Friday, October 30, 2009

Just in time for Halloween: SBIR LIVES! But will it be a monster?

Well it lives for three more months anyhow. The House has, predictably, shortened the SBIR Reauthorization fuse recommended by the Senate and agreed to yet another Continuing Resolution. The new "drop dead date" for the SBIR program is January 31, 2010.

But, it'll get settled before then. Probably by year end. And probably tucked into an Omnibus Appropriations Bill. And that could mean that it might emerge as a monster nobody loves.

My friend Rick Shindell and I talked about this yesterday, and his SBIR Insider issue from last night reflects on the situation. You can read the basic facts (courtesy of Rick) on, but here's some interesting insights, also courtesy of Rick:

Just so you don't feel slighted, CRs are not the sole domain of SBIR. Actually Congress just passed a much bigger and more important CR today, the one that funds the government and keeps it running! It too was set to expire on October 31, but the new CR will keep the government funded through................ December 18, 2009. The CR was part of H.R. 2996; Department of the Interior, Environment, and Related Agencies Appropriations Act, 2010.

The relationship of this to SBIR is that Congress has a lot to do before the end of the year. They go home early for Christmas, so the December 18 date is "drop dead" for finishing and passing the remaining 7 (out of 12) appropriations bills that fund the government. Although Congress wants to address each of the remaining 7 bills individually, it is most likely they'll fail and the tool to fix everything will be an end-of-the-year omnibus bill.

By now you're familiar with the phrase "too big to fail" (i.e., AIG, GM et al.), well the same is true for the end-of-the-year omnibus bill. Historically all kinds of items are slipped into these "must pass" bills. Is it possible that SBIR reauth may be one of those? Could it be used to "sneak" some unpopular small business items into law? It's been tried before.

I think Rick is right on point here. I believe that SBIR Reauthorization will be accomplished by year end. But, just as with Dr. Frankenstein's monster, extra parts may get attached just beacuse they were available. We won't much like some of the provisions that latch on, like leeches, to the program.

My gut-feel predictions (not supported by any inside information):

  • Non-individual majority owned companies will get SBIR eligibility -- with some limitations and restrictions.
  • The funding caps will be increased, but not by as much as the House wants.
  • The funding base will also be increased, very slightly and over time, but not enough to compensate for the increased caps. The result: fewer awards.
  • Phase I will still be required, but Fast-Track will be enhanced.
  • Proposal evaluation cycles will be shortened.
  • Multiple Phase IIs (and follow-ons for further development) will be permitted.
  • Support for Phase III (commercialization) will be expanded for all agencies -- and all agencies will place increased emphasis on commercialization potential as a criteria for award.
  • Required inclusion of projects for some critical technologies will be specified.
  • Special award preference for some non-technology demographic interests (including veterans) will be included.
  • The policy and oversight authority will be a Committee co-chaired by NIST and the OSTP.
  • The SBA's Office of Advocacy will continue to be able to comment on SBIR issues.
  • Money will be authorized for SBIR administration and award database maintenance.
  • Reauthorization will be for five years or less.

Will the SBIR Program still be effective? Yes. Will it be harder for a lone-wolf inventor with a good idea to get funded? Yes. Will some non-small business interests use the new rules to get access to the funds. Yes. Will promising technologies get seed funding via SBIR? Yes. Will the national interest be served by the new rules. Yes.

And that's the bottom line. SBIR is good for this country. It promotes entrepreneurship. It contributes to the innovation economy. It should survive. But, it won't be perfect. And that's OK.

SBIR is not an entitlement. Nothing in the Constitution says that the government must provide opportunity for small businesses to develop innovative technology. Any awards must be earned. And decisions on who gets funded will always be subjective. As Walter Cronkite would say, "That's the way it is."

Times are changing. The SBIR program must change with it. The strategies for winning awards will change. I'm actually writing a book that will help you formulate your winning strategies. Watch for it in the Spring.

So, enjoy handing out the candy entitlements to the costumed characters who ring your doorbell this weekend. And in honor of increased SBIR caps, if any Frankenstein monsters show up, give them a double ration!


Carl Nelson said...

And the worst problem with SBIR's ability to produce much worthwhile will remain - the freedom of the mission agencies to fund any R&D they want with any qualified company. Happy words about commercialization and economic impact will remain happy words.

Fred: suppose SBIR were just the companies you know about, past and present. How would you grade SBIR against a program objective of spurring disruptive innovation with an economic impact? Is there a competitive ROI? Would the government have done just as well with no special program?

- Fred Patterson - said...

Good questions, Carl, but you're trying to apply measurement criteria to SBIR that just doesn't fit the government's "business model".

SBIR Commercialization (some recent good intentioned but underfunded agency initiatives notwithstanding) has never been more than lip service as far as the Federal agencies are concerned. And, the government NEVER measures anything by ROI. That's not how they're evaluated. They simply don't know how to do it!

Certainly I've seen more small business who have been funded with SBIR money who have not realized commercialization success than those who have. But I've seen some remarkable successes that would not have happened without SBIR.

Getting seed funding is no guarantee of success. Not every venture produces a positive ROI for their investors. Even VCs guess wrong most of the time. They count on that one-in-ten home run to make the overall ROI goal be achieved.

Without SBIR there would be virtually NO chance that a promising venture get seed funding to bring their technology to the stage where other investors will risk providing capital.

Would the government done "just as well" without SBIR. Perhaps. There's no way of really assessing that. But the fact is SBIR has produced some important innovative technologies and products currently in use by every sector of our economy, most remarkably by our warfighters. Would these innovations have been produced if SBIR hadn't provided the seed funds? Who knows?

If the new SBIR Reauthorization legislation provides the mechanisms, funding, and incentives for the agencies to support moving technologies out of the lab and into transition for end use, then the government's SBIR "business model" may evolve with that, and the economic impact of SBIR will have a chance of being more than just "happy words".

I believe SBIR should continue. As I said, it's not perfect, but evolutionary systemic improvement comes just one step at a time. Let's take another step.

Now if we could just apply that same principle to Health Care...

Carl Nelson said...

Fred, you've done a great job of describing the virtues of the lemonade made from the SBIR lemon. All the while avoiding the question of whether lemons are the best place for federal R&D money. Would the agencies have made better results if they had been left alone to pursue their own innovation ideas? My guess is that, no, their pineapple-ade would have been just as sour. So, SBIR can make a credible claim that it probably does no harm. But it is no great claim that the government spent a lot of money with small business and some good resulted. John Pike used to make the same argument ridiculing Star Wars' claims of spin-out success: if you spend billions, you expect a few good things to result. In economics, it is always a question of alternative use of resources, not of absolutes. SBIR has for two decades avoided the comparison question and plodded on with the political argument that if Congress diverts money, some good will result - an economically inadequate argument. Fortunately for SBIR, Congress doesn't ask the questions either, and approves pork for the small business political class. Motherhood, apple pie, the flag, and small business. Onward with SBIR!