SBIR 101 Converting Your Innovation Into a Successful Business

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SBIR 101Converting Your Innovation Into a
Successful Business

• Vivian Lauderdale, MS, MBA, RAC
• Managing Partner Scibiz Services
• www.scibiz.net
• The Orange County Chapters of
• The IEEE Computer Society
• The IEEE Consultants Network
• The Communications DSP Societies
• The American Institute of Aeronautics and
  Astronautics
• May 23, 2005

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ARE YOU IN THE RIGHT PLACE?

• Do you have an idea or concept of how something
  could be done better?
• Is that idea or concept technologically-based?
• If that idea proves to be feasible, can it be
  used to expand an existing business, or make a
  new business, or be licensed to someone who will
  use it that way?
• Is it your desire to successfully develop and
  then commercialize products/services based on the
  idea?
• Do you need financial support to accomplish this
  goal?

A neutron walked into a bar and asked, How much
for a drink? The bartender replied, For you,
no charge.
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Origin, Purpose, History

• SBIR
• Small Business Innovation Research
• STTR
• Small Business Technology Transfer Research
• Government agencies receiving gt 100M research
  funding MUST set-aside
• 2.5 of research funds for SBIR
• 0.15 for STTR
• Established by Congress in 1982- Small Business
  Innovation Development Act
• Re-Authorized and Strengthened in 1992 - Small
  Business Res. Dev. Enhancement Act
• Re-Authorized in 2000 (until 2008) by Public Law
  85-536, 2000 Small Business Act
• Contracts and Grants available

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WHAT MAKES SBIR SO IMPORTANT?

• With SBIR, Inventors/Small Businesses Can
• Fund innovative, high risk, early stage projects
• Acquire funding quickly
• Generate CASH revenues in advance of work
• Retain ownership of the technology intellectual
  property
• Retain full equity ownership (no stock for funds
  requirement)
• Preserve cash for operations (no payback
  requirements)
• Receive additional, active support for business
  planning, commercialization and venture capital
  acquisition
• Gain credibility with marketplace and potential
  investors
• Establish a bid-advantaged, sole-source marketing
  position with the worlds largest, ready-made
  customer base.

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A CUSTOMER FUNDING SOURCE

• SBIR/STTR
• Is the most important source of
• early-stage venture funding in
• the U.S.A.

Biology is the only science in which
multiplication is the same thing as division
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SBIR PROGRAM-PARTICIPATING AGENCIES

• SBA Has Program Oversight Responsibility
• 11 Federal Agencies Involved
• Defense (DoD - 999 million )
• Health and Human Services (National Institutes of
  Health, Centers for Disease Control- HHS/NIH -
  574 million )
• National Aeronautics and Space Administration
  (NASA - 108 million )
• Energy (DOE- 102 million)
• National Science Foundation (NSF - 94 million)
• Agriculture (USDA - 18 million)
• Transportation (DOT - 4 million)
• Environmental Protection Agency (EPA - 8
  million)
• Education (ED - 9 million)
• Commerce (National Oceanographic and Atmospheric
  Administration NOAA /National Institute on
  Standards and Technology NIST- 7 million)
• Homeland Security (33 million)
• Almost 65,000 Awards to Date (10 billion)
• Approximately 1.5 Billion Per Year in Funding
• 4000 5000 Projects Funded Annually

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Phases Schedules

• PHASE 1
• FUNDS Up to 100,000 (some less some
  unofficially more)
• TIME 6 months (some 9 months)
• PURPOSE Demonstrate feasibility (can be on
  paper)
• PRODUCT Report and Phase II Proposal
• PHASE II
• FUNDS Up to 750,000 (some less-some more)
• TIME Up to two years (or more)
• PURPOSE Test/demonstrate the concept
• PRODUCT Report and/or prototype
• PHASE III
• FUNDS Unlimited (no SBIR funding BUT can market
  sole-source to US Govt)
• TIME Unlimited (no graduation, no size limit)
• PURPOSE Commercialization of the concept
• PRODUCT Products or services for sale

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How to Start?
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REQUIREMENTS FOR PARTICIPATION

• No more than 500 employees
• Organized as for profit firm
• Independently owned and operated
• 51 owned by U.S. citizens/resident aliens
• Principal place of business USA
• Principal investigator of SBIR must be primarily
  (51) employed by the proposing firm at time of
  funding (SBIR).
• STTR Principal Investigator must have a formal
  appointment with the proposing firm. Research
  institution must have formal IP agreement.
• At least two-thirds of the Phase I and one-half
  of Phase II must be accomplished by the
  proposing/prime contract firm (joint ventures and
  limited partnerships are permitted)
• All work must be performed in the USA

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OFFICIAL SBIR/STTR DEFINITION OF R/RD

• A systematic, intensive study directed toward
  greater knowledge or understanding of the subject
  studied.
• A systematic study directed specifically toward
  applying new knowledge to meet a recognized
  need.
• A systematic application of knowledge toward the
  production of useful materials, devices, and
  systems or methods, including design,
  development, and improvement of prototypes and
  new processes to meet specific requirements.
• Paraphrased from NSF SBIR-2000

Question What is the fastest way to determine
the sex of a chromosome? Answer Pull down its
genes.
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Official Examples of Unacceptable Objectives

• Systems studies
• Market research
• Commercial development of existing products or
  proven concepts
• Straightforward engineering design for packaging
  or adaptation to specific applications
• Literature studies/surveys
• Laboratory evaluations
• Incremental product/process improvements
• Modifications of existing products without
  innovative changes
• NOTE Projects determined to be unacceptable will
  be returned without further consideration.
• Paraphrased from NSF SBIR-2000

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PROJECTS SHOULD OFFER

• Solution to agencys problem or enhancement to
  agencys mission
• Early stage, innovative, technology-based
  idea/concept
• Actual research (required to show feasibility
  real possibility of failure)
• Feasibility can be determined within the funds
  available (gt50k-100K)
• Prototype can be demonstrated with limited phase
  II funds (gt500k-750K)
• A demonstrable business opportunity for you
• NOTE THIS IS NOT A PLACE TO
• Acquire funds for plant/equipment, advertising,
  patents, etc.

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MAJOR AGENCY VARIATIONS

• Value and Time of Performance Limits
• Profit Allowed
• Phase I to II Interim Funding
• Paper vs. Electronic Procurement Package
• Paper vs. Electronic Submission
• Concern for Compliance
• Research Plans (GRANTS) vs. Project Plans
  (CONTRACTS)
• Evaluators (contractors vs. government)
• Proposal Sections/Formats, Support Documentation,
  Terminology
• Submission Addresses, Dates, Etc.

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WHY PURSUE SBIR/STTR?

• Supports your business plan
• Supports high risk/early stage projects
• Retained ownership of intellectual property
• Provides credibility for outside investors
• Easy to win (if you do it right)
• Customer funding source
• Ready-made customer base
• Supportive of long term commercialization
• Creates a sole-source marketing position

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WHY DECLINE TO BID?

• Does not fit your current business planning
• (not really interested in commercialization)
• Timing is wrong for the technology
• Timing is wrong for the market
• Cans live with the funding gaps
• Royalty free use of your technology
• Lack the available resources for a proposal
• Afraid of government contracting
• Cant/wont follow very precise submission rules
• Not surfing the Internet yet
• Project is not REAL research

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SBIR/STTR TIME LINE
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INTELLECTUAL PROPERTY

• THE ISSUE (37 CFR, Section 401)
• THE GOVERNMENT GETS
• Royalty Free Use of Technology (world wide)
• March In Rights
• YOUR RESPONSIBILITY
• Timely Reporting of Inventions
• Protect Inventions (world wide)
• AVOIDANCE ACTIONS
• Develop Keys to Technology on Your Nickel
• Report the Above in Proposal

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HOW TO PARTICIPATE (PHASE I)

• Acquire procurement package (get on the mailing
  list, or download electronic version from
  Internet) for the agency(s) of your choice.
• Review procurement package for items (elements)
  of interest an opportunity.
• Conceive solution(s) to the problem/opportunity
  of interest.
• Publish a proposal in response to the RFP
  element.
• RFPrequest for proposal
• PAprogram announcement
• RFArequest for application

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PROPOSALS/GRANT REQUESTS

• Publish submit a COMPLIANT proposal
• Publish submit a compelling proposal
• - Innovative
• - Feasible (within program constraints)
• - Technically complete
• - Internally consistent
• - Cost effective
• - Fits culture of the agency
• - Commercially viable concept.
• Submit the same idea/proposal to more than just
  one agency.

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STATISTICS

• Average size of applicant firm is 12 persons
• Approximately 20 are lone individuals wanting to
  start their own Co.
• Approximately 50,000 Phase I proposals submitted
  annually
• Win ratio is one Phase I award for every 4 to 10
  proposals
• Up to 33 (17 on average) at some agencies are
  NON-compliant
• Typically one award made for every 2 to 3
  opportunity elements
• Often no proposals received for any given element
• Typically one in 2 to 3 Phase I winners will win
  a Phase II
• Typical Phase I winners have submitted two or
  more prior proposals

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BASICS OF PROPOSAL WRITING

• A COMPETITIVE PROPOSAL IS
• Compliant
• Compelling
• Consistent
• Cost Effective

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COMPLIANT

• Submit On-Time
• Submit Precisely in Specified Format
• - Paper/disk/other
• - Page count
• -Fonts/margins/line spacing/forms
• -Foldouts/drawings/graphics/photos
• -Certifications and representations
• -Corporate brochures/information
• -Appendices/add-on materials
• Submit Exact of Copies Forms
• Submit Original Signatures
• Submit Budget/Cost Detail
• Follow Online Given/Implied in Solicitation

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COMPELLING

• Responsive to Need
• Improvement From/Over Current Situation
• Credible plan, Personnel, Facilities and Costs
• Low Risk (at least manageable)
• Highly Readable
• - Proper English
• - No jargon
• - Few acronyms
• - Useful figures/tables/etc.
• Evaluation Factors Clearly Visible Well Met

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CONSISTENT

• INTERNALLY CONSISTENT AND MUTUALLY SUPPORTIVE
• Technical Proposal
• Management Proposal
• Budget/Cost Proposal
• Appendices Attachments

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COST EFFECTIVE

• Customer Promised What He Wants to Pay For
• - True/best solution
• - Direct labor vs. overhead/GA/ODC
• - Low risk
• - Career enhancement
• Worth the Risk (both business and technical)
• Best Value (new/changing rules apply)

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EVALUATION CRITERIA

• TECHNICAL QUALITY soundness, technical merit,
  and innovation of the proposed approach and the
  probability of incremental progress toward topic
  or subtopic solution
• CREDIBILITY qualifications of the proposed
  principal investigator, key supporting staff,
  subcontractors and consultants NOTE
  Qualifications include both the ability to
  perform RD and the ability to commercialize the
  results
• POTENTIAL potential for commercial application
  in the government and/or private sector and the
  importance of the benefits expected to accrue
  from this commercialization
• COST appropriateness of the budget proposed
• RESOURCES adequacy and suitability of
  facilities, and research environment

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SPECIFIC AIMS/OBJECTIVES

• TECHNICAL OBJECTIVES
• State the Overall Objective Phase III goals
• (technological and socio-economic gains)
• Provide Short List of Major Phase I Milestones
• Identify the Success Criteria for Each One
• Last Milestone is Feasibility Demonstrated
• (best stated as a specific number/measure)
• The Objectives (your milestones) Should Map
• Directly Into Your Project Plan
• Relate Phase I to Phase II Overall Objectives

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PROJECT PLANS

• Organization Management
• - organization charts
• - resume vignettes
• - subcontractors
• Work Breakdown Structures
• - discuss each with narrative
• - tie to objectives
• Schedules (Gantt, PERT, etc.)
• - discuss with narrative
• - may need Phase II as well
• Issues and Risk Mitigation
• - safety, environmental, security, political
  issues
• - probability of failure

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Question What is the name of the first
electricity detective? Answer Sherlock Ohms
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QUALIFICATIONS TO PERFORM

• Personnel
• PI primary contributor/ 51 employed by bidder
• Others state what each will do and why
• Resumes/CVs condense to just what is required
  (no long lists of papers, honors, faculty
  positions, etc.)
• Facilities
• Demonstrate adequacy
• Positively state availability (letters, etc.)
• Environmental Compliance
• Subcontractors
• Justify use and clearly describe tasks
• Demonstrate adequacy for task(s)

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COMMERCIALIZATION PLANS

• Company Description discuss principal field(s)
  of interest, size and current products and sales.
  BEST story is to tie new technology to growth
  in current markets using current distribution
  channels.
• Commercial Applications Specify customers,
  specific needs which will be satisfied, existing
  competition, etc.
• Competitive Advantages Discuss advantages in
  application, performance, technique, efficiency,
  or costs which the technology will have over
  existing/anticipated customer choices.
• Markets Served Discuss specific markets for the
  resulting technology, their estimated size,
  classes of customers, and your estimated market
  share for the first five years. NOTE DO NOT
  EXAGGERATE.
• Commercialization Strategy
• Funding Phase III Discuss plans to raise money
  to support your commercialization plan?
• Intellectual Property Discuss plans to protect
  any IP
• Follow-on Commitments/Fast Track Prove access
  to the funding

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BEFORE YOU WRITE

• PLAN THE WHOLE THING

Phase I Phase II Prototype Test Phase
III Commercialization
SS Inc.
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WRITING SBIRs STTRs

• Direct the proposal at research/RD in RESPONSE
  to specific topic chosen.
• Focus on meeting the primary evaluation factors
  in the solicitation
• Are you the right person/firm to do the work
• Significance of the problem to be solved
  (especially to the agency)
• A cogent, scientific, well-grounded plan for how
  to get there from here
• Scientific/technical quality, innovativeness, and
  originality of the work
• Likelihood of this work going somewhere (getting
  it to market)
• Take into account, and deal with, the viewpoints
  of the reviewers (including their
  objections and skepticism).
• When possible, write to explain the graphics
  rather than using prose to make the point.
• Make the proposal be direct, concise, and
  informative dont include unrelated language or
  discussions. Dont include marketing literature.
• Arrange points from strongest to weakest, but put
  second strongest last.

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MAIN REQUIREMENTS FOR WINNING PROPOSALS

• PROVIDE solution to the agencys problem
• an enhancement to the agencys mission
• a demonstrable business opportunity for you
• An Early Stage, Innovative, Technology-Based
  Idea/Concept
• Real Research (required to show feasibility
  real possibility of failure)
• Feasibility Can Be Determined within Phase I
  Funding (lt50K - 100K)
• Prototype Can Be Evaluated With Limited Phase II
  Funds (lt750K/500K)
• DO NOT TRY TO USE IT TO
• Acquire Funds for Plant, Equipment, Advertising,
  Patents, etc.
• Do not send in an unsolicited proposal

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COST CHARACTERISTICS

• REASONABLE
• Does the cost exceed that which would be paid by
  a prudent person in the conduct of a competitive
  enterprise?
• ALLOCATABLE
• Can all direct costs be identified and assigned
  to specific projects and can all of the indirect
  costs be allocated reasonably among the projects?
• ALLOWABLE
• Are the costs identified allowed by the FARS
  (31.2 has sections on allowed, allowed with
  limitations and unallowed costs)?
  Federal Accounting Reporting System
• CONSISTENT
• Are the costs treated the same way among all of
  your various contracts?

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Human Subjects and Animals

• Ensure you have the right certifications and you
  do not forget to say so.
• For human subjects, minorities and ethnic groups
  must be identified or reasons for exclusion
  explained.

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PUBLISHING THE PROPOSAL

• Specific Order Required for Sections/Pages
• - research carefully / DO NOT DEVIATE
• Simple Bindings (staples/rubber bands) ONLY
• - specified in solicitation
• Compliance and Detail
• - Page, font margin sizes (can extend to
  graphics)
• - Page numbering and limits
• - Order of sections
• - Page formats
• - Forms (especially picky)
• - Originals vs. copies
• - Attachments/appendices
• Received on time
• Proprietary or Classified Data

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WHY PROPOSALS FAIL

• Not Fully Compliant
• Not an Innovation / Research
• Inadequate Project Work Plan
• Unclear or Invalid Concept
• Unrealistic Scope for Budget and Time Constraints
• Not Relevant to Agency Mission/RFP Element
• Inadequate Phase III Commercialization Potential

Referee report This paper contains much that
is new and much that is true. Unfortunately,
that which is true is not new and that which is
new is not true
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FINAL RECOMMENDATIONS

• Propose SBIR/STTR as a strategic opportunity
• to grow a business which
• -Fits the underlying intent of Congress
• -Fits the award/funding amounts available
• -Fits the required schedules phased
  structure
• Check out your idea with the customer BEFORE the
  procurement package/RFP comes out.
• Use EXTREME care in submitting a compliant
  proposal.
• Ensure that the evaluation criteria are visible
  and well met.
• Tailor the proposal/grant request to the culture
  of the agency.
• Have your proposal critically reviewed respond
  to the critiques.
• If at first you dont succeed try, try again.

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Murphys Ten Laws for Experimentalists

• In a scientific experiment
• if something can go wrong, it will do so just
  before your grant is up for review
• if the reading on your detector is correct, then
  you have forgotten to plug it in
• if several things can go wrong then they will do
  so all at the same time
• if nothing can go wrong with your experiment,
  something still will
• left unto itself, your experiment will go from
  bad to worse on the other hand, if you pay
  attention to the experiment then it will take
  three times longer to complete than you thought
  it would
• nature is both subtle and malicious (Murphy stole
  this one from Albert Einstein)
• a straight line will never fit your data, and
  using a wiggly line will result in the rejection
  by referees of the publication of work
• if you make a great discovery today, you will
  find a major error in your methods tomorrow
  (experienced experimentalists call this effect
  here today, gone tomorrow)
• in contrast to a radio, banging your apparatus
  when you are at peak frustration will not fix it
  but permanently break it (for this reason, it is
  important for experimentalists to remain calm at
  all times)
• when your experiment is just about to succeed,
  you will run out of grant money.