBIR awarders that win
many awards, but whose commercialization record is modest. Mr. Hill noted that
agencies have sufficient authority under current legislation to limit multiple
awards.
.
Time delays: whether too much time passes between Phase I and Phase II
awards.
· Geographic distribution: whether anything should be done to address
the fact that awards tend to be clustered in specific regions.
· Evaluative criteria: given that SBIR is administered differently in differ-
ent agencies, Mr. Hill said that developing consistent and improved evaluative
criteria was necessary for SBIR to comply with the Government Performance and
Results Act.
OCR for page 25
INTRODUCTION
25
· Set-aside percentage: Mr. Hill said that SEA would like to see the per-
centage rise, but preferred to see the overall federal R&D budget increase.
In taking up some of these themes, Dr. Carl Nelson, formerly with the Ballis-
tic Missile Defense Organization (BMDO), suggested two ways to improve SBIR.
First, to permit government decision-makers to better respond to the rapidly
changing marketplace, Dr. Nelson suggested creating incentives, such as a
$10,000 bonus, to SBIR program managers whose awards perform well. Second,
to address multiple award winners, Dr. Nelson recommended a formula by which
a ceiling would be put on the percentage of an agency's SBIR budget that could
go to a set of firms whose SBIR awards had attained a specified threshold.
David O'Hara of Parallax Research raised the issue of cultural differences
across different firms that participated in SBIR. At a firm for which he worked
prior to Parallax, Mr. O'Hara recalled that his boss there was interested in win-
ning SBIR awards, but uneasy with a provision in BMDO's SBIR program re-
quiring evidence of commercial potential before a Phase II grant was awarded.
Mr. O'Hara, who was interested in bringing products to marker, realized he was
in the wrong corporate culture, and left to form Parallax. Based on this experi-
ence, Mr. O'Hara encouraged policymakers to look for ways to attract firms to
SBIR that were actively interested in commercialization.
In reflecting on the comments of Dr. Nelson and Mr. O'Hara, Gene Banucci
of Advanced Technology Materials, Inc. (ATMI) said that the pressure from
BMDO to have ATMI obtain third-party financing as a condition for ATMI's
Phase II award proved very helpful to his company. The pressure reinforced a
trend begun within ATMI to look for partners to grow the company. This strat-
egy, using SBIR funds and other partners, has enabled ATMI to grow to $102
million in revenues and eventually graduate from SBIR because, with more than
500 employees, ATMI no longer qualified as a small business. ATMI has been a
commercial success with its technology to safely transport toxic and hazardous
gases used in semiconductor fabrication, while also meeting BMDO's need for
such technology. In characterizing SBIR as "a terrific program," Dr. Banucci
said it could be further improved by increasing the size of awards to firms who
have lined up several partners to share costs.
Improving Assessment and Selection
To draw lessons on how to improve SBIR selection, assessment, and admin-
istration, the symposium heard from representatives of several agencies' SBIR
programs and a non-SBIR technology investment program, the Advanced Tech-
nology Program (ATP). The ATP differs from SBIR in that it is targeted at
technologies with commercial potential from the outset, and at technologies with
have spillover potential, that is, high-risk technologies with widespread economic
impact. ATP' s evaluation program is very detailed and developed, and the ATP' s
Dr. Maryellen Kelley described the data collection process employed by ATP to
OCR for page 26
26
INTRODUCTION
conduct evaluations. Speaking for the National Institutes of Health, Dr. Herbert
Kreitman noted that approximately 95 percent of NIH SBIR awards were re-
search grants, so that commercialization receives less attention at NIH than else-
where. NIH is also very interested in investigator-initiated research, so that NIH
is unlikely to publish solicitations in specific technology areas. Nonetheless, he
stated that the General Accounting Office has found NIH's commercialization
record in SBIR to be very good. Dr. Kreitman concluded that NIH could further
improve its commercialization record if it had more funds for outreach to the
community of small businesses who do, or might do, research with NIH.
From the DoD perspective, Jon Baron, the DoD SBIR program manager,
described efforts to improve commercialization through the Fast Track pilot pro-
gram. Although aware of a number of very successful commercial products gen-
erated by DoD's SBIR program, the Department wanted to improve the rate of
commercialization. Through Fast Track, DoD hopes to encourage commercial-
ization by reducing the time period between Phase I and Phase II awards, as long
as firms show that they have commitments from third parties to buy the SBIR
technology. Mr. Baron said that early indications were that Fast Track has en-
abled SBIR companies to leverage the SBIR grant, that is, the promise of expe-
dited Phase II funding has enticed some private investors to provide matching
funds to the SBIR applicant.
In commenting on Dr. Kreitman's and Mr. Baron's remarks, Charles Rowe
of the House Committee on Small Business said he was very pleased to see Fast
Track programs at NIH and DoD. The funding gap between Phase I and Phase II
is one of the most pervasive complaints among small businesses participating in
SBIR. To see policy experiments underway at two agencies to address these
complaints was heartening.
Perspectives of SBIR Program Managers
Having heard a variety of perspectives and suggestions about the SBIR pro-
gram, SBIR program managers from different agencies provided their views on
how the program operates and how it could be improved. Some SBIR program
managers, such as the Energy Department's Arlene de Blanc saw themselves as
"matchmakers" bringing the appropriate small business to bear on specific
agency mission needs, in a way that encourage marketplace success. Being a
successful matchmaker can be a delicate balancing act, and several program man-
agers remarked on the need for flexibility in program administration to allow
matchmaking function to be carried out successfully. The U.S. Army's Kenneth
Gabriel suggested that with entrepreneurship taking on even more importance in
the U.S. economy in terms of job creation and innovation, it was even more
important to use the SBIR program to seek out creative elements in the economy
to achieve government missions. Dr. Gabriel stressed that SBIR managers should
continue to adhere to the highest standards of technical merit, but he argued that
OCR for page 27
INTRODUCTION
27
the program must be decentralized in administration so that program managers
can encourage risk-taking where appropriate.
Such decentralization may mean that different agencies may define "SBIR
success" differently. The Defense Department may see success as a piece of
hardware that goes into a weapons system, whereas NIH may view success as an
article published in scientific journal that stimulates additional inquiry. Dr. Rob-
ert Norwood of NASA expressed his concern that any one measure of success
could apply to a program administered through eleven different agencies. Dr.
Norwood also cautioned against relying on individual success stories in evaluat-
ing the program as a whole. Among program managers, the recent emphasis on
commercialization was generally regarded as a positive development, but they
cautioned that Congress should not lose sight of mission needs or of the limited
resources within agencies to promote commercial goals of SBIR.
CONCLUSION
In summarizing the day's discussion, Mark Myers observed that the SBIR
program appears to enjoy broad-based bipartisan political support. Dr. Myers
noted that SBIR's focus on technical merit and its competitive award process are
time-proven approaches to ensure quality. Yet despite its substantial budget, this
decentralized program has been subject to relatively little analysis. The multiple
goals of the SBIR program evaluation present a challenge, especially when even
the definition of commercialization is open to different interpretations by differ-
ent agencies. Dr. Myers emphasized that the participating agencies' autonomy is
such that there are, on a de facto basis, many different programs operating.
Dr. Myers also endorsed the Defense Department's recent emphasis on
greater speed in program operations, remarking that improving the pace of deci-
sion-making is an important goal from the perspective of the private sector. With
the quickening pace of innovation, it is important to improve government deci-
sion-making cycles; as Dr. Myers observed, "everything you can do to speed up
anything" is considered a virtue in the private sector. If an objective of SBIR is to
use the private sector to meet government mission needs while encouraging com-
mercialization, then exploring ways to make SBIR program administration
fully responsive to the private sector is important. Dr. Myers noted that another
advantage to the program is that it makes available an alternative source of very
patient capital, which can contribute to sustained support for research and devel-
opment. In closing, Dr. Myers thanked attendees for their participation in a sym-
posium that generated rich and valuable discussion on SBIR. He expressed his
confidence that the symposium would be a significant first step in the STEP
Board's efforts to improve our understanding of the history, goals, and operations
of the SBIR program, as well as the challenges and opportunities it faces.
OCR for page 28
Representative terms from entire chapter:
commercial potential
