www.scibiz.net SBIR 101Converting Your Innovation Into a

Successful Business Vivian Lauderdale, MS, MBA, RAC

Managing Partner – Scibiz Serviceswww.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, HistorySBIR

Small Business Innovation Research

STTRSmall Business Technology Transfer Research

Government agencies receiving > $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 world’s largest, ready-made customer base.

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A CUSTOMER FUNDING SOURCE

SBIR/STTRIs 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 1FUNDS: 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 IIFUNDS: 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 IIIFUNDS: Unlimited (no SBIR funding BUT can market sole-source to US Gov’t)

TIME: Unlimited (no graduation, no size limit)

PURPOSE: Commercialization of the concept

PRODUCT: Products or services for sale

www.scibiz.net 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/R&D

1. A systematic, intensive study directed toward greater knowledge or understanding of the subject studied.

2. A systematic study directed specifically toward applying new knowledge to meet a recognized need.

3. 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*

1. Systems studies2. Market research3. Commercial development of existing products or proven concepts4. Straightforward engineering design for packaging or adaptation to

specific applications5. Literature studies/surveys6. Laboratory evaluations7. Incremental product/process improvements8. 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 agency’s problem or enhancement to agency’s 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 (>$50k-$100K) Prototype can be demonstrated with limited phase II funds (>500k-$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

Can’s live with the funding gaps

Royalty free use of your technology

Lack the available resources for a proposal

Afraid of “government contracting”

Can’t/won’t follow very precise submission rules

Not “surfing” the Internet yet

Project is not “REAL” research

www.scibiz.net 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.

RFP=request for proposal

PA=program announcement

RFA=request 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/G&A/ODC- Low risk- Career enhancement

Worth the Risk (both business and

technical)

Best Value (new/changing rules apply)

www.scibiz.net 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 R&D 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

www.scibiz.net 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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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.

www.scibiz.netWRITING SBIRs & STTRs

Direct the proposal at research/R&D in RESPONSE to specific topic chosen.

Focus on meeting the primary evaluation factors in the solicitation:1) Are you the right person/firm to do the work2) Significance of the problem to be solved (especially to the agency)3) A cogent, scientific, well-grounded plan for “how to get there from here”4) Scientific/technical quality, innovativeness, and originality of the work5) 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; don’t include unrelated language or discussions. Don’t 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 agency’s problem

* an enhancement to the agency’s 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 (<$50K - $100K)

Prototype Can Be Evaluated With Limited Phase II Funds (<$750K/$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 don’t succeed try, try again.”

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In a scientific experiment

1) if something can go wrong, it will do so just before your grant is up for review;

2) if the reading on your detector is correct, then you have forgotten to plug it in;

3) if several things can go wrong then they will do so all at the same time;

4) if nothing can go wrong with your experiment, something still will

5) 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;

6) nature is both subtle and malicious (Murphy stole this one from Albert Einstein);

7) 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;

8) 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”);

9) 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);

10) when your experiment is just about to succeed, you will run out of grant money.

Murphy’s Ten Laws for Experimentalists