SBIR is a strategy, not an end game.

We're in the midst of a campaign to get the SBIR Program reauthorized by the Congress. Everyone agrees that the opportunity that SBIR’s early stage high-risk funding gives to emerging technology businesses is unparalleled. SBIR has been a stimulus for such small businesses since it was created in 1982. Nowhere else can a fledgling business get no-strings money for developing new and innovative technology. Much of the current debate is pretty prosaic: it’s mostly about how much money should be made available by the participating Federal agencies, how much can be awarded for the phases of a project, which companies are eligible to compete for it, and how efficient should the funding process be.

But some of the debate is correctly and appropriately centered on whether the SBIR program is being effective in producing results. Some say that should be measured by computing a comparative Return on Investment (ROI) for the Federal agencies that provide funds. Others say that it’s more a matter of how much revenue derives to a company that begins selling products developed with SBIR funding. Gathering data to compute either of these metrics has proven difficult. But, either way, what it comes down to is that SBIR isn’t going to be effective unless companies use SBIR awards as a strategy for effecting business growth, not as an end game.

Only in the past couple of years have any of the agencies focused resources on improving the likelihood that SBIR funded technology ever evolves to something suitable for end use. The recently established DOD’s CPP and the NIH’s CAP Programs, for example, are good starting points but it’s too soon to see if they’ll produce any definitive results. But fact is that these agency “commercialization” programs won’t produce results unless the companies treat their SBIR funding as a strategic infusion of capital to spur technology development and not just revenue.

The agencies won’t help them do this. Why should they? That’s not their responsibility. If the company completes the work that they proposed to do, the agency is satisfied. And, only some of the agencies ever intend to be customers of the final product that evolves from the funded development. To be blunt, since the SBIR agencies (really they’re your investors not yet your customers) have no equity stake in your future, if they’re not interested in buying the end result (and actually becoming customers), they don’t care if you survive beyond the term of your grant!

For many (some would say most) SBIR companies, the top priority is first getting money in the door to pay expenses before the credit cards are maxed out, and if that’s successful, then to continue to submit proposals and win awards to support the lifestyles of the principals until such time as development is done. SBIR is used as a tactic to produce revenue. And being “done” is some nebulous future event that, for many, means, “Now that I’ve built it, someone will buy it”. It wasn’t envisioned to be that way, but it’s what has evolved to be a pervasive SBIR paradigm. Unfortunately, it only rarely produces commercialization success.

I propose that an innovative shift in thinking must take place to change the paradigm. If you win an award, think about the SBIR funds as a grant. (Yes, I know it’s already a grant – but keep reading!) Now think of that grant not as operating revenue, but as capital that you’re investing in developing a marketable product. Only propose SBIR projects that have a chance to actually produce a marketable product to a pulling market. Yes, it means passing on topics that you might be able to win, but have a very limited market to sell to. To do this means thinking strategic. It’s the only way you’re going to maximize your Return on Invested Capital (ROIC) – a metric you can compute and track.

Unfortunately most small businesses are so strapped for cash that they don’t think they can afford to think strategic. And they’re more wrapped up in the thrill of invention than they are on what’s got to be done to move the technology along to market readiness. Indeed many haven’t even assessed whether there actually is a viable market (try and get away with that from an equity investor!). It’s hard for a struggling entrepreneur to face up to over-the-horizon realities. But it doesn’t have to be that way.

As a coach, I’ve helped many of my clients through the strategic thinking exercises that can help improve their SBIR ROIC, but it can be a hard-to-sell engagement. Frankly it takes no less than a culture shift to make the changes in thinking that are necessary. Sometimes the heels drag and the toes dig in. But persistence does pay off, and I’ve enjoyed some true successes.

I’ve been talking for some time about my view of a strategic approach to seeking funding while working informally with the Arlington Technology Incubator (managed by the Arlington Chamber of Commerce), and the University of Texas at Arlington’s Office of Technology Management. I’m proud of how forward thinking both of these entities are, as they have decided to form a unique public/private joint venture to synergistically lead ideas hatched at either venue to marketability.

We formalized our working relationship this week, and I’ve been retained as their Business Coach. See more about this in the official joint Press Release by clicking HERE. (Note that this arrangement is a contract with my Commercialization Funding Coach company, and, lest you think otherwise, The SBIR Coach will continue coaching successful navigation of the SBIR opportunity on the national scene.)

In my Business Coach role, I’ll be working with those who are served by the UT-Arlington's brand new Venture Innovation Partnership and with the client companies of the Arlington Technology Incubator to help them make the appropriate strategic (and tactical) decisions to facilitate business growth and improve the likelihood of success of their fledgling companies. Of course, going after SBIR funding will be one of the possible strategies that will be considered (would you expect the SBIR Coach to do otherwise?), but charting out the path to commercialization and guiding the maximization of the company’s ROIC will be the focus of my coaching from day one.

If all SBIR awardees took this same approach to how they applied SBIR funds, we might just build evidence that a comparative Federal Agency ROI would favorably reflect on SBIR effectiveness, and the companies would be more likely to fulfill the visions of their founders. The potential is there. Let’s reauthorize SBIR, improving it of course, and continue to provide the opportunity for small technology businesses to get their no-strings seed funding. At the same time, let’s also encourage them to always take a strategic approach to the application of SBIR funds, not just think that by winning SBIR awards they’re being “successful”.
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