SBIR and the Phase III Challenge of Commercialization Report of a Symposium (2007) / Chapter Skim
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I. Introduction
I. Introduction
Pages 1-30
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program is the nation's premier innovation partnership program. SBIR offers competition-based awards to stimulate technological innovation among small private-sector businesses while providing government agencies new, cost-effective, technical and scientific so 1A growing body of evidence, starting in the late 1970s and accelerating in the 1980s indicates that small businesses were assuming an increasingly important role in both innovation and job creation.
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As noted, a principal goal of the SBIR program is for small businesses to commercialize their innovative product or service successfully. This commer 2The Small Business Innovation Development Act (PL 97-219)
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to navigate and often works to the advantage of incumbents by providing the possibility of a sole source acquisition.4 This transition to commercial or agency use is supposed to take place in the final phase (Phase III) of the SBIR program.
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The availability of additional funds and the need to complete rigorous testing and certification requirements can pose significant challenges for new technologies and products developed under SBIR awards. aWith the agreement of the Small Business Administration, which plays an oversight role for the program, this amount can be higher in certain circumstances, e.g., drug development at NIH, and is often lower with smaller SBIR programs, e.g., the Environmental Protection Agen cy or the Department of Agriculture.
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and, later in the development cycle, from venture capital firms.10 Technology Based Projects, Washington, D.C.: Department of Commerce/National Institute of Standards and Technology, 2000. 6Joshua Lerner, "Evaluating the Small Business Innovation Research Program: A Literature Re view," in National Research Council, The Small Business Innovation Research Program: An Assessment of the Department of Defense Fast Track Initiative, Charles W
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13See Jeffrey Sohl, John Freear, and William Wetzel, Jr., "Angles on Angels: Financing Technol ogy-based Ventures -- A Historical Perspective, Venture Capital, 4(4)
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As Mark Redding of Impact Technologies noted at the conference, venture capitalists tend to avoid funding firms focused on government contracts citing higher costs, regulatory burdens, and limited markets associated with government contracting.16 Institutional biases in federal procurement also hinder government funding needed to transition promising SBIR technologies. Procurement rules and practices often impose high costs and administrative overheads that favor established suppliers.
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As we see next, this change in the perception of SBIR is becoming more widespread in the DoD acquisition process.18 In a major perceptual and political shift (that has taken place over the course of the Academies review,) prime contractors have begun to express much more interest in working with SBIR companies and are increasingly devoting management resources to capitalize on the opportunities offered by the SBIR awardees.19 This perceptual shift is important in that it validates the program in the acquisition process while opening opportunities for firms and program managers to transition the results of successful SBIR awards into systems and products to support the DoD mission.
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increasingly viewed as an important mechanism for helping to expand the nation's science and technology base. He reported that while the commercialization of SBIR-developed products at DoD is split about equally between the private sector and acquisition by DoD and its prime contractors, the growth of Phase III contracts, reported through the department's Central Contractor Registration, has outpaced the growth in the SBIR budget.
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Box C SBIR's Value to the Department of Defense The DoD's SBIR Program Manger, Michael Caccuitto observed that the DoD SBIR program is designed to support two key DoD objectives: creating tech nology dominance, and building a stronger industrial base. Drawing on this ob servation, Dr.
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For smaller prime contractors, SBIR also provides access to high-level expertise found within small innova tive firms. As Earle Rudolph of ATK noted SBIR provides a route to new ideas and entrepreneurs able to develop them.
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The agencies, the prime contractors, and the SBIR recipient community all affirmed that with adequate Phase III funding, SBIR awards could lead to the development and delivery of important technologies that solve mission-driven problems for the agencies and the prime contractors while helping to support the growth of small high-technology businesses. PHASE III CHALLENGES Balancing the successes illustrated above, the conference also highlighted a wide range of concerns about Phase III from the perspectives of agency SBIR and acquisitions managers, award recipients, and prime contractors.
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Also, as is noted above, venture capital firms tend to be highly specialized geographically, and Luna's southern Virginia location has minimal local venture funding.a The path to technical and financial success is often complex for new technologies, especial ly those located in more rural areas distant from high-tech clusters. In one example, Luna Energies built its basic technology with funding from prime contractors and then used SBIR funding to develop applications for NASA and the Air Force.
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Timing Risks. DoD planning, programming, and budgets work in a two-year cycle, and it is difficult for program executive officers to determine whether a small firm will be able to create a product to meet program needs in a timely manner, even if the initial research has proven successful.
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• Administrative Funding Constraints The fact that the SBIR legislation does not permit the agencies to use SBIR funds for administration of the program is seen as another constraint. The Air Force's Major Stephen stated that four staff members at Wright-Patterson Air Force Base administer the entire Air Force SBIR program, and that while the program had experienced 70 percent growth over the previous five years, there had been no additional funding for transition assistance or program administration.
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In the Navy, acquisition offices supported or endorsed more than 80 percent. However, the Air Force's Major Stephen observed that improved topic generation -- i.e., development of topics more relevant to program executive officers -- would also tend to reduce the timeliness of topics.
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Much technical planning in acquisition is driven by roadmaps developed by program officers and prime contractors. Failure to integrate SBIR and small businesses generally into the roadmaps means that they are likely to be excluded from acquisition programs, regardless of the success of SBIR projects.
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Many speakers cited the exam ple of the Navy Opportunity Forum as a means of making connections among agency program officers, SBIR program officers, prime contrac tors, and small businesses, as well as venture capitalists and other sources of funds.. However, the Forum was described as a unique phenomenon because other agencies do not make available the funds and management attention needed for similar activities.
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• The Navy "Primes Initiative." Begun in 2002, the Navy Primes Initia tive is an effort to connect prime contractors to the SBIR program in a more formal way. As noted, prime contractors have become increasingly interested in more access to the SBIR program.
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As noted, the Navy Opportunity Forum brings together SBIR firms, prime contractors, and program executive officer and program managers, offering important networking opportunities and is well re ceived by participants. • New Funding Initiatives.
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Box G A Caveat Regarding the Issues Noted Below This report summarizes the issues raised over the course of an NRC confer ence on SBIR commercialization challenge. By capturing the perspectives of agen cy officials, prime contractors, and small business leaders, the conference has helped to inform the deliberations of the NRC committee that is reviewing the SBIR program.
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As Dr. McGrath noted, SBIR firms need to take steps to con vince program executive officers not only that the SBIR technology works, but also that the small business will be able to produce it to scale and on time.
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Mr. Waszczak added that while Raytheon saw Phase II as the prime contractor's key entry point into the SBIR program, the prime contractors also need to be aware of the project at the development stage.
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Topic Vetting. Program executive officers keep track of all topics.
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Speakers also noted that it was critical for small businesses to focus on gaps identified via technology roadmaps -- which represented real opportunities for Phase III -- and in particular on finding ways to participate in the development of roadmaps and the identification of gaps. Impact Technologies' Redding noted that it was possible to increase the success rate of SBIR applications, which his company had done by successfully teaming with universities and prime contractors on Phase I applications (where the latter were subcontractors)
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SUMMARY The views of the program managers, representatives of the prime contractors, program executive officers, and small company executives captured in this conference, and summarized in the next part of this report, reveal a growing and widely based recognition that the SBIR program can play a key role in providing timely and innovative technology solutions to agency missions. The conference served to highlight a number of common elements, some of them relatively new developments in the perception and operation of the SBIR program.
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SBIR is seen less as a "tax" and more as a versatile tool to rapidly transition innovative technologies that address current mission needs. This is a welcome development since the potential of the SBIR program to support agency missions fundamentally depends on how well it is used.
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