Nice Theory; Shame It's Wrong. Congress and the beneficiaries of R&D programs sing a chorus that economic growth depends on R&D in our world-leading technology nation. Nice theory. Paul Segerstrom ["Endogeneous Growth Without Scale Effects", American Economic Review, Dec 98], though, notes that despite a doubling of the number of R&D workers 1968-1989, the economic growth rate correlates only with population growth and number of patents per capita is the same as 1968. Why? Good question. If we find that answer, we can maybe then explain why the situation is even worse in Germany and France where R&D has tripled and in Japan where it has quadrupled. Could those R&D beneficiaries have lied? Should we then impeach them? Segerstrom in typical academic style has developed a mathy model for economics journals that postulates that innovation gets tougher as technology progresses.

In a striking admission of error, the Japanese government released a report yesterday blaming official inaction and delay over the past decade for triggering the country's deepest recession since World War II. The EPA pointed to several reasons for the failure to act more quickly: optimism that prices would recover; uniform delay by banks in dealing with bad loans; lack of a system for bad-loan disposal; and lack of transparency in the financial system. [Boston Globe, Dec 28] Notice that in the US, the government isn't responsible for the economy (no matter what the politicians claim when it is good). Government activism is frowned upon (except for corporate welfare like tax breaks, marketing orders, import restrictions, SBIR...).

 

Only Philosophers, Pul-e-e-ease DOC seeks SBIR proposals for Automated Mediation of Ontological Perspectives because Collaborative efforts of a collection of individual stakeholders (e.g., engineering design) involves the manifestation and reconciliation of the individual "world views" of the stakeholders and the forging of a shared "world view" that facilitates and mediates their interaction. So, NIST wants development of tools and techniques needed to facilitate the interpretation and reconciliation of individual stakeholder perspectives and resulting in socially-constructed shared world view. How about a 69-cent comb for scratching one's head? Proposals due Jan 13. Phase 2 would never end and even the meager $200K for a DOC Phase 2 could keep this philosopher in groceries a long time.

Market prospects? Who needs markets when the government will pay for open-ended philosophy? Not too worry, though. Each proposer will assert "tremendous" commercial potential as Intelligent Computing Technologies (Austin, TX) did for its 1998 Phase 1 on methodology and software for a production control code on the apparent assumption that the world of manufacturing is waiting expectantly for an automation SBIR. Or Intelligent Automation (Rockville, MD) with the dream of applying its already well funded neural nets to e-commerce. (If IAI's claims were real, it would already be so covered in money from past SBIRs with the same claim that it wouldn't have its hand out for a government dole.} OK, so it's in NIST's interest to believe such claims. Where you stand still depends on where you sit.

the ''politics of economic nonsense,'' as James Lister-Cheese of London-based Independent Strategy calls it. Europe's center-left governments are howling for more jobs yet won't pursue policies, such as liberalizing labor rules or slashing taxes, that might create them. [Business Week, Dec 28] The same politics of economic nonsense pervades SBIR. Politicians and agencies blather about commercial payoff while evading hard analysis and pursuing funding policies that assure little but nominal commercialization. If companies can get $750K with fanciful promises of commercialization, guess what government will see a lot of in proposals. And if government doesn't ask any hard questions about past commercialization, why should it expect anything but fanciful stories? But then, as long as Congress won't ask any hard questions either as long as the money flows into the beneficiary class, real commercialization will never appear and the politics of economic nonsense will continue.

Wanting It Both Ways. The politicians are at it again: wanting it both ways on high-tech business. They want SBIR and commercially competitive small businesses to export a lot of products but they must want foreign buyers to buy the products without taking delivery. Again the Washington talk is of restricting high-tech exports [Wall Street Journal, Dec 18] as a House committee wants to keep China from getting computers, machine tools, and other sensitive technology (whatever that means).

IBM is a good place to look for cutting-edge technologies. Consider its investment in research and development. Big Blue spent $5.5 billion in 1997 on R&D, far outstripping the likes of Compaq and Hewlett-Packard. Out of that research have come breakthroughs in holographic data storage, copper-chip technologies, tiny storage devices and advances in so-called "nanotechnology," which deals in computer parts that are minute. [Paul Gilster, Raleigh Observer & News, Dec 20] And what has come out of SBIR except temporary jobs? How many workers in small companies are now paid by a revenue stream from SBIR output? Let's have GAO ask that question in its next evaluation (don't bet on it) and then divide the result by the number of SBIR dollars to get the cost per job created. It'll probably be bigger than the big costs for jobs created by welfare funded employment and training programs.

DOE 99 SBIR
(Dec 2) Energy Saves Energy The Dept of Energy has quit its long-time fast Phase 2 SBIR program whereby the fast burners could propose earlier than the norm. Just as DOD's Fast Track is beginning to show results. Its 1999 Phase 1 solicitation closes March 2. Among the 40 topics it is looking for a way to get rid of 687,000 metric tons of depleted uranium hexafluoride. Note that every agency thinks its program is competitive and bureaucrats are always looking for the easiest way to do things. Energy says: Please note: (1) The technical topics are to be interpreted literally; DOE personnel are not permitted to further interpret the narrative description of the technical topics. (2) The award selection process is extremely competitive. Last year, only 1 out of 4 grant applications were awarded. Only those applications with the highest scientific/technical quality will be competitive. Nonsense; 25% selection is one of the highest in the government; only BMDO is consistently higher. And besides, selection rate by itself is NOT a measure of competitiveness. In fact, Energy should pat itself on the back for cutting the number of hopeless proposals. It saves energy for everyone concerned: bureaucrats, reviewers, and proposers. Only the SBA should weep over such stats. When you don't have a performance goal under which you could be fired, you opt for the easiest process that frees you for your 26 vacation days and ten holidays a year.

Ahoy, Navy Proposers! The Navy says, The Navy is very interested in companies that transition SBIR efforts directly into Navy and DOD programs and/or weapon systems. The proposing company should make reference to the attached success stories in the "Commercialization Strategy" section of their proposal so the evaluator knows to look for them. You're on your own to interpret "very interested". While the Navy has always wanted mission SBIRs, it is under pressure to do something commercial with its SBIR and so needs anecdotal evidence it can advertise.

Bucks County has grown into an affluent string of bedroom communities with more than 20,000 small businesses, from plastics to biotechnology to printing. [Washington Post, Dec 18] America's economic organization is shifting as old industries die a natural death, this case being big steel in Pennsylvania. Small business is filling every gap well in accordance with the idea of the Microcosm articulated by Gilder. Government's role is negligible although politicians love to blather about small business. Still, programs like SBIR throw money at small business, which might help some of them if it were intelligently directed. Funding research for advancing knowledge (which is what many mission agencies do) has no long term benefit for the company and probably little for society either. Only a seed program for the potentially explosive contributors to the nation's economy makes much economic sense. When the SBIR re-authorization debate starts in 1999, expect the entrenched interests who lap at the saucer of research milk to spout the platitudes that politicians love and to avoid the hard questions of economic sense.

 

Michael S. Dell has shown he can build a company from the ground up. The $1,000 he used to start Dell Computer Corp. in 1984 is worth some $14B today. Now, the 34-year-old computer magnate is putting some of his profits into other people's dreams. Long a private investor in start-ups, he has quietly launched MSD Capital LP, a New York investment company, with resources of $1B and a team of professional managers. ... In the past, Mr. Dell backed start-ups through funds created by venture-capital companies like Austin Ventures and investment banks like Goldman Sachs. But as his wealth and reputation grew, a spokeswoman says, he was "flooded with proposals." ... A year ago, he paid $3 million for a one-quarter stake in Austin, Texas, start-up Jato Technologies Inc., a designer of high-speed network chips. Last month, Jato agreed to be acquired by Level One Communications Inc. for $80 million in stock, yielding a profit of $17 million in little more than a year. He also hit a home run with his 1995 investment in Rambus, a designer of PC memory chips. The company, which counts Dell Computer among its customers, was the best-performing initial public offering in 1997, with a 281% gain. [Wall St Journal, Dec 16] Start-ups turn to cash-rich giants: More young companies are agreeing to alliances with their much-bigger brethren pathway to profits? Or a road to regrets? Glenn House had stood at this crossroads before, as vice president for strategy at an Oregon software company. There he sought out young companies with promising technology that suited his employer's needs, invested in them - and when all went well, tried to engineer an acquisition. Last spring he was on the other side of the intersection, as chief executive of a 2-year-old Cambridge company, Atreve Software Inc., since renamed WebSpective Inc., now headquartered in Needham. The company produces load-balancing applications that smooth out delivery of Internet Web pages, and it needed investment cash. Up stepped Cisco Systems Inc., the $8.5-billion California maker of computer servers used to direct Internet traffic, wanting to join in the financing alongside three venture funds. ... Once viewed as a sure avenue to a takeover and resisted by many small companies, strategic relationships, partnerships, and alliances between giant technology firms and entrepreneurial start-ups are growing in number and frequency, reflecting the complexity of the Internet, telecommunications, and technology in general. And rich with the profits of their own successes - Microsoft Corp. alone has $17 billion in spare cash - companies such as Microsoft, Cisco, Intel Corp., and Novell Inc. are welcomed as allies in promoting the development of software or other products. Along with the cachet that comes from associating with a big gun, small companies say they gain broader understanding of their industry and leads on new customers. [Jerry Ackerman, Boston Globe, Dec 16] With all such money pouring into new high technology, why does the government need to pour $1B+ into SBIR? Well, one way to look at it is that government is NOT pouring seed money into high tech start-ups; it is buying what it always bought with its R&D funds. Academic research in NIH and NSF, and predictable mission contribution in DOD and NASA. The disdain of the SBA and SBIR funding agencies (except BMDO) for co-investment suggest that the government has little interest is seed capital investments. When and if the government ever evaluates SBIR by any investment criteria (which seems highly unlikely), Congress could either re-direct the program to pre-competitive investment (not fantasy hobbies) or close it for lack of purpose. But as Congress consumes itself in partisan impeachment battles, SBIR will be shoved way back with more of the present bumbling. (BTW, students of why impeachment for historically minor pecadillos has such a partisan hold should read Jackie Calmes's front-page analysis in Dec 16 WSJ.) Need an inflation indicator? The Civil Service pay for the grade I started in 1973 is now 2.8 times that pay. Archibald and Finifter, two William & Mary academics sponsored by NASA Langley, have analyzed the SBIR program at Langley. They will present a paper at the American Economic Association annual meeting in a session devoted to commercialization by NASA. Although only drafts of two similar papers are available, they will likely conclude that SBIR's commercialization, however valuable it was, came at the expense of basic research. The commercialization success rates for Langley SBIRs were about the same as for all SBIRs - no surprise. If One Incubator is Good, Three is Better. Brevard County (Florida) so loved the 66 jobs from 17 companies in its first incubator that it will do two more in Palm Bay and Melbourne. To get in, says Director Rainey, a company needs a viable business plan and the makings of a solid team. Tenants can stay up to three years. Part of the money comes from NASA which has been trying incubators for several years. [story from Orlando Business Journal, Dec 14] One agency that does not seem to get it is the Small Business Administration. It seems to favor politics over progress. The BMDO SBIR is under regular attack, inside government, for requiring co-investment for its more mature Phase 2s. SBA, egged on by the producer's lobby of regular SBIR winners, wants BMDO to award SBIRs on scientific and technical merit alone (whatever that means). One could throw a dart in such a competition to pick winners (which is what many proposers think is happening anyway). Denying provable commercial potential (in favor of fantasy stories) is like a college football coach that doesn't want to stress the players. It would rather have the players write essays about winning the big game than to scout the opponent, train hard to the point of pain, get specialized coaches, and adopt new plays and strategies. Actually, the whole community would be better off if more agencies told their criteria publicly and held to them. Instead, the agencies publish mush and induce hopeless proposals from companies that have better things to do with their energies and money. But since SBA actually benefits from such hopeless activity, it has no incentive to help the companies. The more proposals that show up, the more SBA can claim that SBIR is highly competitive and therefore the more Congress needs to fund SBA to oversee it. SBA bureaucrats need $100K jobs too. Standard Washington game.   Love That Computer (Dec 4) The Army list of 199 Phase 1 winners in 171 firms from August's solicitation shows that Army loves computers. The dominant theme is software and modeling - 40 projects. Old faces appear too, as usual for mission agencies who like predictability. POC (Torrance, CA) seven awards for a company that should by now be selling optical stuff by the shipload to the military after a full decade full of SBIR. Many projects that grind away at the company's decade-long dream and comfortable military service; Giner, American GNC, Intelligent Automation, Radiation Monitoring, Physitron, Cybernet, MetroLaser, MER, Foster-Miller, LNK, L'Garde, Hypres, EIC Labs, Daniel Wagner, Stotler-Henke, Creare. The oddest project: Model-Based Performance Assessment for the Jobs of the 21st Century. Army will need a lot of imagination to pretend to be commercialization-conscience. Not to worry, though, the beneficiaries will help concoct the anecdotes. (No data is not the plural of anecdote.) To see the past fantasies, read Army's Phase III Accomplishments where even the 16 best projects hardly had sales equal to the SBIR spending much less profits or any other demonstrable ROI. If sales back to the Army for items that the Army carried all the way to production were subtracted, the spillover would be minor at best. To its credit, the Army does not pretend its SBIR to be anything more than an Army tool to be used as it chooses. On SBIR the Army would feel right at home in 19th century Britain. Not to worry, either, the Army's thick hide will protect it from the barbs of any economic crusaders.  DOD's Commercial Campaign (Dec 4) Pick your metric! DOD will let you nominate the metric by which your commercialization will be measured. Each SBIR proposer will be asked to project the metrics it expects to report during and after phase II, says DOD's new policy. But then it will compare you with the average DOD proposer and tell the SBIR deciders where you stand. Whether the deciders take any notice will be out of your control. Unless SBIR decision-making changes dramatically among the folks who wear uniforms and stand in the way of bullets, your commercialization will have only a random effect. But DOD Headquarters, like NASA Headquarters, keeps inventing more measures to keep the heat on. Headquarters sees a strategic reason for commercialization of its SBIR and tries to convince the warriors. In another policy move, DOD says that Phase 2s can be expanded with matching funds from either private or public sources. But only real money need apply! While the policy isn't that new (SDIO started in 1991), the public stance is new. Credit Jon Baron, the DOD SBIR overseer, with the continuing pressure to get DOD's SBIR to do some good for DOD and everyone else after Phase 2 ends. The Defense-first Republicans will have a slight problem in their 2000 campaign. They are outgunned 3-1 in candidates having military service. Gore-Kerry-Kerry v. McCain. One Medal of Honor Democrat, one POW Republican, and a guy named George Bush to complain about Saddam still in power. In typical American politics, Clinton will disarm the not-enough-Defense by proposing a DOD budget increase. Excuse me, sir, for what purpose? REDUCING HEALTH CARE COSTS AND IMPROVING QUALITY OF CARE by OZTECH SYSTEMS INC, SAN BRUNO, CA. How's that for an SBIR title? Not even the US Congress can do that. NIH98 Winners   In the US, corporate research is done only by companies that have at least a 50% share in a multi-billion dollar market. However to be in that position, they have to have a business so good that it's usually dumb for them to go into a new one. The good idea will be a distraction. This is the silicon paradox: the companies best qualified to do research are the least qualified to take advantage of it. [David Little, CEO of Interval, Red Herring, Nov 98] In steps the government with a program like SBIR on the theory that if the government sponsors the research, the new technology will take on a life of its own. Nice politics, bad economics. SBIR will not put in enough money to create that independent life. Even if it did, as it appears to be trying with many multiple-awards winners the effort is doomed. First, government doesn't know which technologies and companies to invest a lot in. Second, the money will be self-defeating as too many companies get addicted to the SBIR money, always finding a great excuse not to cut to the private market. Former Federal Reserve Governor Lawrence B. Lindsey says President Clinton's pledge to veto any tax cuts until Congress "saves Social Security" is a recipe for economic disaster. [Barron's, Nov 30] Tax cuts spur the same kind of debate as government direct subsidy to innovation. Navy has listed its summer SBIR winners, company names and topic numbers only. The US Patent and Trademark Office completes its inline database with 2M patents 1976-1999, says Wired Dec98. If it looks and smells like hype, it probably is hype. Especially when someone claims to have found a better way for diabetics to track their blood sugar... At least two dozen companies are working on an alternative to finger-prick. ... Warning: The woods are full of startups proffering medical miracles. Be skeptical. [Forbes, Oct 19] SBIR proposers for sensors, particularly IR sensors, loved to offer non-invasive bio-med testing as a spin-off. Government can get a reality check on such a claim (and on most other wondrous claims) by looking for a private investor willing to supplement government financing. After all, SBIR was invented to supplement private R&D. The politicians crave power: free flows are a discipline on crazed governments, so control freaks from both left and right try to stamp them out. The best regulated parts of Britain are its graveyards - nothing moves. [The Sunday Times, Oct 11] Capital controls in Malaysia and the Communications Decency Act at home.   SBIR Firms in D&T Technology Fast 500 28 SVS 125 ACX First Phase 2 1995 228 NZ Applied Technologies all SBIR growth 280 Qualcomm (Public) SBIR negligible 300 Embrex (Public) 313 HNC Software (Public) SBIR negligible 342 ATMI (Public) model SBIR story 357 ViaSat (Public) Navy seed; $15M DOD SBIR 412 AstroTerra One BMDO Phase 2 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   A government big enough to give you everything you want is a government big enough to take everything you have. [Ronald Reagan, 1984] Denying a willing buyer the right to purchase someone's medical records, or a telemarketer the right to invade your home during dinner, is seen as a crime against private enterprise. [Robert Kuttner, The American Prospect, J/F99] 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.   A Philadelphia Story (Nov 10) The Science Center at University City will be the home of two $100 million venture funds looking to invest in companies that commercialize technology from the 31 colleges and universities that own the center. Science Center President and Chief Executive Officer Jill Felix said one fund will invest in biotechnology, health-care and medical-device companies. The other will put money into information-technology and telecommunications businesses, especially those involved in electronic commerce, distance learning and the Internet. Although the funds will be housed at the center, they will be for-profit entities run by professional management companies. They will get first crack at commercializing technologies from the schools that own the center, but may make other investments as well. The funds will concentrate on investments of from $500,000 to $2 million in companies at various stages of maturity. [Peter Key, Philadelphia Business Journal, Nov 9] Philadelphia thus is another region trying to force a geography on venture capital. That works in politics but not in boundless capitalism. The fund managers even have a fiduciary duty to their investors not to accept a lower Philadelphia return just because it's Philadelphia. Take, for example, the case where a similar Atlanta VC outfit (that also specializes in early-stage life sciences and information technology) start-up put $1.5M into a Duluth firm. Not much in common between Duluth (with Jesse "The Body" and icy Lake Superior's iron ore traffic and the conservative Lutherans of Lake Wobegone) and Atlanta (with Newt and the peanut subsidies and the bible-thumping right of Elmer Gantry).  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.   NASA Phase 1 Winners (Oct 20) NASA picked 345 Phase I SBIR winners for 1998 from 2,335 proposals. The press release gave no other useful statistics [such as number of companies or first time winners or multiple winners...] that would open a window into NASA-think. An experienced eye moving down the list would see many familiar names many times (numbers in parentheses are the easy-to-find previous Phase 1s, actual numbers may be higher). These 33 old multipliers consume a third of the winning projects on top of a previous 600+ awards. Note: these are only Phase 1s, the little money. Any analysis of what NASA is really doing should emphasize Phase 2s (which NASA does not yet allow the public to look into). Return to Index Advanced Fuel Research 2 (9), American GNC 3 (17), Aspen Systems 3 (7), Charles River Analytics 2 (23), Composite Optics 3, Continuum Dynamics 2 (16), Creare 7 (53), EIC Labs 2(30), Electric Propulsion Lab 3 (5), Eltron Research 4 (11), Energy Science Labs 2 (13), Foster-Miller 5 (67), High Technology 3, Intelligent Automation 5 (15), ITN Energy 3 (5), Lynntech 3 (23), MER 3 (21), Metrica 3 (11), Nanomaterials Research 6 (21), Nielsen Engineering 2 (21), Opto-Knowledge 3 (7), Orbital Tech 5 (30), Physical Optics 4 (35), Physical Sciences 4 (60), Q-Peak 4 (4), Ceramic Composites 2 (6), SRL 2 (10), Scientific Systems 3, Spire 2 (41), SRS Tech 2 (14), TDA Research 3 (18), Umpqua Research 3 (25). 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.   A defense budget totaling $270.5B won final Senate approval and is expected to get Clinton's signature. But both the Pentagon and congressional leaders consider the funding barely sufficient. [WSJ, Oct 1] So, what's wrong with barely sufficient? Do they prefer excess? Have Republicans ever met a weapon they didn't like? Since no two people agree on what DOD's or America's world role should be, what is "barely sufficient"? Congress could at least own up to the self-inflicted inefficiencies of using the DOD budget as a pork barrel. Take My Freebie, says TJ Rodgers, CEO of Cypress Semiconductor. He and the CEOs of Sun and AMD say that corporate welfare should stop pumping $65B a year into US industry. TJ would like lower general taxes instead. Not signing such a letter are IBM and Intel, notes Joe McCaffery in CFO July 95. What welfare? Research grants, exotic technology "investment", and export subsidies. Sound like SBIR is one of TJ's targets? His smallish company does not SBIR. 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.   So Does SBIR Advertise. The CATO Institute derides a government program's advertising itself by spending some of its $85M budget to seek new grant requests for Uncle Sam's free money. Which got a political opponent, Charlie Shumer (D-NY) to ask "Is this a government program or a Publisher's Clearing House contest?" No, it wasn't SBIR; it was the marketing Assistance Program where the government helps big food companies pay for foreign advertising. Companies that need help: Campbell Soup, Welch Foods, Pepperidge Farm, Ocean Spray. [facts from S Moore, "Those Dancing Raisins", The Journal of Commerce, July 30] The allegedly free-market Republicans can find worthy exceptions for corporate donors and whatever sounds like nationalism. Congress at least has never found fault with SBIR's advertising its free money. As a practical matter, if an agency wants new ideas from new corners, it has to reach the people who don't know about the opportunity. It was my theory that the most efficient way to advertise SBIR was not big conferences with mumbling government reps at expensive hotels but wide-area leaflet drops in plain language. Environmental rules (and the horrified gasps from our PR-crats) kept me from eye-catching leaflet drops over southern California. Why So Popular? In the public mind, the president is held accountable for the economic health of the country. It does no good to point out that millions of private judgments -- by entrepreneurs, bankers, workers and families -- go into making the economy work better or worse. It is equally pointless to argue that the more national boundaries to trade disappear, the more our prosperity turns on events and decisions made far from our shores. The fact is that the president is not just the commander in chief, he is - and is judged as -- the economist in chief. And when the economy is performing this well, it is no surprise that people don't want to fire him. If you want to know what is sustaining Clinton in his hour of maximum peril, remember the slogan in the Little Rock "war room" during the 1992 campaign: "It's the economy, stupid." [David Broder, Washington Post, Sep 30] 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.   Small is Beautiful, Not Profitable the latest research shows companies with fewer than 50 employees in the long run do not generate more jobs than large firms. That's the conclusion of a study by the Economic Policy Institute, which states that even though new businesses do create new jobs at a higher rate than the nation's top 1,000 firms, the problem is they also eliminate them at a higher rate. And another discouraging bit of news: "The quality of jobs created by small businesses is inferior to those created by large businesses.The report, Small Consolation: The dubious benefits of small business for job growth and wages, also finds: - Employees at large firms earn on average 39 percent more and that gap has been widening, not declining, over the past 20 years. - Health insurance is available to 69% of employees at large firms; only 30% at small firms. But don't give up on small firms: They're still the source of much of the energy, excitement and creativity in the U.S. economy. [Carol Kleiman, Chicago Tribune, Aug 20] And the politicians still love ya! But then politicians are always living the old paradigm (no votes in any new paradigms a la Richard Darman's put down of Jim Pinkerton's advanced thinking for the Bush White House. The one convincing statistic for innovation programs is that innovations per employee are much higher in companies under 20 employees. The rest of the small is beautiful myth is mostly myth. In a small firm you work harder for an owner who of a larger share of the business personally.   The Thermophotovoltaic Cheerleaders Thermophotovoltaics is about to reach the commercial marketplace. ... In practice, the systems have never performed as expected. ... Scientists are excited by laboratory modeling that suggests the promise of this technology. ... JX Crystals (Issaquah, WA) has created a product - primarily for use on sailboats. ($3000 per.) ... Though still in its infancy - actually just barely out of the research laboratory - thermophotovoltaics holds great promise for many niche markets. ... A technology that had its roots in the 1950s may finally get a chance to prove itself at the turn of the new millenium. Such cheerleading of a bright future in a technology that has been slogging for decades usually appears in SBIR proposals to a gullible government. Not just in Scientific American articles (Coutts & Fitzgerald, Sept 98). DOD has given three Phase 2 SBIRs (two by BMDO): QUANTUM GROUP (San Diego, CA), Essential Research (Cleveland, OH), and Structured Materials Industries (Piscataway, NJ). Neither author of the article lives in a company trying to bring the product to a profitable market but then that's not who typically publishes in SA. And whether government should be using SBIR for long term incrementally improving technology gets right to the heart of what SBIR is for. But since Congress left SBIR in the hands of the R&D people in the agencies, we are most likely to get what the agencies understand - incremental research. Of course government can take a practical approach and not just rely on the happy words of scientists (who actually have little interest in anything but getting money for their hobby): demand the contribution and participation from a market-driven third party which would have an interest in success. It would be fair to ask Quantum Group how its 1997 SBIR is doing toward marketing its compact, lightweight, quiet, efficient TPV power generator in the 100 to 500 Watt range. 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.   It Sounded Great for the Politicians at the Time. CellSource, a San Diego biotechnology firm that relocated to Pittsburgh last year with great fanfare, has quietly shut its doors here. The company, which received a $100,000 state grant last year during a personal visit from Gov. Tom Ridge, was touted as a shining example of this region's efforts to make itself the world's capital for biotechnology and tissue engineering start-up companies. But instead of lauding the Golden Triangle's attractions, CellSource is claiming it was a victim of conspiracy and fraud by its Pittsburgh financial adviser ...CellSource brought six executives with it when it moved here and had plans to hire at least 43 locally. {Pittsburgh Business Times, Aug 3] .. an age of science and abounding accumulation of material things. These did not create our Declaration. Our Declaration created them. The things of the spirit come first. Unless we cling to that, all material prosperity, overwhelming though it may appear, will turn to a barren scepter in our grasp. [Cal Coolidge, ca 1926] .. By the time he took office in 1923, millions of Americans resented Washington for meddling in their lives, squandering their wartime sacrifice and saddling them with a costly and intrusive government. Between 1916 and 1920, tax revenues had multiplied sixfold. During the same period the national debt ballooned to nearly $26 billion from $1 billion, even as wartime inflation sent the cost of living skyrocketing. [RN Smith, The Underestimated President, Wall Street Journal, Aug 3] 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.   DARPA Phase 2 SBIR Message. Since the Navy funds only conservative incremental R&D with its SBIR, what does DARPA do? Who will carry the innovation mission for DOD if not DARPA? Of its 56 Phase 2 projects funded in 1997, 37 were first-time DARPA of which 22 were first-time DOD. (Only Phase 2 matters; Phase 1 is just subsistence farming.) Goodies were spread round; only one double winner - CFD Research. Only three hardened (more than $10M each from DOD) veterans won: CFD Research, Irvine Sensors, and Physical Optics who among them have over $60M in Phase 2 awards from DOD. Blathers a too typical abstract, The accessibility of information in cyberspace could be dramatically increased by providing users with meaningful semantically rich visualizations of relationships among diverse information sources and data. What's DARPA's SBIR approach? Who knows? Its SBIR shows no pattern as each office does its own thing; no single adventuresome mind seems to be in charge. The projects are a mix of 1) more beavering on SBIR veteran technologies (fuel cell, solid state driver, modeling, GMR) with ritual assertions of a bright future, 2) info tech and software that the private market would do faster and better whenever a market opportunity arises, 3) some new hardware gizmos with interesting market possibilities, 4) a lot of ordinary analysis. Unlike the Services' SBIR, DARPA does not buy mere services. And the abstracts are the usual bureauspeak. With such an approach, the supposedly most daring part of DOD will ensure that the DOD a decade from now can explain better how it fought the last war and will still be bleating to (Republican, it hopes) Congress a lack of "essential funding" for the same old methods. If DARPA is ever to adopt a dual-use approach to SBIR ( or anything else) it will have to bring back Craig Fields. So, unfortunately, if you want to win with DARPA, you will have to parse your particular technology office manager. 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.   Think of the irony: Bureaucrats spend their careers interfering with the free market and then retire as stock-market millionaires. Tom Donlan's Barron's (July 20) editorial explains how the civil servants deciding your SBIR proposals want to drain the Treasury for their stock-market enriched pensions. Actually, if you are an SBIR commercializer, you should be for civil servants' knowing the risks and rewards of investing. If you are an R&D service house, you want the classic civil drone. nationalistic obsession with relative wealth, both economic and scientific, ensures that all economic and science activists, the world over, are continually dissatisfied and paranoid. Nationalism turns one country's success into everyone else's failure. It is a recipe for misery. ...YET.. ... for the first time in human history, the lead countries no longer need to distort their economies to develop military technology - they can easily sustain, at relatively little cost, a superiority in military technology over their poorer potential aggressors. That is the true peace dividend of the fall of the Soviet bloc. [T Kealey, The Economic Laws of Scientific Research, 1996] 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?   Technologists Rejoice! The NASDAQ Composite Index topped 2000 for the first time in early trading on Thursday. The index has doubled in just three years, lifted by the explosive gains of its dominant technology sector. [Wall Street Journal, Jul 16] There is investment money afloat everywhere from the tech market profits. Will that money show up as R&D investment? It has already been happening. Kealey notes that between 1980 and 1994, the share of government funding of academic science dropped from 67% to 55% while science budgets grew 1% a year (real). That translates into a doubling of industry's share of science. Meanwhile, an earthquake in science shocked academia when a respected scientist teamed with Perkin-Elmer in speed warp of Human Genome science (with the private sector keeping whatever discoveries it chooses and cutting the cost by 90%). [Biophotonics International, J/A98] Speed and cost cutting hits hard at academics who never had any need for a science project to end or to produce economically useful results as long as government was paying the bill by the hour. The religious 20th century axiom that government must support science could be fading. Stand by for pieties. 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.   An all-star lineup of Atlantans have invested in a $70 million venture capital fund aimed at health-care and technology companies. Investors in the first fund of Live Oak Equity Partners include Charles McCall, chairman, president and CEO of HBO; H T Green Jr., chairman and CEO of WestPoint Stevens; and the Georgia Tech Foundation. The fund will focus on companies located in the Southeast. [Atlanta Business Journal, Jul 13] Angels recycling profits - the life blood of start-up companies - but you will have to take advice with their money. You should also decide whether you are hiring them or they you. Asia's economic woes are hitting some of the Delaware Valley's technology companies hard, forcing them to shutter operations, cut staffs and wages and lower earnings expectations. In one of the more dramatic moves, Kulicke & Soffa Industries Inc., the world's largest supplier of semiconductor assembly equipment, has begun shutting its domestic operations on Fridays. [Philadelphia Business Journal, Jul 13] SBIR companies hoping to sell new tech to the semiconductor industry will have to seek continued help from the government until Asia warms up again. Don't worry, most of the SBIR agencies have little taste for ending the support. The agencies prefer to believe your and their propaganda about a bright commercial future. The hardest part is getting into the agency's good graces. 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. Three Views of SBIR (Jul 8) SBIR got a short article in The Red Herring (Aug 98) that vented three views. Author Brian Taptich struck about the right balance and noted that although no Microsoft nor Cisco nor Intel had emerged, "To be fair, the SBIR has funded a handful of marginal public market successes". To show that at least someone is trying to get commercial success, Taptich quotes DOD's Jon Baron "We're trying to loosen the structure because we benefit when companies are successful commercially. The more products a company sells, the lower our cost." On Fast Track, Jon notes that "VC approval is better than anything the company could write in a proposal." Finally the view that serves the bureaus and the contract R&D companies comes from SBA's Dan Hill, "The bottom line is whether the work helped an agency met the needs of its mission." In the friendliest interpretation of SBIR's aims, Taptich credits SBIR with the means to invest $1.1B "in seed and first-round venture capital for technology start-ups". Which is both true and false. Some of the money will actually be used for that purpose; most will merely incrementally serve the federal agency R&D program from which most agencies see SBIR as robbery or political meddling. With no economic measures for discipline, only the occasional bureaucrat sees any need to take risks for the benefit of private companies nor the private sector. Baron and BMDO seem the only bureaucrats taking a public st