Magazine article National Defense

Government Funding Can Make or Break Small Firms

Magazine article National Defense

Government Funding Can Make or Break Small Firms

Article excerpt

Wild ideas conceived in basements rarely become next-generation technologies for the Defense Department. But some of these ideas materialize, with the help of government funding. The Small Business Innovation Research (SBIR) program is one way to make this happen.

Competition for SBIR awards is aggressive. Many companies often fail to win awards, because they don't know how to market themselves, experts said.

Congress established SBIR in 1982, to open the door for small businesses to federal research and development (R&D) dollars. The government also wanted to speed up the transition of these companies' technologies into useful products. Companies with up to 500 employees are eligible to participate.

"I tell these companies, whatever you are working on now, I don't care about," said Jeff Bond, SBIR program manager for the Ballistic Missile Defense Organization in Arlington, Va. "I want to know what you have in the back room, that if you had a little capital for it, you would try it out. That is the wild idea that I want to find, because it is the wild ideas that are the technologies for tomorrow."

Each federal agency with a budget in excess of $100 million has to reserve 2.5 percent of it for SBIR. Ten federal agencies allocate a total of $1.2 billion a year for the program. The Defense Department alone spends almost $600 million. The Pentagon issues SBIR solicitations twice a year, describing R&D needs and inviting proposals.

Companies first must apply for an initial six-month award--that can reach $100,000--to test the scientific, technical and commercial merit of a specific concept. If the first phase proves successful, the Defense Department may invite the company to apply for a follow-on two-year award--worth up to $750,000--to turn the concept into a prototype. The proposals are judged competitively on scientific, technical and commercial merits. After the second phase is completed, the government expects the companies to obtain private funding or non-SBIR government support to turn the concept into a product for sale, either on the commercial market or to military customers.

"We never know where these innovations are going to lead," said Bond. "We never know how these companies are going to mature, but we know they do and we know that, by taking a lot of risk and a lot of different ideas, we are going to find those few gold nuggets that just really take off."

Although competition is open for all qualified small businesses, some critics of the selection process believe that SBIR competitors often are not small businesses participating on their own, but are teamed with large companies that have the necessary resources to write successful proposals. Don Howard, executive vice president of Jardon and Howard Technologies Inc., a small technology firm in Orlando, Fla., said he suspects that this is the case in more than 50 percent of SBIR awards.

Partnering with the large firm may be the only way for a small firm to participate in SBIR, because preparing a bid is an expensive task that requires skilled and experienced proposal writers, whom many small businesses cannot afford to hire. Nine years ago, Howard's company won an SBIR contract for an online interactive training system for Navy submarines. "We were the protege of the company that knew [the technology]. ... We couldn't do it alone."

Many companies "haven't done their homework and research," said Scott Stanberry, a consultant and the author of a book tided "Federal Contracting Made Easy." It is important, he said, "for a company to do as much research as they can on the agency prior to submitting their solicitation."

Russ Farmer, president of PBC Inc., a company in Denver that provides management services to small business, said that companies sometimes fail in SBIR competitions, because they don't understand the nature of the government agencies funding the project. …

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