Government Funding Can Make or Break Small Firms.

• Author: Tiron, Roxana
• Position: Small Business Innovation Research program

Wild ideas conceived in basements rarely become next-generation technologies for the Defense Department. But some of these ideas materialize, with the help of government funding. The Small Business Innovation Research (SBIR) program is one way to make this happen.

Competition for SBIR awards is aggressive. Many companies often fail to win awards, because they don't know how to market themselves, experts said.

Congress established SBIR in 1982, to open the door for small businesses to federal research and development (R&D) dollars. The government also wanted to speed up the transition of these companies' technologies into useful products. Companies with up to 500 employees are eligible to participate.

"I tell these companies, whatever you are working on now, I don't care about," said Jeff Bond, SBIR program manager for the Ballistic Missile Defense Organization in Arlington, Va. "I want to know what you have in the back room, that if you had a little capital for it, you would try it out. That is the wild idea that I want to find, because it is the wild ideas that are the technologies for tomorrow."

Each federal agency with a budget in excess of $100 million has to reserve 2.5 percent of it for SBIR. Ten federal agencies allocate a total of $1.2 billion a year for the program. The Defense Department alone spends almost $600 million. The Pentagon issues SBIR solicitations twice a year, describing R&D needs and inviting proposals.

Companies first must apply for an initial six-month award--that can reach $100,000--to test the scientific, technical and commercial merit of a specific concept. If the first phase proves successful, the Defense Department may invite the company to apply for a follow-on two-year award--worth up to $750,000--to turn the concept into a prototype. The proposals are judged competitively on scientific, technical and commercial merits. After the second phase is completed, the government expects the companies to obtain private funding or non-SBIR government support to turn the concept into a product for sale, either on the commercial market or to military customers.

"We never know where these innovations are going to lead," said Bond. "We never know how these companies are going to mature, but we know they do and we know that, by taking a lot of risk and a lot of different ideas, we are going to find those few gold nuggets that just really take off."

Although competition is open for all qualified small businesses, some critics of the selection process believe that SBIR...