Friday, September 25, 2009

Another month of SBIR Reauthorization agony - Is Dr. Dolittle running the show?

The quick news is the informal conference committee hasn't done its job and no SBIR Reauthorization compromise was produced. SBIR (this time along with STTR and the DOD's CPP) has been extended again -- a mere month to October 31st. Gee. Is anybody surprised? We have a do-little-but-argue-and-sling-mud Congress. Maybe Dr. Dolittle is in charge.

Remember the Dr. Dolittle story? In the charming Hugh Lofting series of children's stories he was a doctor who eschewed human patients for animals, and he spoke their language. He lived in a fantasy world. Sort of like our Congress. But that's not why I'm raising this metaphor.

I have two reasons, actually. The first is his name -- irresistible!

The second is one of the animals he encounters -- the Pushmepullyou. It had two heads, was conflicted as to which direction to go, so had trouble going anywhere. Sort of like SBIR companies.

I was at the DOD's "Beyond Phase Two" (BP2) Conference this week. It was all about how to transition the technology created via SBIR funding into end use. I had a revelation. It finally dawned on me why SBIR commercialization is so hard to do.

SBIR has always been a technology push game. Techies rule. With some SBIR funding, create some whiz-bang technology and then try and find some applications for it.

I'm a Business Coach. I help companies focus on what it takes to be successful. A basic tenet I stress is "be selling something to a market pull". Find a market with a pain that is begging for a cure. Develop the cure. Sell the cure. It's so much easier than pushing a new technology on a resistant market.

Market pull vs. technology push. It's so basic. Think Pushmepullyou. The pull side should dominate. But it doesn't.

Where do SBIR topics come from? From my observation, in the DOD it's largely from their R&D shops. Techies. Looking for new technologies, to be developed by other techies. Yes, there are applications in mind. Certainly that's true. But the ultimate customer isn't involved. Projects are not market driven.

The DOD's Commercialization Pilot Program (CPP) is supposed to connect the SBIR company that's finished Phase II with the customer. That's probably the first time that the light of a market perspective is shined on this effort. For the most part, it's too late. It's still technology push.

There were several companies at the BP2 Conference who talked about their commercialization successes. I was struck with a common thread. In each case the companies had approached the process from the beginning with a marketing perspective. I was very proud. I had actually coached two of them.

If the DOD is to make the CPP (or whatever it evolves to) a success, it must offer more product-focused end user generated topics. Clearly identify market pull early on. Trying to push the technologies into possible applications after development just doesn't work very well. Pushmepullyou.

It comes down to this -- it's not about being funded to develop the technology, it's about selling something to a customer who will use it. Strategic planning focusing on that user customer from the start is the key.

My friend, and fellow SBIR consultant, Russ Farmer of PBC, summed this up well in his excellent presentation on the last morning of the Conference. Russ emphasized that SBIR commercialization success is "all about marketing!!" and "if we are real lucky" is not a business strategy.

Russ's presentation on Business Models of SBIR Funded Companies is a must read. Every SBIR company will see their stage of development profiled - and they probably won't much like what they see. A copy of it will be available for download from the BP2 Conference website by mid next week.

Will Congress get SBIR reauthorized by the end of October? I doubt it. Watch for yet a fifth CR extending the agony to next March.

I heard that a certain Congressperson was upset that I've been criticizing the Committee for being unwilling to compromise. There's a cure for that. Stop futzing around, reach a compromise and I'll stop criticizing! In the meantime, I'm pleased that someone from the Hill is actually reading this column!

Friday, September 18, 2009

The Seed Investment Landscape - Interpreting a Picasso

It's like Picasso painting landscapes. All the pieces are out there but the picture is confusing. Making sense of it is very much up to individual interpretation. So where should an entrepreneur look for finding seed investment? The answer may lie in understanding what investors are looking for.

The NASVF conference this week presented a wide array of options and opinions on seed and early stage funding. Representatives of federal, regional, state, and both public and private sector economic development and investment organizations participated on panels. Most felt that their approaches would be successful, but the only things they truly agreed upon was that such investment was both necessary to our future economic growth and harder to get in this economy.

One of the more interesting panels was on "Hot Markets and Sizzling Sectors". Each of the three panelists said something I felt profound.

Tom Pickens (Astrotech Corp) said that he firmly believed that it takes a team of at least four people to make an entrepreneurial company succeed. It stems from a Psychology Today article he read years ago. Take any four people and let them take an IQ test pooling their answers, and they'd rate at the genius level. Think about that a while.

Richard Helfrich (Alameda Advisors) said that scientific discipline collaboration is the key. We need to combine chemistry, physics, biology, mathematics, and engineering disciplines to evolve new ideas for applications. This may mean that our academic departments may actually have to talk to one another! Fits with the "team of four" premise too.

Bill Reichert (Garage Technology Ventures) cautioned against pre-determining likelihood of success based on the type of technology. His premise: The most important technologies are the ones we can't categorize yet! Cast a broad net and keep your mind open to novelty. And don't be constrained by your biases.

And then, reinforcing all of this was a conversation I had recently with Laurence Briggs, CEO of the InvestIN Forum, a Dallas area private investor network, which has joined with other Angel groups around the country and internationally in a syndicated manner. This effectively forms a "Band of Angels" over 420 strong, looking to make deals.

And make deals they do. At about the rate of one a month currently. They'll put in up to $7 million for the right deal. Angel investing isn't what it used to be!

I asked Laurence what they look for. He said that no particular technology is preferred. What they look for is a proved-out concept for a product or solution addressing a significant market with scalability, and a good coachable team appropriate for their stage of development. Proved-out product. Significant market. Scalability. Appropriate team. Coachable. (Hmmm.... sure sounds just like what the NASVF panel said was important.)

A featured speaker at the NASVF conference was Rick Wade, the Senior Advisor and Deputy Chief of Staff at the US Department of Commerce. He made the point of saying that the DOC was reinventing itself, and, that short of actually being renamed, wanted to become known as the "Department of Innovation".

I couldn't resist. When the session was opened to questions from the floor, I asked him what the Commerce Department would do to support SBIR if the provision in the current House bill (HR2965) that would put NIST in charge of formulating SBIR policy becomes law. He replied that he had recently participated in a discussion in the White House on that very subject, and "the Department of Commerce would do everything it could to see that SBIR is appropriately supported". (I'm in Missouri as I write this, so I'll just say "Oh yeah? Show me!") In a private conversation later that morning, he asked me to provide him with some briefing materials, and I promised to do so.

So, let's sit back and gaze at this Picasso-like picture. SBIR companies should listen to this guidance, and think beyond the grant to the business that they'd like to evolve. Create a masterpiece by paying attention to what works in today's economy.

Friday, September 11, 2009

SBIR Reauthorization Redux? No Such Luck.

Here we are -- just a few days from expiration of the third SBIR Reauthorization Continuing Resolution. Is there any hope for resolution by the end of the month? Nope.

Word from behind the scenes is that discussions are pretty much at a standstill. Staffers on the various Committees are standing firm on their bosses' positions. Provisions to significantly open up eligibility, provide special preferences having nothing to do with technology, eliminate the Phase I vetting process, have multiple Phase II awards possible, and increase funding caps without increasing the funding base just aren't going away. There's as much spirit of compromise here as there is on the health care debate. Nada. Zilch.

The University lobby has been pushing hard for just plain letting the SBIR program expire. They've been consistent over the years on this. They want "their" $2B back! Research is "their" game. Tech Transfer royalties from commercialization of innovations is "their" reward -- never mind that they, for the most part, can't figure out how to do it!

The VC/BIO lobby has been keeping up the drumbeat too. BIO had a press conference yesterday where they expressed how they were "very pleased with the result of the vote on the reauthorization bill in the House." They repeated the "Big Lie" that the bill was "an attempt to overturn "fairly arbitrary" administrative agency decisions that prevented venture capital-funded companies from participating." Arbitrary? Participating? Sheesh! Perception management at its best.

There are actually provisions in the House bill that move SBIR administration out of the SBA and into the Department of Commerce with oversight controlled by the White House Office of Science and Technology Policy. If this happens, SBIR becomes a politicized innovation economy program, with true small businesses frozen out of participation.

Some will argue that this is a good thing; that it will improve the Government's ROI on R&D investment. Perhaps it will. But, the vision of Arthur Obermayer, Roland Tibbetts, the late Ted Kennedy, and many others, for fostering innovation from true entrepreneurs, will be lost. That would be a shame.

The SBA is in trouble folks. SBIR isn't the only SBA administered program that is languishing in Committee and facing expiration. Will they survive as an independent agency? I fear not. SBIR being moved out is, in my opinion, an omen.

My prediction, shared by many in the SBIR Advocacy: we'll get another SBIR Continuing Resolution. How long? I say six months -- taking us to next March.

Some of the Agencies aren't waiting for Congress to act. Some are independently increasing funding caps. DOE and NSF, for example, are now providing $150K for Phase I, and DOE is doing $1M for Phase II. Others, like DOD and NASA, are standing pat. NIH generally ignores caps anyhow. It's really getting confusing -- helps justify the need for a coach! (smile)

So, the SBIR game is still being played, although the rule book is being very liberally interpreted. Check out the Gateway for proposal opportunities, and monitor for updates on what Congress is (or isn't) doing.

The SBIR Coach will be at the NASVF Conference next week, and at the DOD sponsored Beyond Phase II Conference the week after that. My columns will report on what I learn there. Stay tuned.

Friday, September 4, 2009

Reflections on the Birth of the SBIR Program

SBIR lost perhaps its greatest champion on August 25th with the passing of Senator Ted Kennedy. Relatively few know how much he did to ensure the SBIR Program became reality.

There were many back in the late 1970s and early 80s who worked tirelessly to get the legislation crafted and passed. Among them was my friend Ann Eskesen. Ann recently shared an email letter she had received that shed much light on that early process, including Ted Kennedy's behind-the-scenes role, and I'd like to give it wider exposure here.

To the SBIR Community:

Whether strong supporter or ardent foe of his political stance, the recent passing of Senator Ted Kennedy has generated among those on both sides of the aisle extensive discussion of, and comment on, the extraordinary diversity of his legislative impact.

Few are aware that the creation of SBIR is high on that list.

This weekend I was in receipt of an email from an old friend who in the early-mid seventies was the original source of the idea of a special federal R&D access by small firms - an idea that later became the SBIR program - and with whom a few of us then worked to get to the enabling legislation which took that program government-wide in 1982. My friend's email is printed below in its entirety along with, from my own files, some photographs from the Rose Garden of the White House on that very hot and humid day in July 1982 when President Reagan signed that very controversial legislation.

It is useful, I think, first also to tell you a little about Dr. Arthur Obermayer - the essence of the dignified gentleman and creative talent - who is now well into his eighties and still active in the technology development space.

Arthur was/is a highly regarded MIT PhD and his wife - Judy - also a published PhD from Carnegie Mellon, had run a very successful, research-based small firm for a long time through the sixties and seventies. Publicly traded when few small firms were, Moleculon Research was founded, I think I recall, on the research that had been Arthur's doctoral dissertation.

Their work had important medical application. However, despite a solid, research-based track record, when Arthur approached NIH for potential R&D support, he was summarily turned away. At that time NIH did not fund anyone who came from a for-profit entity - a condition that actually remained in effect until only months before passage of SBIR.

Knowing that they were probably missing out on something important, however, a few senior NIH players advised Arthur to set up a non-profit arm which they told him they would be delighted to fund. He saw that as manipulating the system - effective for his firm but not an option for many others - and he refused. Instead he had a discussion with his Senator and his friend - Ted Kennedy.

At that time, the Senator controlled the NSF budget to some extent so the decision was obviously to go with that agency, not NIH. Arthur's idea was simply that there be established a place in a federal agency where small firm applicant's research work could be considered. The Phase I-Phase II classic SBIR design was Roland Tibbetts - subsequently hired by NSF as the first SBIR program Manager - and came much later.

It is classic Kennedy that he knew how to work the system. However, I have to admit, I had not previously known that was actually a two-step process until I read Arthur's accounting of the NSF effort to avoid the Kennedy original directive and his out-maneuvering them - see below. It is also classic Kennedy that when, with two NSF SBIR offerings and one DOD under our belts, we subsequently shifted the political effort to making SBIR a government wide program, rather than being at the head of what was to become a highly contentious and, at times, downright nasty fight, the Senator opted for a behind-the-scenes role - out of the frame but very clearly, not out of the picture. Instead, that leadership role was assumed by Warren Rudman (NH.R) - a brand new Senator and a Republican.

It was also Arthur Obermayer, BTW who met with Horace Crouch in DOD in about 1979-1980. Crouch was a retired Army General working in the Pentagon but open to the interesting challenge of enabling an effort that would bring within reach of DOD, the leading-edge capabilities of small firms. It happened that Horace Crouch was Strom Thurmond's brother in law - already then a senior player on the Senate Armed Service committee. Arthur persuaded them to the idea of having a version of the NSF program in DOD. They found a spare $5M and DESAT was launched as a small-scale effort in DOD in 1981.

With the NSF and DOD experience in place and a record of achievement already becoming evident, under the able direction of the late Milt Stewart, to include Arthur and Judy and a few others some like Jere Glover and Dave Metzger - being still prominent in the SBIR space - in 1980 we all worked the halls (big time) at the White House Conference on Small Business to get SBIR and the precursor to Bayh-Dole among other things onto the agenda of that convening. I am still somewhat incredulous, when you consider how few we were, that we got that assembly of 2000 small business people - most of whom were in retail, services etc (nary a high tech firm among them) - to vote that issue (as I recall) Number 5 of the 60 top recommendations to come out of that Conference. As further testament what can happen when small firms speak together, of those 60 recommendations - well over 40 are now implemented.

Ann Eskesen, President
The Innovation Development Institute
Swampscott, MA

See Dr. Obermayer's letter
"The Role of Ted Kennedy in the Birth of the SBIR Program"
by clicking HERE.

L to R: The Obermayers, Senator Kennedy, and Ann Eskesen (7/22/82)

President Reagan signing the SBIR Program into law on July 22, 1982.