In what is shaping up to be a recurring collaboration, we want to highlight some expert commentary from Fred Patterson. Fred is a huge advocate of growing the economy by growing small business and, in particular, by finding ways to fund innovation with Federal money that never has to be paid back!

Best,
Charles Moster

SBIR - Can you Say “Economic Stimulus”?

The economic problems facing our country have given rise to a whole set of confusing and hard to understand initiatives. The Obama administration is proposing wide ranging economic stimulus to get us out of trouble, but, if it’s going to work, we have to be smart and selective as to where that investment is applied.  In addition to where, there’s also much debate on how much to invest and when to invest it. 

One thing that everyone agrees on is that innovative solutions to our problems are needed, especially in the areas driven by science and technology.  Indeed, there’s an economic theory that contends that technological advances are the principal driver of modern business, with economic benefit being the observable result. It even has a name - techonomics [1].

Over 25 years ago, the Federal government created a way to ensure that innovative solutions to tough science and technology problems would be developed.  And, very cleverly, they did it in way that bolsters the largest job creation sector of our economy – small business.  This techonomics initiative is called the Small Business Innovation Research (SBIR) Program [2]. 

Here’s how it works:  The largest Federal agencies (those that spend over $100 million annually on outside research and development), must set aside a percentage (currently 2.5%) of their R&D budget for SBIR projects.  In 2008 this represented over $2 billion of available funding. These projects are reserved for our domestic for-profit small businesses that are independently owned and operated by individuals (not large entities).  The agencies pose problems, usually tough ones that they need solved to help fulfill their missions. The small businesses are invited to submit proposals for solving them, describing how they’re going to do the work and spend the money (up to $850K in two phases – feasibility and prototype development). 

The proposals are evaluated and the best ones are funded, based solely on the merits of the planned project, the qualifications of the team, and the potential for turning the technology developed into a business with potential customers being from both the government and the private sector.  It’s very competitive – only about 10-15% of the submitted applications get funded.  The awards are essentially grants.  There’s no debt to repay, and no equity to give up, And there are special rules whereby the small business gets to keep exclusive rights to intellectual property (called SBIR Data Rights [3]) protected long enough for patents to be filed.  In fact, it’s the intellectual property aspects of SBIR that make it uniquely attractive for inventors and entrepreneurs seeking to fund their development without losing control of their inventions.

Since the first SBIR projects were funded, way back in 1983, literally thousands of companies have gotten their initial seed funding via SBIR, and tens of thousands of jobs have been created.[4]. Many of the companies that got their start this way have been acquired by larger companies or gone public, creating wealth for their owners, both founders and investors.  Not to say that it’s easy to have such success.  In fact many more companies fail to achieve commercialization than succeed – it’s hard to do, but that’s the nature of a capitalist economy.  Only the best achieve true success, and it’s because they were the best – producing a technologically excellent product that solved a problem and served a market need – that the economy grows as a result of their success.  Techonomics.  

The SBIR Program is currently up for reauthorization by the 111th Congress.  It’s been reauthorized three times already, and each time it’s faced opposition from obstructionists and detractors, who, in my opinion, simply did not understand the dynamics of small business techonomics. But, each time, the good sense prevailed, and the SBIR Program was reauthorized and improved. 

If we’re going to succeed this time, we must again educate our Congressional Representatives and Senators on the benefits of SBIR as a techonomics stimulus (most of them weren’t around the last time it came up), and guide them in enacting appropriate SBIR Program improvements.  If we do it right, we’ll ensure that the nation’s small business technology community continues to get the opportunity to solve the nations’ toughest problems, create jobs, and stimulate our economy.  Pay attention, President Obama, we’re talking your language!

If you’d like to get better informed, help us get the word out to our legislators, or just put your two-cents worth on the record, monitor and contribute comments on my SBIR Coach’s Blog [5]. I’m proud to be one of the warriors on the front lines of the SBIR reauthorization battle, and we need all the help we can get!

Fred Patterson
The SBIR Coach
www.SBIRcoach.com

Reference links:

1. An article by Dr. Lee Martin, the “Father” of the theory of Techonomics
http://www.southernbusinessmagazine.com/page7.html

2. The SBA’s SBIR webpage
http://www.sba.gov/sbir

3. An article by IP attorney, David Metzger, the nations expert on SBIR Data Rights    
http://www.dawnbreaker.com/navytap/docs/alerts/AlertsBW.pdf

4. The website of Ann Eskesen, who has compiled the best statistics on SBIR’s effectiveness
http://www.inknowvation.com

5. The SBIR Coach’s Blog - Facts, opinions, and musings about the SBIR Program.
http://SBIRcoach.blogspot.com

www.mosterwynne.com
(512) 320-0601