Government Stories 1998

Qualcom had $1M from AF and Navy 1987-1989 as it grew from 100 to 300 employees. SBIR negligible. ACX first Phase 2 in 1995; one small Phase 2 in 1995. employment tripled 11 to33 1995 to1997. Several packaging Phase 1s. Navy was ViaSat's first customer in 1987; since then $14M has gone into what sounds like ordinary engineering. 90% of sales to DOD. #94 Cymer grew on a technology licensed from big SBIR user Science Research Lab. Ranking is by 5-year growth percent. Of the 500, 41% are software which helps explain the dearth of SBIR companies since government sponsored software is unlikely to grow fast enough to make such a list. Fast, imaginative, responsive, and economic do not drive government R&D funding. The whole Deloitte & Touche's Technology Fast 500 list

for two decades has shown huge promise, soaked up billions in investment, and produced only a handful of winning products [RA Melcher, Business Week, Nov 30] Funny you should suspect it's about SBIR. No, it's about the medical biotech industry. Actually, if SBIR were more targeted to investment by valid criteria - not pretension and wooly "success stories" - it might even produce more than a handful of winning products and a ream of blather.

Why Government Neglect of basic research. Another classic market failure. Even the most optimistic venture capitalists won't back science that's unlikely to pay off for 30 or 50 years. Government will, at the Goddard Space Flight Center, the National Institutes of Health and so forth. Which MAY be a good argument for basic research funding despite exactly Kealy's counter-argument ("The Economic Laws of Scientific Research"), but not for a shorter range program like SBIR intended to help market agile small firms expolit the results of such research, not do the research. Today's arguments about U.S. government concern relatively small differences over weapons control, tariffs, welfare, corporate subsidies, labor laws, taxes and rights. They're about adjustments, about the shutters and paint on the government mansion. The piece asks and answers the question: What human problems has government mended? The answers: ignorance, chaos, insignificance, isolation, invasion, pollution. [Baltimore Sun, Nov 22]

All politicians say they put principle above polls. Yet when one of them actually does, most every politician is aghast. This explains the bipartisan horror at Henry Hyde's decision to proceed with impeachment hearings despite the GOP's Nov 3 election defeat. [Paul Gigot, WSJ, Nov 20]

The third annual Massachusetts SBIR awards, by the Massachusetts Technology Collaborative (MTC), honored four MA tech: Active Control eXperts, Cytel Software, Diversified Technologies, and Technology Integration. ACX received a series SBIRs to develop a vibration control system for the vertical tails of AF planes. ACX is #79 on Inc. Magazine's 500 fastest-growing U.S., companies. Cytel got NIH for statistical software now being in new drug trials for biomedical research. Diversified Technologies got DOE SBIR for solid-state switches and pulse modulators for high-voltage applications, such as semiconductor fabrication, food processing, radar systems and physics research Technology Integration got Navy, Army and NASA and developed a computer hardware and software diagnostic system that can determine the operating condition of mechanical components in helicopters and planes. [Boston Business Journal, Nov 16] The article didn't say whether any of the work would have happened without SBIR nor what the degree of innovation was. The mission agencies tend to use SBIR for low-risk things like software projects that could have easily been procured by their mainline R&D programs as predictable and useful minor advances. Nor did the article say what criteria the judges used.

[Futurist Watts] Wacker intends to get you writing a 500-year business plan. "Forget five-year plans, the companies that matter are in it for the long haul". [Upside, Dec 98]

Don't let the government lure you into self-deception. Just because the government appears to believe your commercialization story doesn't make it true. You'll regret it when the SBIR money ends and the government turns its back.

So the Republican Party is going to try pragmatism. Get ready for plenty more tears. The party surely will find a way to recapture its soul, but first its next generation of leaders is going to have to run off a generation of nuts and hustlers who attempted to hijack it. While they are at it, party leaders might take a lesson from Massachusetts, where the GOP just sold a governor and a lieutenant governor to the electorate in an overwhelmingly Democratic state. To what should we ascribe the local GOP's success? The taste for divided government is only part of the answer. Like any competitor, a political party must differentiate its product. Republicans historically have positioned themselves as being more market-oriented, more vigilant, and, well, more disinterested than the Democrats - the party of good housekeeping vs. the party of social progress. With Republicans, you're not supposed to have to count the spoons (so often). [David Warsh, Boston Globe, Nov 10] Bad news, Republican SBIR CEOs; you have a consistency problem. You're for the free market provided the government hands you free money. You don't show any troubled conscience in arguing for the handout in the most glowing terms about national benefits of such "investment". To be just a little consistent, you should be for a stiff commercialization standard for SBIR that you would be willing to abide by.

Mid-level research has customarily been performed, and should continue to be done, in the private sector. The fruits of this research are proprietary; the company is the primary or even sole beneficiary of any new technologies. At the same time, the company must also bear the risk that the research project will not yield any profitable results., says the House report Unlocking Our Future on federal science policy. Although it does not mention SBIR by name, it talks about small cokmpany capitalization as a job for the private sector: small "start-up" technology companies must be encouraged. These young companies often focus initially on a single, largely basic discovery as their ticket into a competitive market, frequently drawing directly from discoveries made in universities or national laboratories. While individually small, in the aggregate these companies provide one of the best hopes for bridging the research gap between the basic research funded by the government and the product development pursued by industry. A large reservoir of funds is available for investing in promising young technology ventures.. On balance, this Science Committee finding does not foretell any SBIR action. But then the Science Committee is sorta neutral on SBIR anyway, sticking mostly to pieties.

In technology markets, there's a tendency for customers to follow the crowd. They like standardization. It helps explain why Microsoft, Cisco and Dell find themselves where they do. At the same time, technology has deeply penetrated into both business and consumer markets, allowing large companies to grow at really high rates. But eventually, everyone will have purchased their first PCs and routers. As that happens, price competition increases. Margins come down. It's not abnormal. What was abnormal was the length of the up cycle. We'll have a pause here, and then we'll get right back to it. The tendency of people to use technology more strategically in their businesses and more comprehensively in their personal lives is unstoppable. The long-term outlook is fabulous. There's a 20-year cycle coming correlated to the Internet, and it's going to make the PC business look like a small-time operation. [Roger McNamee, Barron's, Nov 9] And those few true investment SBIR programs will neither fight this trend nor waste their investments in clueless ideas and companies. The rest will use some other selection criteria to satisfy some other goals than feeding new and useful technology to mainstream markets.

For me, it's difficult to believe that a company owned by the state for a long time can switch from today to tomorrow into an entrepreneurial one, sayd Carlo Garlant, a Swiss pension fund portfolio manager on the nature of Swisscom's IPO. [Wall Street Journal Europe, Oct 28] Could the same be true for companies picked for subsidy by the US government in technology programs?

As for drugs, if they didn't exist, our government would have to invent them, the better to enact laws aimed at keeping the citizenry sinless and obedient [Jay Nordlinger, Wall Street Journal, citing Gore Vidal] Sin has its place, too.

End R&D "Welfare", says GP Zachary (MIT Technology Review. Nov/Dec98). Zachary's prescriptions: keep national labs on their mission, kill NASA, streamline DOD (got any workable ideas?), prune the mega-projects, stop ATP, more R&D tax credit, a national network of citizens' councils, invest more in developing countries' R&D. for the past 25 years, special interests have wasted a big share of government monies for inovation. With the exception of biomed engineering, the government isn't a significant player in any critical field of technology. Good luck if you believe such housecleaning is good; the political system created the problems as solutions to some earlier problem, and is likely to continue the political benefits. A closely divided legislature surely could not make such moves.

the lesson for Corporate America may be that money spent on lobbying will soon exceed the return on money invested in, say research or new equipment. If it hasn't already. [Business Week, Nov 9]

The Navy SBIR wants the usual things for the usual reasons with the usual stuff about how valuable the military technology will be in the private markets. Penetrators; shape charges; an inexpensive generic, modular, heavy-lift, stable, reconfigurable, ergonomic omnidirectional electrically powered mobility platform; Master Training Plan Generator; Urban Warfare Simulation; stealth submarine coatings; etc, plus quite a few items that really would have market if the relatively mature technology had an economic advantage. Although you don't have to believe such better-mouse-trap fantasies to get a Navy SBIR, it will help if you can show that you did something with an earlier SBIR-funded project other than beg the Navy for more money. How much a real commercial prospect will help is hard to decipher from Navy words and deeds. Proposals due Jan 13.

An Open SBIR Call The Air Force space people have an SBIR topic AF99-062 that on its face asks for any new idea with dual-use potential. to Develop innovative methods for improving the performance, endurance and survivability of future space and missile systems. Future space systems require a variety of integrated technology developments in order to meet improved performance requirements. We are seeking innovative approaches and technology developments which will provide effective and affordable future space vehicles, launch vehicles and space concepts with improved space system performance, endurance and survivability. Proposed approaches shall emphasize dual use applications, i.e., those which clearly offer private sector as well as military applications. Proposals emphasizing technology transfer will receive additional consideration. That last bureaucratic sentence should be viewed with skepticism. Terms like "additional consideration", with no fixed meaning, tend to be ignored by the mission-driven people. To get any extra credit you have to pound into the decider how the dual-use will pour benefits on the mission. An unconnected downstream benefit to the company will have little influence.

Palmetto Technology - Me, Too A Silicon Valley in South Carolina? That's the plan of the new South Carolina Technology Alliance, a public-private group trying to lure high-tech business to the Palmetto State. Tom Persons, a retired AT&T Corp. general manager, has been tapped to lead the effort, combining financial incentives with educational reforms that would get South Carolina into shape to compete with other states for high-tech companies. "South Carolina is a technology state," says Persons, pointing to NCR, Intel and Solectron Corp. "We're open for business, and we're ready to do whatever it takes to satisfy needs from a technology standpoint." .. The group's budget of $350,000 has been cobbled together from state and federal grants, private technology investments and contributions from South Carolina's high-tech businesses [The Business Journal of Charlotte (NC), Oct 19] Youthful companies sought in a state whose junior Senator is 76.

No SBIR Changes The SBIR advocates could not convince the Congress to change the SBIR law. No three wishes: no increase to 3.5%, no permanency, no admin costs for the agencies. My opinion: none of the wishes would have made a better SBIR.

Modern conservatives are right, says Galbraith, to credit the New Deal and the Great Society with the birth of the new conservative movement. But conservatism did not rise because the New Deal and Great Society failed - it rose, ironically, because they triumphed. The more liberal economic policies succeed, the less voters believe they're needed; the wealthier people are, the more conservative they become. [WR Mead, "Economist Emeritus", Worth, Oct98]

Today it's easy to raise money for good ideas. So as an entrepreneur you should be looking at venture capital the same way you do any other service business. If you don't think you can get the best service or the best value-added from Mayfield or an angel or whatever, then you should find someone else. If you're just finding someone who is willing to give money, and they'll never add anything else, you are making a big mistake. A VC is a key partner. If we're not a partner, we have no value. [K Fong (VC), Forbes ASAP, Oct 5] Which suggests that companies look deeper into how and when to use SBIR. The government will never be a partner because it's not allowed. The best government could ever be is a fickle partner.

Some Uncertainty Removed. The DOD SBIR at least has a base number for its calculations and can allot SBIR money with certainty. Bureaucrats hate uncertainty and often hold back SBIR until the DOD Appropriations Act is signed into law. That seems about to happen for FY99 despite the Washington gridlock. If it doesn't happen, all that pork spending wouldn't be boastable in the coming election by small government Republicans. Meanwhile, the Joint Chiefs took advantage of the White House distractions to moan to the Senate about declining everything, especially total money and with that the number of general officer positions.

Enough Science, Too Many Scientists. Even the NAS admits that the US is turning out PhDs faster than anyone can employ them. the annual output of PhDs in the "life sciences" has risen 42 percent since the late 1980s, to a total of 7,696, and that the current production is about 2 1/2 times the number needed to fill the jobs in universities -- traditionally the biggest employer of scientists; the numbers also exceed the needs of industry and government ... the PhD machine grinds on, sustained by government funds, the appeal of a scientific career and youthful hopes, mainly to the benefit of the sovereign professors who harness the enthusiasm of graduate students for the conduct of their own research projects. The report doesn't say what should be done about the government research money's continuing to fund research that produces the crowd of future jobless PhDs. Send 'em the SBIR companies?? Now if those PhDs would get politically organized -no chance - they could get some piece of a pie that Congress would invent for them. [Dan Greenberg, Washington Post, Sep 30]

With just more than a week until Congress adjourns, the high-tech industry seems poised to pluck most of the legislative plums it sought -- though lawmakers may force it to swallow a few lemons. But savvy lobbyists are predicting that next year, high tech may find itself on the legislative defensive. ... ``I think we're going to get four of our top-five issues,'' said American Electronics Association President Bill Archer.... number of H-1B visas, no stock-fraud lawsuits against high-tech execs in state courts, Internet Tax Freedom, and R&D tax credit ... High tech's only big loss was on a bid to give the president fast- track authority to negotiate trade treaties. [TOM ABATE, SF Chronicle, Sep 29]

Florida Incubator Seminole Community College is creating an incubation center for early stage technology ventures. The center is being designed to host between 20 to 30 start-ups concentrating on space technologies, software development, lasers/optics, semiconductors and biomedical technologies. The facility is set to open next spring at the Port of Sanford. ... The money is coming from the Titusville-based Technology Research and Development Authority and NASA. The TRDA is establishing five new high-tech incubation centers across Florida to supplement its existing one in Brevard County. [Orlando Business Journal, Sep 28]

Q: The great strength of the U.S. is that we've always managed to overcome all our politicians. Do Bill Clinton's follies really matter? Horne: Yes, in the sense that the politicians who now rule the roost aren't in the White House; they're in Congress, which seems to want to emasculate the IMF. In a sense, this is a protectionist backlash toward helping the rest of the world. The Treasury, which rescued Mexico in 1982 and again in 1995, can't control Congress either. [J. Paul Horne, London-based European equity market economist, Barron's, Sep 28] Many observers see a re-balancing of power between the Executive and Legislative Branches. Whether that's good or bad depends on your view of government. The Founders invented a legislative government because they feared the abusable power of a strong executive (then called a King). BUt in a complex world, legislators with short terms of office spend their energy looking inward. But legislative government fails at external affairs which cannot be handled by a committee of 535.

Our Subsidies Are Better Surprise! The Republicans hate subsidies except for business. In the name of national security they are moving to subsidize the US satellite launch industry with loan guarantees for a competitive, domestic launch industry. From 100% of launches down to 40% in a decade alarms the industry so much it will park its free-market principles at the legislative chamber door. A question: once you start subsidies, how do you end them? VCs always want an exit strategy; how about politicians? Ah, we'll worry about that later on someone else's watch. Since no money need be appropriated qand since the bankers will benefit, who will speak against it? [facts from Wall Street Journal, Sep 24]

AF Topics Published The Air Force has posted its probable SBIR topics for next January with the name/phone/fax/e-mail of the topic author You can chat with the author on what he/she really meant until Nov 30. These tentative topics will be released on the World Wide Web; the URL is. Pick a topic at random: 99VA-009 Aeromechanics for Future Aircraft Technology. See the AF fiction that good AF R&D leads to commercial products. The topics wants better computer models of planes - a good long term R&D goal for the main 97.5% of AF R&D. But just in unlikely case some small business can do modeling better than all the many universities, the AF will divert dual-use funds set-aside for small business into such research. (Actually, the internal forces are more complex and indecipherable by an outsider.) Remember, though, that the author may well lose the internal battle to fund your great proposal. Remember, also, that the make-or-break of SBIR is not the topics; it's the winning projects.

An example of what Roy Porter [New York Times, Sep 20] calls "the insatiable thirst for public funds" is the classic cry of a Presidential advisory commission in information technology. After careful review of the Federal programs, however, this Committee has concluded that Federal support for research in information technology is dangerously inadequate. Research programs intended to maintain the flow of new ideas in IT are turning away large numbers of excellent proposals. In addition, current support is taking a short-term focus, looking for immediate returns, rather than investigating high-risk long-term technologies. Significant new research on computers and communication systems serve our needs while protecting us from catastrophic failures of the complex systems that now underpin our transportation, defense, business, finance and healthcare infrastructure. The current Federal program is inadequate to start necessary new centers and research programs. If you ever meet a scientist who thinks his science (or a subsidy program like SBIR) is adequately funded, write the editor - any editor. (It doesn't count to say that somebody else's program is adequately funded.) But be ready for a harangue by the unlimited number of disappointed proposers. After all, the money comes free from the taxpayer (who's that?) with hardly a look back after the money is spent.

Colors, Breakfast, and Lecture
(Sep 21) Dr. Robert Dean will describe the history of the Creare family of companies that has grown since 1961 to 17 companies, the entrepreneurs and the role of Dartmouth, lessons in entrepreneurship and venture financing. Dr. Dean is the founder of seven companies: Creare (a giant of SBIR winning), Hypertherm Inc. (technology leader and world's largest manufacturer of plasma-arc metal cutting equipment), Creare Innovations Inc. (xerography and motion control; now Spectra Inc., four color, hot wax drop-on-demand printers) Verax (production mammalian-cell culture systems), Synosys (now PerSeptive Biosystems, Inc.), Synergy Research Corporation, Synergy Innovations, Inc. When and How: Wednesday, October 7; Radisson Inn, West Lebanon, NH, 7:30-10:00AM; $45 incl breakfast; info - Jim Myers (603) 643-1300 x2110. Fall dead-leaf colors guaranteed. Return to Index

And a DOD Dual-Use Breakfast
(Sep 21) A how-to intro at the DOD Investment Strategy Conferences, Oct 22 Crystal City VA (Washington) and Oct 29 LAX Hilton. Overview morning and "technical breakout sessions" afternoon. Money on offer is the Dual Use S&T Initiative solicitation. The usual happy words: dual-use, reduce costs, investment, the meaning of which is left as an exercise for the reader. Information, Diann Fahey, 703-519-2035 . The 1998 money went mostly to household names: Boeing, TRW, Northrop who had to contribute something as well. The cost sharing aspect that guarantees industrial interest is hated by the small businesses who don't have capital to invest and who must therefore appeal to set-asides like SBIR. Two commercializing SBIR firms won one award each - Cree and Emcore. Odds are that the military services who pick the winners have a quite restricted view of what dual-use means and how they could benefit from it. Many projects sound a lot like the usual R&D projects that have a purely military goal which arises naturally from DOD's internal politics.

There was plenty of incremental info from the semiconductor-equipment makers, most of it depressing. Joseph Bronson, chief financial officer at Applied Materials, said demand for chip-making gear continues to be hurt by a glut of memory chips, the popularity of ultracheap personal computers, and the Asian economic mess. ... he warned that chip demand might not ever return to its previous historical growth rate. [Eric Savitz, Barron's, Sep 21] Ss-sh-sh; don't worry. If you don't tell government the bad news, the SBIR decision makers will probably not work it out for themselves and you can peddle a commercial fantasy to most SBIR programs. Just emphasize your technical wizardry and wave your hands about growing technology markets for the 21st century. The more conventional blather, the better. Lots of government managers agree with the multi- SBIR winners that "scientific and technical merit" should dominate.

French to mimic North Carolina. Governments cannot resist "investing" in stimulating entrepreneurial high-tech growth. The French have shifted policy to spend $160M for networks of laboratories, $17M for a seed money fund, $100M for venture capitalists to spend (uh, invest), and allow public researchers to hold financial links to research houses. [Photonics Spectra, Aug 98]

Rocketeers have always found ingenious ways to veil their requests for the cash they need to support their hobby. Scientific exploration is one. Military ambition, another. Commercial endeavor is always a good cover for spending lots of taxpayers' money. If all else fails, they can try appealing to national prestige. [The Economist, Aug 8]

Faster, Better, Cheaper? NASA prided itself on a new approach to missions - faster, better cheaper. A New York Times story (Sep 15) by Warren Leary says it ain't necessarily so. Reliability in space proved a little tougher than a profit-minded contractor could handle. If NASA's SBIR were to be harnessed to the strategy (which does not yet appear to be so), the commercialization as a source of mission hardware has to be carefully managed so that the minimum reliability isn't compromised. That's not an excuse to abandon dual-use, only a warning that unrestrained dual-use won't serve the government purpose. SBIR proposers to NASA should balance the reliability-commercialism dilemma intelligently and hope that the deciders are paying attention to the question

When an internal review of the Ben Franklin Technology Center of Western Pennsylvania wraps up later this month, the facility's board of directors will likely resign en masse. "The public and agencies with the state may perceive that having a clean slate would be beneficial and give the organization a fresh start," said board secretary Robert Unetich. "So that is probably what will happen." The board has been considering a variety of reorganization plans since June, when allegations of mismanagement, "malfeasance" and "nepotism" at the center surfaced. Dissolution of the board emerged as the most likely plan on Aug. 28, when members met to hear preliminary results of an internal investigation into these allegations. [Pittsburgh Business Journal, Sep 14]

Says Nobel laureate Gary Becker on SBIR: It is extremely hard politically to cut back government programs once they have begun or expanded, since subsidized groups fight tooth and nail to preserve their benefits. Actually he never mentioned SBIR by name in [Business Week, Sep 14]

Our coalition, which consists of 28 Chambers of Commerce from all parts of the US, believes that federal research funding should be increased. The most critical need is in defense basic research. Although it spurred the development of the transistor and the Internet, defense basic research is down by 30% in real dollars since its peak FY 93. Regaining this lost ground needs to be a top priority in federal budget deliberations. [J Klocke, Exec Dir, Nat Business Coalition for Federal Research, Business Week, Sep 21] What think you? Conventional wisdom from two decades ago? Did DOD basic research have anything to do with the Internet's success? What does the Coalition think basic research is anyway? Is there such a concept as "most critical"? Where does the coalition recommend the new taxes come from to pay for the new research? Why defense as the source of useful research?

The Bioscience Investment Fund, created by the North Carolina Biotechnology Center, closed on $16M from private investors and the state legislature. Its target is biotech and life science companies based in NC. Interstate competition will now induce Minnesota to do the same. Who's the beneficiary of such pseudo-capitalism? The politicians. The capitalists didn't need such a fund that restricts their search for profit to one ordinary state. Political boundaries serve no purpose for capital as the Asian countries will soon discover when they erect capital controls to "save" inefficient enterprises. Why then do the NC capitalists do it? Interesting question. Readying to re-start the Civil War? Under the table deals with those legislators for other favors?

"SBIR has always been a catalyst for the growth of small high-tech businesses," said Kesh Narayanan, director of industrial innovation. We found that the top 50 successful small business grantees (representing about 10% of all Phase II grantees) have accounted for $2.2B billion in direct sales and created 10,000 jobs. The pilot program will help give other small high-tech companies the opportunity to make this sort of impact." Kesh means that NSF will match private sector investment to extend Phase 2 beyond the usual cookie-cutter fixed amount. Read about Phase 2B of four companies. If enough companies take the bait, the weaker science companies will have to adapt or die (as will NSF's brave talk about commercialization.) It is now up to the companies to push NSF toward the swing-for-the-fences BMDO model of SBIR and out of a bunt-single offense. With any luck BMDO will have as many homers this year as Mark McGuire. NSF also now offers a push news service. Note that Kesh is also taking generous liberties with cause and effect in claiming 10,000 jobs created. An otherwise growing company that had an SBIR isn't in the same league with companies that needed SBIR to get a risky technology started. (BMDO has at least two companies in that class - Ortel and HNC Software. The number comes from an NSF-funded SBIR booster study that asked few serious questions. To take real inspiration from the number, NSF could shift its SBIR more dramatically than the Phase 2B little bite of the apple. Fat chance with the academics in charge and bureaucratic in-fighting for power.

Tibbetts Awards Each year since 1996 the SBIR community gives awards to a batch of the deserving (on rather vague criteria) companies, federal officials, state officials, etc, who have done good for (or with) SBIR. This years list of winners who get an attaboy. Who are the judges? This year: 1) Jon Baron, the DOD SBIR policy maven and aggressive champion of commercialization (more than talk); Terry Bibbens, the SBA "Entrepreneur in Residence", an opponent of co-investment for SBIR projects; and 3) Bob Pap whose company (Accurate Automation) has won lots of SBIRs and who spends endless time in SBIR politics. Tibbetts is Roland Tibbetts (retired from NSF) who more or less got SBIR started in the late 70s.

A Baltimore Incubator Everyone seems to have one. [Maryland's] Board of Public Works approved a $1M state grant yesterday to help develop an "emerging technology center" at the former American Can complex in Baltimore's Canton neighborhood. The state grant will help pay for improvements to 50,000 square feet of space in one of the complex's buildings. It will serve as a center for entrepreneurs developing new businesses in telecommunications and other high technology fields, officials said. The grant was made to the quasi-public Maryland Economic Development Corp. (MEDCO), which will lease space from the owners. MEDCO is receiving $2.25 million from federal, state and local grants and the Abell Foundation for the project.[Greg Garland, Baltimore Sun, Sep 3] As long as government and charity funds are used, no one will be upset that the economics won't work out. It is political, not economic.

Maryland Incubator
(Sep 3) The Usual Incubator Hype..two dozen budding entrepreneurs attended a ceremonial "topping off" yesterday of the $4.5M Maryland Technology Development Center. .. [Montgomery] county provided the land -- one of the last parcels in its 300-acre R&D village -- and about $250K annually for operating costs. The state is paying for construction. .. The nurturing pushes the success rate for high-tech start-ups to 80%, compared with 20% for non-incubator companies, the Maryland Department of Business and Economic Development says. [Baltimore Sun, Sep 2] I wonder how Maryland technocrats define success for the companies. Return to Index

Cal Poly Pomona has been chosen to run a business incubator to help small businesses find commercial applications for NASA technology. NASA will give the school $800K over two years to create a program to expose businesses to technologies developed at NASA's Jet Propulsion Laboratory and Dryden Flight Research Center. The program will also assist businesses with support services and offer advice on financing, marketing, sales, accounting, manufacturing and legal issues. Info (909) 869-2276. [LA Times, Aug 26] Although the odds are against any great results that wouldn't have happened anyway, at least NASA is trying something. It hopes to get as much publicity as the incubator in Sunnyvale which has had some success in attracting living breathing entrepreneurs to try to mine something of NASA's technology closet. DOD's only apparent move in that direction is the SBIR Fast Track that drags the reluctant Services into commercial technology (for their own good).

One state's SBIR help group says Everyone is encouraged to call upon their elected representatives in Washington to urge support of the SBIR renewal. Why? Other than the syntax error of giving everyone a plural verb, why does a state think there's a national need for such legislation? Or does this state believe that democracy works best as a competition of interests in which everyone grabs for what he/she can wangle from elected officials anxious for re-election. The joke, of course, is on all the states because they all have to pay the bills for the handouts and put up with the posturing politicians. Ever watch the small government Republicans boast how many federal dollars they have brought to their electorates? For the record, SBIR does NOT provide any money to the states that wouldn't have come anyway. It's not even clear that small business gets any more money. What is clear is that the companies plumping for more SBIR have got more and want to keep it that way.

NASA STTR Winners
(Aug 21) NASA picked 25 STTR Phase 1 winners in 23 firms. Double winners: Foster-Miller (Waltham, MA) and Makel Engineering (Chico, CA). Plenty of recognized names with no doubt more innovation in the NASA style: Barron Associates with another model, Energy Science Labs gadgetry, HYPRES superconductor stuff, MSNW, Physical Sciences with more good science, Techno-Sciences near Goddard. None has gone public despite the NASA and other government support for their R&D with "commercial potential". But neither NASA nor Congress is likely to mind as long as contracts flow to the districts and technology ownership flows to NASA.

NASA's Jet Propulsion Laboratory will work with Pasadena-based Jacobs Engineering Group to commercialize cutting-edge technologies in its latest attempt to give space technology down-to-Earth value. No specific deals were mentioned. Jacobs specializes in building industrial plants and cleaning up chemical contamination. Jacobs will look at such things as infrared imaging to detect pollutants, advanced mapping to choose plant sites, ground-penetrating radar and fuel-cell-powered generators. [LA Times, Aug 12] Hope springs eternal in tech-transfer of government stuff to commerce. It actually happens, but there seems to be little evidence that a company/government partnership makes any difference. Hungry entrepreneurs will find the good stuff and exploit it in ways that the government never thought of.

....start-up costs for biotech ventures are high--an estimated $300 million to $500 million per drug--and profits can take a decade or more to materialize. Even with its success in bringing Thalomid to market, "we are going to need a lot of money before we turn profitable," says Celgene's CEO, John Jackson. Some have suggested that the public sector step in and help, following the model of Germany, where the federal government gives private firms more than $2 billion a year in research-and-development subsidies. But such a policy would invariably politicize research. The leaders of biotech companies should spend their time and effort on lab work, not lobbying. And bureaucrats shouldn't be making decisions about which approaches are likely to bear fruit. [CB Whelan, "Creating Jobs Doesn't Require Giveaways", Wall Street Journal, Aug 10] She goes on to describe a New Jersey scheme for tax incentives for small R&D companies with losses. It is an interesting private sector alternative to programs like SBIR that do not achieve their rationalizations for political handouts.

Let's BMDO. The conservative Republicans - the business types, not the social hard-heads - have re-discovered national missile defense as both Forbes and the Wall Street Journal are beating the drum again. Why? All signs are that there is nothing to develop that would work very well; we would return to the debate about leak rates (is 10% leak acceptable?); and the cost would be enormous (never believe a government developer's cost estimate for something new). Well, think who would benefit from such a program. Big business with some trickle down to small high-tech business. It's a political cover for government benefits. Small business attitude? For a large sector, especially SBIR winners, trickle down government beats zero commercial.

Any proposed special subsidy or tax break flowing to an industry or a business must pass a four part test. The proposer must show (1) the extent to which the public stands to benefit from the private activity; (2) how much of that alleged benefit depends on the incentive (it may be that businesses would do much of it anyway); (3) that this net benefit exceeds the cost to the public of the proposed subsidy or tax expenditure; and (4) that there are no less costly means of eliciting the same amount of public benefit. [R Reich, The Rhetoric of Corporate Welfare, The American Prospect, S/O98] How would SBIR's defenders fare in such a test? They would probably claim that R&D is good, that it funds valuable R&D that the companies would not do otherwise, that the cost to the public is negligible since no new funds were appropriated, and that there is essentially no other means to the same end. The opponents would argue that the public does not seem to have gained anything measurable that wouldn't have happened anyway, that the cost to the public is hard to measure since the agencies can't or won't announce (for political reasons) the net loss from the diversion of R&D to SBIR. The politics of SBIR re-authorization will revolve around the burden of proof because whoever has the burden will lose the debate. Neither side can "prove" its case because the advocates have so little useful results and the opponents have no direct economic incentive and thus little data either. Thus the Republican free-marketers will have to once more swallow their free-market, small government rhetoric and re-authorize SBIR with some conscience-easing pork-barrel measures to pass out the freebies more equally.

South Dakota Best, California 42d. Ranking first on the list was South Dakota. Last was the District of Columbia. California, long a competitor with Arizona for business, ranked No. 42. Ranking highest from the western region was Nevada, at No. 3. The worst western state was Oregon, at No. 48...... The index is based on tax rates, workers' compensation costs and crime rates. Not taken into account is each state's regulatory environment. . The Small Business Survival Index was published by the Small Business Survival Foundation, the research arm of the Small Business Survival Committee. The committee is a nonprofit, nonpartisan small-business advocacy organization based in Washington. [Phoenix Business Journal, July 27]

"People said, 'The Department of Defense is cutting back. What are you going to do?' " says Nancy Archuleta, chief executive of Mevatec Corp., a software and engineering-services firm that moved its offices here [Huntsville, AL] from New Mexico in 1991 to pursue Pentagon business. "My answer was, 'I'm just going to become a better defense contractor, so I don't lose out.' " .... "Without government contracts, we wouldn't be where we are now," says Laura A. Lopez, who runs Ublige Software & Robotics Corp. with her scientist-husband, Luis Lopez, from their house. More than 60% of the company's revenue comes from government contracts, but the Lopezes see commercial customers as the way to future profit growth. Two of their products: software to turn computer code into logical flow charts, and advanced-warning tornado sensors they hope will someday be in every home. "This is a spin-off town," says Niles Schoening, an economist at the University of Alabama here. [Wall Street Journal, Jul 27] Lopez should know; he used to review and manage SBIR proposals and awards for the Army in Huntsville as a government tech manager. The idea, though, that spinoffs will make anyone rich makes one of the more pleasant fictions about SBIR as managed by real-life government agencies.

Incubating Optimism
(Jul 27) An $800K grant from the Goddard Space Flight Center will help companies in the Baltimore area access space-age technology and give them assistance in manufacturing and marketing new uses for it. ... "Companies will get below-market rates for the space, business mentoring, links to technical support and expertise, and help finding financial support and management assistance," said Kathleen Weiss, the center's director. .. The center has formed partnerships with Johns Hopkins University, Morgan State University and the University of Maryland, Baltimore County, to provide faculty and student support for companies that need assistance with everything from building a prototype to figuring out how to market new technology. .. NASA and MEDCO have yet to determine specific criteria for allowing a company to jointhe center, how many companies will be allowed to sign up or even what technology will be developed. The center, which had been planned long before the NASA got involved, can accommodate about 40 companies. Center organizers expect about half of the occupants to work on NASA-related projects. [Baltimore Sun, July 25] Such projects proceed from the same assumptions as SBIR - that government can pick and directly help specific companies. A nice warm theory but with little economic evidence to support it. NASA pretends that such centers will return licensing fees. Tell 'em to buy Treasury bonds as a much better investment.

Silicon Valley execs, GOP building a friendship. After years of mutual neglect, Silicon Valley executives and leaders of the Republican Party are finally paying attention to each other. Dozens of Republicans, including House Speaker Newt Gingrich, Senate Majority Leader Trent Lott and the party's national chairman have come here this year to learn what issues concern the valley.... High-tech leaders are not only giving time and ideas, but also tens of thousands of dollars in campaign contributions. [JAMES J. MITCHELL, San Jose Mercury News, July 26] Wanna get politics in service to high-tech? Pay up! Politicians respond to whatever serves their first law: re-election. Join (pay) high-stakes groups like the Technology Network or the low-stakes like the Small Business Technology Coalition.

Latest Fast Track Numbers. Of 84 DOD SBIR Fast Track proposals, 76 (90%) got Phase 2. Almost all got an interim funding of about $30K (a distracting focus on small money but popular anyway). Most (75%) were SBIR rookies (the 4:1 match rate is inviting). In all, DOD put up $57M for $25M of private matching funds. DOD now wants to raise the Fast Track numbers in its drive to get more private sector money into SBIR so that more new products will appear in the marketplace for later DOD procurement. But it's a tough internal struggle against the R&D spenders who still live in the old paradigm of direct funding of development. If you got a great idea with a future, you have two Phase 2 SBIR routes: 1) Fast Track (90% chance) with a third party angel, or 2) compete with the other dreamers (40% chance) for ordinary R&D funding. Remember, all serious proposers have good science with some calculable benefit . And they are so alike that the DOD can choose whichever ones suit its mission purpose with no opportunity cost remorse.

LARTA Hands Out $1.8M
(Jul 20) The LA area got $1.8M in state grants for nine small high-tech companies. Said the program director, These awards are a shot in the arm for small companies often just below venture capitalists' radar screens, and are developing products showcasing the region's technological muscle. Which is a necessary fantasy for his office. Especially fantastic is including Irvine Sensors (Costa Mesa, CA) which has had $11M of SBIR in just the past five years and has been NASDAQ-traded for years. (But since whoever robs Peter to pay Paul can depend on the support of Paul, Irvine no doubt thinks highly of the office's vision.) Five of the other eight also have had SBIR in the last five years, two of them over $2M each. Now, the federal response should be watched. If such grants in rich states help companies get more federal money, there arises a fairness question in federalism. Students of such federalism questions could read Peterson, The Price of Federalism, Brookings Institution. And in further example of regional competition, LARTA is producing a study of venture capital in the region, examining why the region boasts more than 16,000 ``gazelles'' -- fast-growing firms -- yet draws just one-sixth of the venture capital deals that are made in Silicon Valley.

What European country subsidizes industry the most? Germany pays an average of $18B a year to prop up unprofitable manufacturers. France, tied for second-largest with the UK, doles out only $4B. [Business Week, July 27] One German plant took $600K per worker to keep open. The US? Each year, the US government gives away nearly $65B in corporate subsidies - handouts that arrive in the form of tax breaks, export incentives, and pork-barrel contracts. [subsudiphobe TJ Rodgers, Wired, Aug 98] How much does SBIR pay per researcher to keep unprofitable companies going, do you suppose? Or hadn't you thought of it that way? You believe instead the hype about government funding of small company science and technology as a prelude to a bright future without much evidence after 15 years?

Since Kealey says that the continued profitability of any technology depends on a myriad of small, incremental improvements, which, over a number of years, may yield much more, economically, than any particular imported 'breakthrough', isn't it right that SBIR fund incremental improvements? Absobloodylutely NOT. Government R&D programs should do what private companies cannot do for themselves but must still be done in the national interest. Incremental improvements driven by economics do not qualify; what's more, they can only be efficiently done by a laissez-faire market. If SBIR has any value besides a payoff to a political constituency, it is in high-risk infant technology. (Although it could reasonably do societally valued development such as clean air, that is not its declared purpose.) [T Kealey, The Economic Laws of Scientific Research, 1996]

Navy Phase 2 Message If you're thinking about a SBIR to the Navy, what might you learn from the Navy's Phase 2s for 1997? Of the 164 awards to 155 companies, 85 were to first time companies and 56 of those first time in DOD. (DOD-only because SBA has never Internetted a government-wide database of all winners.) So many rookies and so few multiple awards could mean either a love of new ideas or a continuous shift in particular wants. Such numbers also say nothing about the Navy's attitude toward commercialization (pay no attention to words from headquarters of any decentralized agency on commercialization).
That's quantity; what about quality? Although quality is a much more subjective judgment, the Navy loves gizmos and projects that directly and narrowly help the Navy. A random walk through the abstracts shows little (if any) innovation although high-power innovation could be disguised by the vague abstracts of what companies think bureaucrats want to hear. One SBIR veteran, for example, says, "The Phase II proposed program, which consists of experimental, demonstration and design tasks, is aimed at resolving the fouling issue and quantifying the parameters affecting cost optimization." On balance, Navy funds incremental stuff that needs no special program like SBIR; the Navy would do such stuff anyway. And any innovation is unlikely to go beyond the Navy despite the required blather about commercial potential. Having a proven technology apparently helps; Hayes & Assoc which had its endothermic technology at least by 1985 and has sold the idea to PizzaHut for keeping traveling pizza warm, nevertheless won a Phase 2 for applying the idea to firefighting clothing. Innovative it was; now it's merely useful. For the Navy, then, something safe that the Navy will use soon, and your making money on it will have small influence.

Economists work on a very narrow model of humanity; they suppose that people are only motivated by immediate economic self-interest. .. Rich people will always support art and science unless they perceive that the State has already fulfilled the national need. [T Kealey, The Economic Laws of Scientific Research, 1996] Kealey's iconclastic book attacks the underlying premises of government's funding of science.

neither Gladstone nor any other British politician supported science to any significant extent in the 19th century - yet that did not prevent Britain from growing into the richest and most industrialized country in the world, nor from producing scientists such as Davy, Kelvin, Maxwell, Lyell, and Darwin. Curiously, 19th century France and Germany, whose governments did fund science expansively, trailed behind. Can the government funding of science be so important?[T Kealey, The Economic Laws of Scientific Research, 1996]

Dollar for dollar America spends three times as much on each person [ for health care] as Britain. In general, it is hard to discern any link between a country's health spending and how long its people survive. ... Though survey evidence shows that the British are less satisfied with their health service than other nations are with theirs, and want more money spent on it, come election time they vote with their wallets and choose governments that promise not to put taxes up. [The Economist, July 4] Like Americans, the British want more government than they are willing to pay for. One price the British pay for spending less per head is a queue of 1.5M people (of 58M population) waiting for hospital treatment.

Another State Fund
(Jul 6) More claimants for the California budget surplus. Even the richest VC place in the nation is moving a bill through the legislature to start a state VC fund for "little companies" How touching, how political. The rationale: the little companies cannot get VC attention for small amounts, $250K-$5000K. If California does it in the face of Iowa's sad experience, and the have-not states see unfair competition, will not the pressure rise on the Congress to divert more SBIR where it least likely to have any economic impact beyond the immediate jobs paid for (a sufficient reason for most politicians)?

Market cap of the top ten US info tech companies is up 298% since 1990; top ten Japanese firms is down 13%. Japanese VCR production, the favorite example for US declinists, is down 66% since 1989. [Wall St Journal, Jul 2] Do we need a national subsidy policy for high-tech firms? Or are we now in thrall to beneficiaries as in almost any political handout? Never mind, the bleating will continue by the touching (and economically dead) little companies in the districts of the Congressional committee members. Motherhood and the flag will be praised and the inefficiencies in government R&D spending will be neither noticed nor measured. If you're a small company, you might as well belly up and get your share. The money's free.

Conservatives may reply that they favor defense spending; they are merely opposed to civilian industrial policy (except taxes expenditures and subsidies) . Right answer, wrong century. The pro-defense, anti-industrial policy conservatives are two or three hundred years out of date. Before the industrial revolution, it was possible for the military sector of a country's economy - its shipyards and arms factories - to exist more or less in isolation from the agricultural economy in which the people worked (and from which men were hijacked (pressed) for sea service in the Navy). In a modern, high-tech economy, however, it is not as easy as the conservatives imagine to distinguish "military" from "civilian" technology. The contemporary description of some technologies, like computer technology, as "dual-use" technologies represents a recognition of how difficult it is to separate the gun economy from the butter economy. (Michael Lind, Up From Conservatism, 1996) Thus DOD fights business over export controls, politicians natter over loss of technology to an enemy, and DOD has trouble making the link in its SBIR.

Innovation, Genius, and the Like. In 1950, at the age of 22, John Forbes Nash Jr created modern game theory with two brilliant papers. In 1959, shortly after being granted tenure in the math at MIT, he was involuntarily committed to hospital with a diagnosis of paranoid schizophrenia. He left MIT, driven by voices and visions, and for the next 30 years languished in obscurity. In 1994, Nash was awarded the Nobel Prize in Economics as a result of his youthful work on game theory. [Business Week review of Nash's biography, Jun 22]. If Nash had applied for SBIR in 1950 (if it had existed) would he have won? Does government recognize and support a whole new paradigm or does it prefer incremental controlled advance? Does it wait for the Nobel committee before recognizing genius? If you were Nash's consultant, how would you have framed an SBIR proposal? Would you have attached the paper to a one-page application form or would you feel compelled to spell out the future in detail and conventional language? If you were the government, how would you have received a one-page form with paper attached? Would you be more afraid to accept it or to reject it for administrative inadequacy?

Army SBIR The Army has its annual Phase 1 SBIR call, proposals due Aug 19. What's the Army looking for? Perhaps, the reason it is hard to figure that out can be seen in the first two listed topics. Topic 001 wants an acoustic mine detector - a relatively open call for the best innovation with the best performance on a measurable scale. Topic 002 wants research service in the rheology of propellants - research for hire with a literature study, a specified instrument, specified parameters to be varied, etc.

Iowa Calls It Quits
(Jun 30) Iowa gave up as a venture capitalist. After a decade of government-backed ventures of $14M in 72 companies, Iowa Seed Capital Corp was ended by the legislature. Said the inevitable legislator "We're not in the business of losing money." [Wall Street Journal, Jun 30] Any lessons for the federal government in Iowa's experience? Certainly, Iowa's net loss for a decade is far from the average private VC fund that has gains in the 30-40% per annum range. The federal program, SBIR, has avoided ever getting itself measured that way and can thus be driven solely by politics.

Is SBIR creating jobs? Sure, say the advocates. Faster and better than any other use of the SBIR money diverted from the agency R&D pool? Yes, a dollar spent on SBIR funded work will pay for a dollar's worth of job. But that money was diverted from somewhere that lost the same dollar's worth of work. The politicians and advocates ignore that part of the equation. If the argument is that the gain comes from small business doing R&D cheaper, isn't that just a way to cut wages in industry? If you substituted "immigrant" for "small business" in the sentence, what would the politicians say? If their answer is different, then their arguments for SBIR are political and not economic. But then they are politicians and not economists. And not many political programs can stand the heat of economic analysis. Fortunately for SBIR, no one seems inclined to subject SBIR to economic analysis. Not even GAO.

Despite a demand for the product and cash investment, foreign investors who were rejected. "We were very much interested in it, but the power bureau said they could get a World Bank loan, they'd prefer that," said a potential investor. That wasn't an isolated event. Although the World Bank is supposed to lend to projects that can't attract private capital, the development agency increasingly competes with private investors. Flush with cash from the world's richest nations, including the US, the bank easily wins by offering below-market rates. Government failure by intrusion into a private capital market? So? No enterprise's intellectual scruples would preclude exploiting a misguided governments cheaper money. Although the Wall Street Journal [June 10, "World Bank's Easy Lending Irks Investors"] story was about Chinese enterprises, the principle applies to SBIR. The government undermines the private capital market by handing free capital to companies who decline private investment. The politicians don't care because he who robs Peter to pay Paul can depend on the support of Paul. No single actor in the private market is likely to complain that SBIR deprived it of a profitable investment. And without loud complaints by specific and voting and contributing losers, handouts to beneficiaries win every time. Only the federal SBIR decision makers, who get no payoff from defending an undistorted capital market, stand in the way of market distortion. Thus, good news for most (except at BMDO): you can thumb your nose at private investment and take SBIR with little fear that the agency will even notice.

Where you stand depends on where you sit. In a poll of readers of Laser Focus World (June 98) 76% agreed that expanding funding of science deserves the priority that the White House was giving it, while 80% felt that any surplus should be used to pay down the national debt. Any wonder why politicians pay little heed to the pleadings of scientists? If PhDs cannot be economically consistent, who should expect Joe Sixpack to be so?

It's going to be tougher. Most business people agree that doing business today is harder than it was in the past. Competition is keener, margins tighter, employees harder to get and customer expectations higher than ever. What can we expect in the future? Probably a greater intensity of these issues and more. Volumes can be written on the subject of what business will be like in the 21st century. Future business will be quite different than what we have been used to, but companies that plan their futures correctly will enjoy a long and successful reign. A successful 21st-century firm will determine where and how its industry will be in several years and drive its company to be there first. [Terry Anderson, Milwaukee Journal Sentinel, Jun 8] If you are an SBIR company hoping to convince the government, particularly those few agencies that care about commercialization for whatever reason, you have to sound as strategic as you do scientific. Vague hopes that your scientific success will be irresistible to the marketplace is just dreamy talk. Every one of your competitors can babble the same claim. While the Army, for example, seems likely to accept your babble if they like the technology, others, particularly BMDO, will reject it and your proposal. Go prepared for the battle. (Terry Anderson is the founder, president and chief executive officer of Omni Tech Corp.in Pewaukee.)