The Greatest Century Ever. There has been more material progress in the United States in the 20th century than there was in the entire world in all the previous centuries combined. Almost every indicator of health, wealth, safety, nutrition, affordability and availability of consumer goods and services, environmental quality, and social conditions indicates rapid improvement over the past century. The gains have been most pronounced for women and minorities. Among the most heartening trends discussed in this study are the following: life expectancy has increased by 30 years; infant mortality rates have fallen 10-fold; the number of cases of (and the death rate from) the major killer diseases such as tuberculosis, polio, typhoid, whooping cough, and pneumonia has fallen to fewer than 50 per 100,000; air quality has improved by about 30 percent in major cities since 1977; agricultural productivity has risen 5- to 10-fold; real per capita gross domestic product has risen from $4,800 to $31,500; and real wages have nearly quadrupled from $3.45 an hour to $12.50. [ CATO Institute Policy Analysis 364 by Steven Moore and the late Julian Simon.]

Are Scientists So Necessary? What is certainly clear and is borne out by the histories of England, France, the US, Japan, and Russia over the past two and a half centuries or so is that a top quality science establishment and a high degree of scientific originality have been neither a necessary nor a sufficient condition for technological dynamism. .. LJ Henderson's pithy observation that science has been far more indebted to the steam engine than the steam engine has been to science. [N Rosenberg, Inside the Black Box: Technology and Economics, Cambridge 1982. Heresy. Apostasy. Even perhaps blasphemy against the God of government-funded science. The AAAS must have tried to burn Rosenberg at the stake.

 

Tech Jobs Are Everywhere. Move over, Silicon Valley. California's high-tech world is about to be eclipsed by the likes of Louisiana and Arkansas as national hot spots for new technology hiring. And Southern states like Florida and Georgia are expected to run a close second in the demand for newly created technology jobs through the year 2000, followed by New England. So says a new study by Computerworld, a Framingham-based information services company that has surveyed more than 1,900 major companies. The study found the hottest market for technology jobs is expected to be in the South and in the central Southwest. New England is pegged to be third. California - despite its spot as the nation's technology center - is a distant sixth. The reason for this shift: Companies across the nation are rushing into the Internet age, and many of them need new technology to compete. [Boston Globe, Dec 28] Should SBIR follow or exploit this trend by deliberately moving awards to the have-not states? Depends on what you think SBIR is. If it is a redistributional scheme for federal dollars, why not? If it a national economic competitiveness scheme, no way, let the best win wherever they are. If it is merely a palliative for small companies, who cares how the money is spent? Unfortunately for the nation, SBIR as managed by the federal agencies is mostly a combination of redistribution and palliative; national economic competitiveness is not now and never was an objective of the mission agencies who have most of the SBIR money. More Millenial Triumphalism Wealth was and is now being created in America at rates not seen since the second industrial revolution at the end of the 19th century. The 1990s are notAmerica's best decade economically - the 1960s were better. But relative to the performance in the rest of the world, the 1990s represent America's besteconomic performance of the century. [Lester Thurow, Boston Globe, Dec 28]   Fear and Greed In most of the world, Santa Claus shows up only once a year. In Silicon Valley, however, he seems to have taken up permanent residence. Every day is Christmas here. Technology stocks keep zooming upward. New issues routinely double or triple in value on their first day of trading. Entrepreneurs have an easy time finding backers. High-tech companies that barely exist are bought out for hundreds of millions. Best of all, everyone else now acknowledges what the people here have been saying for some time: The Internet will indeed reshape everything about our lives. But if the present is glorious and the long-term horizon truly wondrous for the inhabitants of Silicon Valley, the immediate future is causing some unease. They're waiting for the bubble to burst and doom to arrive, at least temporarily. Some have been waiting a long time. "In such good times, never has there been such anxiety about the impending crash," said Bill Reichert, president of Garage.com, which funds start-up companies. .. The [Red Herring editor and writer Tonya and Mike] Perkinses estimate that the 133 Internet companies that have gone public since 1995 are overvalued by as much as $230 billion. ... the new-issues market has generally been torrid. From 1984 through 1998, according to one estimate, 7,000 companies went public. Only 33 of them doubled on the first day. Last year, more than 500 companies went public, the majority of them high-tech firms. More than 100 doubled. .. Older venture capitalists, who know there are such things as bear markets, admit they're bewildered. "This is the most confusing time in the 26 years I've been doing this," said Baker of Sutter Hill. "There's this fundamental contradiction--there is the biggest financial speculation going on in many decades, many centuries, maybe ever. But the Internet is real--it's the biggest economic discontinuity since the invention of the printing press." ... What has prevented that second group of companies from deflating so far is the unending supply of cheap capital. It's easy to get a company funded here by venture capitalists, and then easy to take it public and raise more money. But since it's so easy, everyone's doing it--which means it's just as hard as ever to build something lasting. The most successful tech companies have traditionally had core businesses that were hard for rivals to replicate. One reason Microsoft has always been highly valued is that it would be difficult to start an operating system company in your garage to compete with Windows. [Washington Post, Dec 25]   Madness? Hardly.. Veteran stock market commentators are reaching deep into their bag of colorful images to explain the current rally. Grumpy remarks have been made with predictable consistency over the last several years, imparting advice that if taken would have cost ordinary investors billions of dollars in forgone stock market gains. But as the New Year approaches, naysayers and even voices of moderation are desperately seeking an audience. Investors facing the New Year are more interested in grabbing a piece of the New Economy. Improved data-gathering methods by the Commerce Department reveal for the first time actual components of today's economy that imply rationality in current stock market sentiment. Economist Susan Sterne at Economic Analysis Associates came up with a Top 10 list of the fastest-growing items on our shopping list. Based on year-over-year gains in unit sales, the 10 fastest growing consumer items are the following: Internet services, up 82%; computers and computer peripherals, up 57%; video equipment and media, up 30%; new foreign automobiles, up 29%; film developing, up 27%; commercial amusements, up 24%; stock brokerage commissions, up 22%; cellular telephone service, up 20%; casino gambling, up 20%, and luggage, up 19%. Students of American culture could make much from this data. Each entry not to mention the items that have fallen from favor, such as restaurant meals, spectator sports and cable television tells a story about Americans at the turn of the century. But from the standpoint of investors, the data help validate the bullish trend in technology stocks. Each of the Top 10, with the possible exception of luggage, represents a technology-dependent industry. Just as important, for eight of the 10 items (excluding commercial amusements and casino gambling) prices have declined from 12 months ago, despite sharply increased demand. Indicating that consumers are price-sensitive, nine of the 10 items showing a decline in unit sales from last year had price increases averaging 6.5%, well above the 1.8% average price increase for retail goods and services. "Over three quarters of the top 30 spending areas are seeing price deflation, and the majority represent some element of new technology making forecasting a slowing [in consumer spending] more treacherous," Madness? Hardly. [Bill Barnhart, Chicago Tribune, Dec 25] What's the message for SBIR exploiters? If your new technology doesn't have a price-driven market penetrator, it's going nowhere. Everybody's got sweet technology and most of the government SBIR agencies cannot tell market-driven technology or entrepreneurs, even if they cared.You have to decide what kind of creature you are: a seller to government or an market-driven entrepreneur. If the latter, avoid hyping your technology independent of good market analysis. And no, the better mouse-trap approach will get you nowhere. Y2Buy The Red Herring's ten recommended tech stocks for the next how many years: Broadcom, Charles Schwab, Cisco, CMGI, Dell, EMC, Microsoftt, Nokia, Sun, Time Warner, S&P500. The runner-up ten: AOL, Apple, T, Compaq, Disney, HP, IBM, Kucent, Oracle, Yahoo.   So You Thinks It's All New?. 100 years ago, boom looked just as bright. As the end of the century approaches, the US is an economic juggernaut, the envy of the world. Investors, riding a wave of euphoria, flock to the financial markets in an unprecedented speculative flurry. A century ago, it wasn't so different. The 1899 parallels with today's booming economy are remarkable. Then, as now, the Dow Jones industrial average rallied in the final three years of the century, about 70 percent through the end of November in both cases. Commentators saw similar reasons for the gains: globalization, technological improvements, medical discoveries, the move to a market versus a command economy. The Dow industrials shot to records, as road, metal, and communications companies merged and investments poured into new enterprises. Stock-market volume soared to new highs. Million-share days became common on the exchange, just as, 100 years later, billion-share days have become routine. Even the one or two stray clouds on the horizon seem similar. In 1899, much trepidation arose over a rise in the Bank of England's discount rate to more than 6 percent, to curb excessive strength in the economy. This year, the 30-year bond yield's move above 6 percent has caused similar distress. In 1899, the bulls were stampeded by an unfavorable Supreme Court decision on a merger involving Addison Pipe. Today, antitrust regulators are going after Microsoft, periodically scaring the daylights out of the market. The hopes of the 19th-century optimists have largely been achieved. Life expectancy has now doubled. The cost of a long-distance call and a unit of illumination have each decreased some 99 percent. The number of public stockholders around the world has grown 100-fold. The standard of living of the average Jane and Joe today is, in many respects, higher than for everybody but the kings and queens of 100 years ago, in food, housing, medical care, and entertainment. From 1899 to 1999, the Dow average rose from 66 to 11,000. Adding in dividends of about 3 percent, that works out to a compounded return of 8 percent. An investment of $100 in the Dow average in 1899 would be worth $280,000 today. General Electric Co., one of the 12 Dow stocks in 1899, sells for about 150 today, some 20 percent above where it traded 100 years ago. But that's not counting dividends and the fact that one 1899 share of GE would be 400 shares today, because of stock splits. That's before the 3-for-1 split that GE plans in January. That same $100 invested in GE would have grown to $8.3 million, taking splits and dividends into account. That's by no means atypical. Many drug and chemicals companies, as well as office-equipment makers including International Business Machines Corp., have shown similar returns. The sobering facts should be taken against the backdrop of the relative insignificance of any short-term ripples in the steady returns that may be expected from stocks in the 21st century. [Laurel Kenner, Bloomberg News, 12/26/1999, from Boston Globe Dec 26].   If a Boat Person Can Do It. Trung Dung became fabulously rich Friday, and he said what everyone who becomes fabulously rich in Silicon Valley says: Dung fled Vietnam for a life as a student, janitor, dishwasher and now software mogul. His company, OnDisplay, went public Friday, selling its stock into a market headed for record highs. By day's end, Dung's paper fortune was about $85M. The company he founded, the company built on his Internet technology, had raised about $90M. Its stock, offered at $28, closed at $77, not only making him rich, but lining the pockets of all 170 company employees. [San Jose Mercury, Dec 18] Now, why is it that the government needs SBIR to support commercialization in the software industry? Little matter since the government support for software is almost exclusively in government-use software anyway. Most agencies either don't know beans about commercial software or don't care. Or both.Where is there any evidence that SBIR has made any difference in commercial software adootpion? Would the government not have chosen the same software jobs without SBIR? Where is any evidence that government sofdtware is better off for SBIR - better, that is, than without SBIR? A few nice stories about government buying software from SBIR companies is not compelling evidence of anything. Dung`s Story. Dung, then 17, was fleeing Vietnam with 40 others in a 60-foot fishing boat. He was leaving behind his family, including an army officer father who had been thrown into prison when Saigon fell. Since he was 8, Dung had fished for his familys food and helped his mother run a cafe. His job was to get up before dawn to haul water from the well to the coffee shop. Eventually his mother told him there was no future in Vietnam. No chance for an education. Go, she said, and send for the family when you can. After a week of seasickness, Dung`s boat crashed into an oil rig off Indonesia, and Dung and the others were taken to a refugee camp. He lived there for a year. Dung immigrated to Boston under a U.S. resettlement program. He lived with his older sister, who had fled separately. They shared a four-bedroom apartment with 10 others. Dung passed his high school equivalency test on his first try and enrolled at the University of Massachusetts. He worked weekends as a janitor and nights as a dishwasher. He studied non-stop, says sister Hahn Dung. `I had to cook for him,` she says,`I had to clean for him. I have to bring him food at the computer. I said, `Later on, when youre a success, you`ll have to pay me`Oh, he did. Dung granted Hahn, 34, and younger sister Thao Dung, 29, a total of 400,000 shares, worth about $31M at Fridays close. Trung Dung finished his math and computer science double major in three years. He got his masters, his Ph.D., all the while contemplating the power of programming. In 1990, his family -- mother, father and sisters -- were reunited in Boston. His father, former Lt. Col. Doi Dung, now 60, had served 13 years in a prison camp. About that time, Trung Dung went to work for a Massachusetts software start-up and then another. As the Web age dawned, he began working on a way to automatically collect related information from unrelated Web sites. The idea was good enough, he decided, to build a company around. He enlisted Mark Pine, a former Sybase executive, as CEO. Pine had no interest in moving east. So in 1996, Dung moved west and OnDisplay was born. the most striking development in the New Economy for many has been the end of the 40-hour week: Americans now log more hours on the job than workers in any other industrialized nation. [Business Week,Dec 27]   Chips, storage and bandwidth. All three core technologies mare headed toward infinite powers at zero cost. Bandwidth is progressing the fastest, then chips. Infinite demand It really does exist for chips, storage oand bandwidth. Software constantly soaks up capacity, and it always will. Risk Capital It's raining down. Every hour yet another college dropout in Palo Alto scores his Series A roiund of venture capital at a $20M valuation. Every hour a colonel from the old ecopnomy smells the money and goes AWOL in a mad dash for seven-digit stock options. [Rich Karlgaard, publisher of Forbes, Dec 27] The time from invention of the ball point pen to application was 58 years; for the zip fastener 32 years. [Prospect, Jan 99]   Got a hot recruitment problem? Need the right guy NOW? eBay needed someone to stop the hemoraghing of business from system crashes. The CEO called the headhunter who said there were ten people who could do it, who "had the courage to pull the brake on a car goung 2000mph". He was Maynard Webb, CIO for Gateway 2000. Seventeen days and zillions of phone calls later, eBay offered Webb $450K salary, $108K signing bonus, and extra $300K is things went well, and options to buy 500K shares (which would be worth nothing if Webb couldn't make things a lot better). [facts from Forbes, Dec 13] Now, if you're an SBIR company, too bad. The government will never reimburse you for such compensation regardless of how critical your need is. But then, if you are the hot commercialization prospect you claimed to be in your proposal and in government tech transfer rags, you know you have to pay the market price for any commodity. Today's mind-boggling pace of technological innovation may soon create backlash in the marketplace. None other than Intel (INTC) Chairman Andrew Grove worries that rapid advances in the computer industry might not be digestible by society, leading to lower consumer spending and lower corporate investment. Companies such as Monsanto Co. (MTC) may be at the frontiers of biotechnology research, but consumers, beginning to worry about the safety of genetically engineered food, are already slowing down their commercialization. [J Garten, Business Week, Dec 13] Entropic Acquired (Nov 1) Entropic Inc (Washington DC), a speech recognition software house, has agreed to be acquired by Microsoft. Entropic's operation in Cambridge will remain and the Washington headquarters will evaporate along with two top people. It had two Phase 2 SBIRs from DOD in the early 1990s, one of which was on speech processing the PI of which will be one of the two evaporatees. According to one insider, the cash consolation for departure will be sweet.   INC 500 List (Oct 25) The Inc 500 list was half info-tech and 15% California which had more than the next three combined. Two are recognizable SBIR names - E-Tek Dynamics and Vixel both doing right well after IPOs which by itself disqualifies them anyway from the list. The list goes on-line Nov 1 at inc.com. Past listees: Microsoft, Oracle, Domino's Pizza, E*Trade, Gateway 2000, Intuit, Wordperfect. Criterion is revenue growth percent over five years with the least being 595%. Four others have had some SBIR: Advanced Modular Power Systems (Ann Arbor, MI) grew steadily it says from Ford's adoption of its liquid sodium power cell and a steady government interest. NASA and SDIO invested in it in the 80s and early 90s. The Website amazingly shows annual revenues but no details on how much comes from government space contracts or whether there are any product sales and nothing about the competitive economics (just the usual techno-blather). . But someone is pouring money into it which is the supposed objective of SBIR. Barely profitable. Caelum Research (Silver Spring, MD) had a few SBIRs and a growth rate of 1200%. But. The Website has the usual blather, it is an 8(a) firm, and its chief revenue source may well be 8(a) favored service support and not new technology development. The SBIR subjects sound too much like one-off jobs for government customers. 8(a) firms often crash after they lose the status and the contracts run out. Barely profitable. Digital Optics (Charlotte, NC) had two Phase 2s, 1992 and 1996, and has grown 1800%. It started in a Charlotte incubator in 1992 and had $1.6M from ATP. Not profitable. AI Signal Research (Huntsville, AL) had two Phase 2s for analysis of noise and vibration. Sales rose 3400% but it is barely profitable. (no apparent Website) Is the government proud of having a minuscule part in the most dynamic companies in the country in its allegedly seed money for technology programs? Ask them at the SBIR National Conference in Las Vegas Nov 21-23. You'll hear various rationalizations for hurling $1B a year at R&D service contract houses. Then ask the other 494 high tech companies on the list why they did so well without government succor. The BU Photonics Center, a politically inspired $80M showpiece, claims its first business success - Mosaic Technologies which says it has commercialized optical fiber based biomedical devices to rapidly detect bacteria and viruses in human blood. Mosaic was started five years ago by an MIT gang of and joined the Photonics Center two years later. Mosaic now has about 30 members of staff and has attracted funding of about $6.5M. Whether such a center is worth the money depends on how you value the money. Politicians love such things because it will be years, and probably an eternity, before any decent evaluation ever appears. Meanwhile, the Center keeps press releases flowing and the Congressional politicians pressure the executive Branch to "invest" there. Of course, if one state has one, each other state with the same two Senators gets an equivalent temple. Alaska, Mississippi, etc. And why cannot the Congress keep spending in check? Why should it when there are votes to be bought with such temples? Latest business selections from The Book Club in Hell: 1. "The Big Book of Worst-Case Scenarios" 2. "It's Only Going to Get Worse" 3. "Desperation Hiring: The Art and Science of Scraping the Bottom of the Barrel" 4. "168 Careers Wearing Paper Hats" 5. " `Do You Have Any Toilet Paper in There?'--Tricks of Networking in Public Restrooms" 6. "Has Anyone Seen My Book on Getting Organized?" 7. "God Doesn't Care Who Wins" 8. " `Wanna See My Thong?' and Other Icebreakers for Ambitious Employees Seeking Mentors" 9. "It'll Have To Do: A Manager's Guide to Compromising Standards" 10. "Buy My How-to-Succeed Book Before I Starve to Death" If you're like me, you don't read business books for pleasure, much less for silly gimmicks, but for ideas. And after sorting through thousands of business books, I can conclude that your odds of finding useful ideas soar when the books are one of two types: biographies or "best practices" collections. The most useful autobiography I've found, the one with the most ideas per dollar, is Sam Walton's "Made in America." It's not just Walton's own story, but a collection of everything he learned from his competitors and from his stores and employees. .... You can spot plenty in the autobiographies of Dave Thomas of Wendy's ("Dave's Way") or the late Brandon Tartikoff of NBC ("The Last Great Ride"), or in collections of ideas such as Bob Nelson's "1,001 Ways to Reward Employees" or Jay Conrad Levinson's "Guerrilla" books.... The Chinese have a saying that a book is like a garden you carry in your pocket. A good business book should be like carrying packets of seed in your pocket. [Dale Dauten, King Features Syndicate, Chicago Tribune, Oct 3] Read The Original Newton. After losing the Ryder Cup to a bunch of golf hooligans, the Brits have lost Newton too. A SECRET deal between Keele University and a book dealer has resulted in Sir Isaac Newton's private library and some of his original manuscripts being exported to America,. The deal has infuriated Chris Smith, the culture secretary, who has ordered officials to draw up new rules to control the export of historic books and artifacts. [Jonathan Leake, The Sunday Times, Sep 26] It's always a good time to invest in technology. We're in the early stages of the third major generation of the technology revolution. The first generation was the mainframe. The second was client-server computing. Now, we are in the Internet stage, and there is nothing on the horizon that will succeed this. A significant amount of global gross domestic product will be digitized through the Net. Every investor needs to participate in this explosion. ...We try to pick tomorrow's winners. The Internet is the future of technology, and if you're not [invested] in the Internet, you're not in technology. [Alberto Vilar, Amerindo Technology Fund manager, Business Week, Sep 6] Just as he began his research, a Japanese university scientist made a breakthrough that transformed gallium nitride into a contender; Nakamura then perfected a cheap way to make the stuff. Today Nichia gets 50% of its revenues from LEDs. An additional $2 million comes from another of Nakamura's inventions--the world's first blue-violet semiconductor laser, which allows videodisks to store four times as much information as they can with longer-wave red lasers. Despite the patents, Nichia has serious competitors in the blue LED business. One of them is Agilent Technologies, the recent scientific instruments spinoff from Hewlett-Packard. Nichia's blue LEDs, though, are brighter than Agilent's, producing 10 lumens of useful output per watt of input, while Agilent can do only half the lumens per watt. (Compare the 100-watt incandescent in your bridge lamp: It does 17 lumens per watt.) Nakamura doesn't stand to profit from his work; the patents belong to his employer. Innovation may have come to Japan. But apparently the rewards of entrepreneurship haven't. [Forbes, Sep 20] If you are going to propose GaN or any other LED to SBIR, you ought to forecast your strategic position IF YOU SUCCEED. Otherwise you are just a science hobbyist hoping for a government handout. California doesn't have a good or bad business climate. It has a lousy business climate if you're in petrochemicals. But it has a thousand different business climates, depending on the industry or location. The same is also true for small high-tech business. Think microclimate, not macro. [Roger Dunstan California Research Bureau, quoted WSJ, Aug 25] New Technology Eventually Becomes A Commodity When price is the sales discriminator, you are a commodity. Komag Inc., the leading maker of disks used in computer disk drives, announced Wednesday that it will cut another 480 local jobs, or 54 percent of its remaining U.S. workforce, and close two San Jose plants. San Jose-based Komag, which said earlier this summer it would cut 900 jobs, will shift its production from San Jose to manufacturing facilities in Malaysia. Komag is the world's largest independent supplier of magnetic thin-film disk ``platters'' that store digital information inside hard drives. Whatever your innovative idea, you don't make big money until your stuff approaches commodity stage. Then you, the inventor, tech genius, are irrelevant. Plan for your irrelevancy. Only in high tech do consumers expect most products to emerge from the box with problems; almost any dreck thrown on the market survives long enough for version 3.1 to ''engineer out'' the most egregious stupidities. So what's the fix? Cooper says it's conceptually simple: Do fewer things better and always consider the user's experience - keep ''interaction design'' in mind from start to finish. This would produce what Cooper calls ''polite'' software that doesn't make a user feel stupid or incompetent, instead serving reliably, cheerfully and easily. [Charles Piller, Los Angeles Times] [Economist] Robert Solow likes to say that there are two kinds of economists: those who look for general results and those who look for illuminating examples. [Paul Krugman, Slate, Aug 18] So too with SBIR evaluations: economic results or success anecdotes. Pick the approach that make you comfortable, not the one that best evaluates the agency or government program. Most pick the success stories to avoid messy problems with consistency and closure. But they get what they pay for - useless analyses.   Is Anyone in Silicon Valley Still Making Things? asks Po Bronson (author). Has the cutting edge of technology left Silicon Valley behind? As the valley's venture capitalists pour money into "dot commerce" ventures, are they ignoring more important innovations? ... MIT has a weighty legacy of inspiring can-doers to take bold, often impractical risks. And wonder of wonders, they're still making things here. Engineering hasn't been completely co-opted by Web programming. Past midnight and into the next morning, I was given some astonishing demonstrations. After a spring spent in the inspiration-parched valley, it nourished me to bathe in such fertile and raw invention. .. Among my most memorable encounters was one with 25-year-old Gregg Favalora, founder of Actuality Systems. In the basement of the house he shares with four physicists, he has set up the midscale prototype for what could be the display device of the next century. .. This was Mr. Favalora's senior project at Yale, and the old prototype he donated to the campus still runs 14 trouble-free hours a day, three years later. He took his work to Harvard to pursue a doctorate in engineering, but along the road was named a runner-up of the prestigious MIT 50K Entrepreneurship Competition. .. Favalora's business tactics are solid. Because his project is so cool, engineers are happy to work for equity stakes. ... as chairman he recruited Rob Ryan, the founder of Ascend Communications, who also runs an entrepreneurs boot camp in Montana. Mr. Ryan has no trouble opening doors for Mr. Favalora. A single phone call and the prime-time Monday-morning slot is cleared on the schedule of first-tier venture capitalists. After making his presentation, the response Mr. Favalora hears is, appropriately, "Wow!" and then, predictably, "Great Team!" and then, sadly: "But we're only investing in dot-coms." They began to talk less about return on capital than return on time invested. Five years ago, venture capitalists would have thrown money at Mr. Favalora's company. Even today, I don't think he's going to have any trouble getting angel funding from obvious corporate partners - biotech firms and 3-D software companies and entertainment giants. But the point is clear: Just because venture-capital investments this year will dwarf last year's record $5.7 billion, don't presume they're funding the technology of the future. ... Many venture firms were in the midst of raising their fifth fund. While previous funds promised to get the capital pool fully invested in startups in three to four years, the new funds promised to repeat the feat in just a year or two. They no longer have the luxury to look far and wide for the next big thing. Most were content to look for the next little thing. They began to talk less about return on capital than return on time invested. [Wall Street Journal, August 16] If you ever want inspiration on writing SBIR proposals, read Bronson. Here Bronson adds volume to the SBIR advocates' cry that VC is ignoring good technology. Which is true of most SBIR-funded projects. No VC would touch them - ever - even if dot.com weren't competing for so much of the money. But the not-too-careful reader would fall for the advocates' line. Nor would almost any agency have funded Favalora's dream even if he had asked. Have you given any thought to where your business is going to be in 2008? If you don't have some wild ideas, go out and find some. What if...? [JR Garber, Forbes, 11/2/98] If you are going to propose SBIR to the government, you might try some forecasting that captures the imagination of the reviewers. Yes, they do have imagination. That's why they are working in the field they are. The New World of Business As recently as 10 years ago, most business leaders thought they had figured out the logic of global competition. The 21st century would belong to Asia, whose fast-growing economies would eclipse the slower-growing markets of Europe and North America. The 21st century would belong to Japanese companies, which had perfected a model of management that their US rivals were scrambling to copy. The 21st century would belong to a small collection of dominant global brands, as ever-higher barriers to entry would put even the most savvy entrepreneurs at a crucial disadvantage. Sound familiar? It's the rationale for SBIR and its 1992 doubling. What a difference a decade makes! Asia is in retreat, Japanese companies are struggling to mimic their American rivals, and the Internet has unleashed an explosion of start-up driven challenges to established players in almost every industry. [Fast Company, Aug 99] So, if the rationale has evaporated, shouldn't SBIR be increased? Or changed to some other rationale with an accompanying shift in purpose? Eric Brewer of Inktomi put it best when he explained that when you are involved with a startup, every moment in the history of the startup may be the moment when it could go either way. [Tony Perkins, editor, The Red Herring]   More Workers Needed. With the US birth rate only 1.6 per woman and the economy rising, the pundits like Gilder and Drucker find it easy to project a continuing worker shortage. So does the US Senate as it proposes yet another immigration increase to 200,000 for high-tech industries for three years. Gramm's proposal would expand the program well beyond the present 115,000 which itself was a boost from 65,000. Oh sure, the protectionists and the nationalists will screech. Just hear Pat Buchanan. Subtraction.com All three Internet-related initial public stock offerings ended their first day of trading under water--the latest sign that the Net IPO craze has taken a dramatic turn back to Earth. [LA Times, Aug 4] Is that good or bad for SBIR companies? For good companies making some profit with realistic products it will divert the attention of a lot of risk-takers to what was once the cream of IPOs - money makers. Companies like AstroPower. I believe we're in the midst of the third Industrial Revolution, the name of the game is start the new and shut down the old. That's a game we're super at. In Japan if you go to an engineering class at the University of Tokyo, they basically give an A for a guy who figures out how to make something 1 percent better. At a place like MIT or Stanford or Berkeley, that's a B-. We give an A to somebody who has a great new idea, even if it doesn't quite work! ... People tend to forget that in 1984 Intel was being ``run out of business'' and it couldn't make DRAMs with Japanese defect levels. It never does succeed in making DRAMs. But it then invents the microprocessor, and the great thing about the microprocessor is you can invent a new one every 18 months, and it conquers the semiconductor business. [Lester Thurow, San Jose Mercury, Aug 2] Did Intel look for a government handout for its transition or for a protection program? economist Mancur Olsen, in examining why great economies lose their dynamism, emphasized the rise of special interests that win protections and clog up the gears of a market economy; although he was writing about the West, the same analysis applies to ...(?) [ND Kristof, New York Times, Aug 1] In this case, Japan, which has high per minute phone charges and thus little Internet connection, expensive junk mail, and no book discounts. But Japan's politics reminds one of the US Senate's disproportionate influence of empty states that flows from the Constitutional compromise of 1787. Fortunately, we have had a string of Presidents who saw the great benefit of free-trade and suppressed the bleatings of special interests. The President is, after all, the only nationally elected official that has to balance commodity sellers with Internet providers.   Now in its third year, the spring ''Entrepreneur's Challenge'' business-plan contest, run by a student group, has taken on the drama of National Football League draft day. Students are invited to submit startup ideas and have them critiqued by some of the biggest venture backers in the Valley. The nominal prize is $25,000, provided by a local VC firm. But venture capitalists routinely push business cards at students whose ideas don't even make the final cut. ''If you have a good idea, you have money available,'' says Kristen D. Growney, a business school student whose ''Summit'' team came up with a women-oriented E-commerce site idea that was a recent winner. She subsequently discussed financing ranging from $250,000 to $1 million with Valley venture capitalists. [Business Week, Aug 2] Is this the "market-failure" that SBIR uses for justification? VCs falling over students to invest in their innovations? Will SBIR's investments steer the VCs away from Stanford students and toward randomly located scientists? medical research emanating from government-funded labs has provided us with a leg up in biotech, scanning devices, and a range of pharmaceuticals. These government research dollars have been, for the most part, phenomenally well spent, yielding social rates of return on the order of double the private rate of return. Moreover, when we increase spending on public-sector R&D, increases in private sector R&D spending tend to follow within as little as a year. Thus a dollar shifted from reducing the federal debt to public investment yields a powerful growth premium. [Barry Bluestone, The New Republic, Aug 9]   David Birch on the high-tech future: Unemployment will do nothing but drop for the next 60 years. ... we've sen nothing compared to what is coming. Most of what is going on with computers today is doing what we have always done, just a little faster or a little more easily. And probably 95% of all business computing is word processing, spreadsheet analysis. It is not rocket science. If we took all the computers out of all the businesses in the US today, most people would not be affected in any significant way. Virtually none of the growth in the US is in publicly traded firms. So very little growth is accessible to investors. I should be able to pool a bunch of companies, put them together like a REIT and sell that as a pool. We should do for young companies what we have done for office buildings. Hot spots - Phoenix, Denver, Salt Lake, Las Vegas, Atlanta. What to do to make a hot spot? 1) good airports. The knowledge value economy travels by air. Nine of the top ten and 16 of the top 20 have hub airports. 2) research university that creates the labs and the ideas and the technology. 3) nice place to live. 4) entrepreneurial climate. Where are the cold spots? Rochester (NY), Hartford, Albany (NY) area, NYC, Pittsburgh, Sacramento, New Orleans, OK City. The Northeast is a basket case - terrible airports and schools. [Wall Street Journal, May 24]   In real terms, American companies increased their annual investment in computers fourteenfold in the 1990s, while other investment hardly rose at all. As a result, the high-tech industry grew at a startling rate. Between 1995 and 1998 the IT sector, despite accounting for only about 8% of America's GDP, contributed, on average, 35% of the country's economic growth. By 2006, according to a new report by the Commerce Department ("The Emerging Digital Economy II"), almost half the American workforce will be employed in industries that are either big producers or intensive users of information technology. And not only are "new economy" sectors growing fast, their productivity is shooting up too. Value-added per worker in IT-producing industries grew at an annual average of 10.4% in the 1990s, far higher than in the rest of the economy. As the "new economy" (thus defined) mushrooms, it affects ever more aspects of American business and is transforming ever more parts of the country. Even three years ago, you could delineate the new economy geographically. Silicon Valley (obviously), Seattle, Boston, the Research Triangle Park in North Carolina and Austin, Texas (home of Dell Computer) were its homes. Now every state is, or wants to be, a high-tech state. California is still by far the biggest (employing 784,000 high-technology workers in 1997), according to a study by the American Electronics Association, the country's largest high-technology trade group. But other states are showing remarkable increases in high-tech activity. With 82 technology workers per 1,000 private-sector workers, New Hampshire has the highest concentration of new-economy employees. And the fastest-growing technology industries (starting, admittedly, from a low base) are in South Dakota, Utah and Idaho. [The Economist, Jul 24]   Where's King? Route 128 or Silicon Valley. In the race with Silicon Valley to create the economy of the future, Massachusetts has moved into the lead, according to a new study. In a ranking of all 50 states on how well they are making the transition to a ''new economy'' made up of dynamic, high-tech companies, the Bay State surpassed its archrival, California, as the leader, according to the Progressive Policy Institute, a Washington think tank affiliated with the centrist Democratic Leadership Council. The exhaustive study, which uses 17 economic indicators to compile rankings, found that a bounty of professional and high-tech jobs, top-drawer universities, and a prominent role in the global economy have propelled Massachusetts ''farthest along the path to the New Economy.'' The study found that Massachusetts has achieved its top spot despite its dismal rank of 34th among states providing Internet access and technology training in its schools. Surprisingly, just 39 percent of Massachusetts adults are on line - putting it eighth behind such states as Alaska, Colorado, Maryland, Utah, and New Hampshire. [Kimberly Blanton, Boston Globe, Jul 22] Meanwhile. Across on the left coast, More affordable areas undermining cyber-mecca WHITHER Silicon Valley? The fertile high-tech crescent? The Paris of digital culture? The heart of more wealth creation than any economy in history? Every year or so, doomsayers warn the valley will lose high-flying companies and highly skilled workers to other high-tech regions, from Seattle's "Silicon Forest" to New York's "Silicon Alley." The latest scary omen comes in a survey of 100 companies by Joint Venture: Silicon Valley Network, a public policy group in San Jose run by technology companies and public groups. If Silicon Valley doesn't watch out, it'll lose its prized workers to areas with cheaper housing, lighter traffic and tax-cutting local governments, the survey says. Already, the valley faces a shortage of 160,000 skilled workers this year. [San Francisco Chronicle, Jul 22] Humming economy, fundamentals firing up smaller tech firms Small-cap stocks have done well this year after several years of poor performance. Small technology companies have done better still, in part, because the fundamentals of the business are improving. Take semiconductors, an industry that can go from feast to famine practically overnight. Last year was famine. This year the food has returned. Orders have rebounded, driven by a better economic picture and strong growth in the telecommunications business. Big firms like Boston's Teradyne, which makes test equipment for the industry, have improved. But enough crumbs have spilled from the table for the little guys to eat well too. A surprisingly large number of Massachusetts companies are suppliers to the industry. Local beneficiaries of the upturn include LTX, Applied Science and Technology, IBIS Technology, PRI Automation, Brooks Automation, Helix, and Cognex. [Steven Syre and Charles Stein, Boston Globe, July 20] And there is a trickle down to the next level - the market-driven SBIR firms getting technology started. There is a little trickle down to the R&D service firms who depend on government spending for their day-to-day survival. It's no longer about the big beating the small, it's about the fast beating the slow. [Larry Carter, Cisco CFO]. If Carter is right, SBIR cannot help be merely putting slow free money into start-ups (or any other small company). It must combine money with market-sensing speed. Like DOD's Fast Track. But it must also abandon the rigid pattern of two-year contracts at nearly uniform spending rates. Cisco's customers did not just go to the website to get information, they started using it to share their own experiences with both Cisco and other customers. Today more than 80% of customer and partner queries are answered online. Cisco's sales are over six times their 1994 level, but technical support staff has only doubled. [The Economist, June 26]   The Future of Startups. we are looking at 2% to 3% unemployment. Which means you are really scraping the bottom, and if you are a small company, you have an enormous problem finding people to work. I was in the grocery store the other day, and I couldn't find something, and I couldn't find a single person in the store who spoke English. Not one. ... increasingly the economies of scale are vanishing. You know, 150 years ago, you had to be a Mellon or a Rockefeller to build a railroad or to have a steel factory. Today, you can start a software company with a credit card. You can start almost any company with a credit card. There is very little capital needed. You can call anywhere in the world for 10 cents a minute. And everybody now speaks English around the world.Excpet in his grocery store] I mean, they speak better English in Sweden than they do in downtown Boston. ... what we've seen is nothing compared to what is coming. Most of what is going on with computers today is doing what we have always done, just a little faster or a little more easily. And probably 95% of all business computing is word processing, spreadsheet analysis. It is not rocket science. If we took all the computers out of all the businesses in the United States today, most people would not be affected in any significant way. The real breakthrough in technology is when the machine starts to develop a little bit of intelligence of its own rather than being a reproducer or a slave. Right now, computers are basically slaves: They do what you tell them to do. What happens when they become reasonably intelligent and do things that you can't do? That has not started yet, and that's where the real impact of technology starts to take hold. ... Back in 1840 or 1850, the "high-tech company" at that point was Baldwin-Lima-Hamilton, or BLH. It was the IBM of its day. You probably don't even recognize what it is. It made steam engines, and it was the sexiest company in the United States, headquartered in Philadelphia. Well, in retrospect the steam engine wasn't a very significant industry. It was the Rockefellers and the Mellons and the people that used the steam engine to start resettling the country and building factories and made the Industrial Revolution and all that. The really significant conglomerations were the people who used the steam engines intelligently. ... virtually none of the growth in the United States is in publicly traded companies. In other words, in the best of times, when large companies are doing very well, only 30% of the companies that are growing are traded on any exchange in the United States. And under normal circumstances it is more like 10% to 12%. And in a recession it is 5%. We have a database of 10 million companies, so we know the companies that are growing and those that aren't. The anomaly is that very little of the growth is accessible to investors; America's smallest companies, which are also the growers, don't have access to the equity market. David Birch interview, Wall Street Journal Interactive] Silicon Beltway The bureaucrats are turning into nerds. The National Capital Region has become the third largest high-tech center after Silicon Valley and Route 128 as high-tech companies expand and the government work force shrinks. The Wall Street Journal (Jul 21) says that Regional Financial Associates found that in the last seven years, the number of federal jobs in the area has fallen 14.6% from 1992 as fed job share dropped to 13.1% from 25%. Meanwhile high tech high-tech jobs 33% to 7.7% of all the jobs. The biggest companies are AOL, Lockheed Martin, Nextel, Orbital Sciences, and PSINet.   Who's gonna be hot? No one knows, BUT. Smart Money (a WSJ mag) syas the following companies have a head start on the latest technologies: Ciena, Conexant Systems, HP, Inktomi, Marimba, RF Micro devices, Uniphase. There's a tendency to think that just because you've identified a cool technology you're going to make money. The real trick is to find out who the winners are and know enough to buy when others sell. License from University? In the exchanges between Vanu Inc. and the licensing office, the two sides keep arguing not only over the deal but also over who has the best interest of the school in mind. Is it MIT's higher responsibility to make sure that useful technology is disseminated, or to earn money for the school? Should MIT be fighting for spinoff business profits or giving its faculty and students good deals in hopes of donations when they get rich? (MIT has built a $4.3 billion endowment with the help of such largess.) [AD Marcus, "MIT Seeds Inventions But Wants a Nice Cut of Profits They Yield", Wall Street Journal, Jul 20] The classic confrontation between a great university with public funds and entrepreneurs who created the idea. And here the doddering conservative head-in-the-clouds faculty aren't even a player. It is the university business interests against the former student now licensee. Fortunately for both, they are fighting over something worth having. At most schools no such fight exists because they do not produce world-class technology despite the posturing of them and their politicians. The MIT Licensing Offivce has a very profitable history including under the direction of the master-mind of DOD's Fast Track - John Preston. Bronson Writes Again. Silicon Valley in the 1990s has earned a place in history, that much is clear. But just how it will be characterized is still up in the air. Is it the cradle of a New Age of Humanity or just another variation on the same old gold rush? So far there are precious few certainties: Silicon Valley is the prime destination for global legions of fortune-hunters. The personal Web site has replaced the electric guitar as the preferred adolescent power-object. And judging from the escalating price of real estate in this region of northern California, something very, very big is going on. Whatever it is, it appears to be blowing away the conventional wisdom about wealth, careers and class. So, of course, we'd all like to understand. ... It seems the fires of digital innovation generate a lot of smoke, and it's hard for the casual observer to penetrate the fog. ... Nevertheless, Po Bronson, who satirized Silicon Valley in his 1997 novel, "The First $20 Million Is Always the Hardest," has captured this remarkable place and time, and his ability to burrow into the Valley's back rooms and hidden chambers in search of detail is impressive. ... Silicon Valley may be the story of the century (or the millennium, as its more manic boosters insist). On the other hand, the Valley has a kind of protean, all-things-to-all-people quality these days, twisting itself into a number of promising apparitions that may or may not materialize. In the age of freakish P/E ratios, it can be difficult to shake the notion that the Valley is important largely because everybody says it is. [THOMAS SCOVILLE, reviewing Po Bronson's SV history "The Nudist on the Might Shift", Wall Street Journal, June 16] If all Scoville and Bronson say is true about SV as the heartland of high-tech capitalism, why does the government need to intrude to support the companies who cannot do what the SV entrepreneurs do? Wouldn't a tax refund generate as much economic activity as putting federal dollars into second-class companies? If you think the shortage of qualified information-technology pros is bad now, just wait. According to a recent report from the Meta Group, demand for IT services is growing 25% annually in the United States. Meanwhile, only a small fraction of high school graduates will likely go into IT fields, meaning that even more jobs will go unfilled in the future -- and salaries will continue to grow. This year alone, some 900,000 IT jobs will go unfilled. This will be the situation at least through 2003 [Jeff Bounds, Dallas Business Journal, July 12] Trade Helps Everyone Two economists say that every percent increase in trade yields an increase in per-capita income by somewhere between 0.9 and 2 percent (depending on which theory they us). And a growth in population or area increases per capita income by from .1 to .3 percent. [JA Frankel & D Romer, "Does Trade Cause Growth?", American Economic Review, June 99 (Vol 89, No 3, pp379-399)] Which certainly undercuts the trade protection and anti-immigration crowd. No Serious Europe Competition A study from the European Employers Assn., UNICE, says the number of new companies formed on the Continent still seriously lags the U.S. America, says UNICE, creates five times as many fast-growing companies as Europe does, and four times as many initial public offerings. ''We knew that Europe had to become more entrepreneurial,'' says Wytze Russchen, one of the authors. ''Yet we were surprised that we have so much to do to catch up.'' For example, it still takes five times longer to get a small business off the ground in Europe, notes UNICE. Plus, businesses suffer from higher wages and taxes than their U.S. counterparts. [Business Week, July 19]   Good news: rapid change, huge markets, plentiful capital. More people will grow rich than ever before. Bad news: Any idea that works will be cloned within days or hours. Patents and copyrights won't mean a can of warm beer when a market is global and your competitors reside offshore. Better to keep your eye on the customer ball. As a hint to where the future lies, consider that approximately 75% of the product-life gross margins for a typical PC are earned within its first 90 days of sales. Jump late through that window, and it's all glass shards and blood. ... So how are you keeping up? These are bleak times for the slow, cautious or simply tired. And that won't change. It will just get more so, following the breathless acceleration of today's socio-economic twin drivers: chips and bandwidth. For the coming years, the Yankee Group's Howard Anderson foresees a blunt sorting of businesses and businesspeople into two camps: the "quick and the dead." [Rich Karlgaard, Forbes, July 5] So, will government programs and government sponsored business be quick or dead? With Congress and the agencies calling the shots, how could they ever be quick?   If Adam Smith were to visit the U.S. at the millennium's end, he would like what he saw. For most of this century, corporate concentration and government intervention inflicted arthritis on the "invisible hand" that Smith said guided selfish individuals in a market economy to achieve greater collective wealth. But today, the invisible hand is more limber and supple than ever. In the past two decades, globalization has forced American companies to compete on a world-wide scale, and the collapse of communism has extended capitalist principles to every corner of that globe. Deregulation has injected market forces into areas long insulated from them, such as telecommunications, air travel and medicine. The Internet has helped better-informed buyers find legions of new sellers, and sellers find far-flung buyers. The principles of market economics, detailed by the Scottish philosopher in 1776, have infected U.S. life with an intensity unmatched in history -- thanks in part to remarkable technological advances. [Alan Murray, Wall Street Journal, Jun21] Does Murray's world sound like the same world that [politician] Roscoe Bartlett talks about. Did Roscoe miss the 80s and 90s? Is this a world that needs government subsidy for small business even if programs like SBIR actually delivered anything worthwhile for small business? Would every foreign observer laugh in scorn at protestations that America is going right down the drain? Does Roscoe really believe his story or is he just pandering to the small business crowd? Three Boston Photonics Companies The BU Photonics center (a political pork barrel of $26M) has spawned three photonics companies from three academics in the care of a private venture firm - Marenghi & Co. PhotoSecure, PhotoSense, and Photodetection Systems. [facts from OE reports, Jun99] If they have the goods, they should be decent SBIR candidates at agencies who care about commercialization. Will the same politicians who ponied up the money for the Center now pressure the agencies to fund the children? Watch the attitude of Mike Capuano who in the Science Committee hearing last week banged the drum for SBIR's being just a research program (guess where his voters come from and what they do)? Speaking of reading ... [Gene Epstein's] recommended summer beach books on the Dismal Science. The Commanding Heights, by Daniel Yergin and Joseph Stanislaw, was a bit superficial, but it does tell some great stories. The book's theme is how free-market ideas swept the world over the course of the past few decades. Friedman's bestseller, The Lexus and the Olive Tree, also tells some great stories and is written with the New York Times columnist's customary grace and verve. Krugman's The Return of Depression Economics, addresses a drawback of globalization that Friedman skirts: the shocking recessions that have gripped Asia and Latin America and the scary prospect of more to come. The delightful piece about France, "Unmitigated Gauls: Liberte, Egalite, Inanite," is alone worth the price of admission. On the topic of wages and wealth, Andrew Hacker's Money: Who Has How Much and Why, is entertaining and informative. The chapter on "M.D.'s, J.D.'s and Ph.D.s" is a lot fun, as is the profile of the 68,064 households declaring an income of at least $1 million a year in 1994 On the nature of consumerism, try Pursuing Happiness: American Consumers in the Twentieth Century, by Stanley Lebergott. With lucidity and humor, this economist effectively parries all the ascetic treatises ever written that contend buying things is somehow a misguided activity. Economist Richard Thaler's collections of essays are indispensable treatises on the nature of semi-rational homo economicus, and they're a necessary antidote to the standard assumption of total rationality made by the mainstream. For those misguided souls who still believe in efficient-market theory, try his chapters on the closed-end funds. The late, great Murray Rothbard's two historical volumes, Economic Thought Before Adam Smith and Classical Economics, are an intellectual feast. I also treasure this brilliant economist's two posthumously published collections of essays, both bearing the title, The Logic of Action. All these volumes should be obtainable from the Mises Institute at 800-636-4737. Knowledge and Decisions, by Thomas Sowell, is still the best book I know on the workings of capitalism. [Barron's, Jun 21] Why have the US economy and stock market done so well? According to Massachusetts Institute of Technology economics professor Lester Thurow, it is because the United States is remarkably flexible. It is a country that is willing to embrace the new and toss out the old. The same might be said about Thurow himself. In an interview this week to promote his new book, ''Building Wealth,'' Thurow seemed to have discarded most of the ideas he has been peddling for the past 20 years in favor of some new and different ones. Apparently economists can be flexible, too.[Boston Globe, Jun 11] Next time Andy Grove says it looks like rain, don't waste time getting your rain coat -- buy stock in an umbrella company. When Intel Corp. on Wednesday formally announced its widely known timetable to begin making chips from larger silicon wafers, stock in equipment manufacturers skyrocketed. ..[which means] state-of-the art manufacturing plant in its Hillsboro, Ore., campus with 300 mm wafer technology. [TOM QUINLAN, San Jose Mercury News; Jun 19] Intel still drives the bigger, better, faster world of computer chips. Innovation, the process of translating inventions and new ideas into commercial products, is largely responsible for the tenfold rise in the living standards of American families over the last 100 years, he says in a new manuscript. Baumol's contribution is not to emphasize the impact of innovation but to pinpoint how competition forces companies to make innovation routine, much as marketing and advertising are. In Baumol's analysis, capitalism emerges as a system that hums because it has figured out how to make innovation humdrum.... The profit from innovation routinely leaks to third parties. A firm spends a lot of money bringing to market a clever new electronic organizer or tennis racket. Ten nanoseconds later, another firm tears the product apart and reverse engineers a variation that gets around the patent. So the first firm winds up making relatively little money, a heavy disincentive for would-be entrepreneurs. Professor Edward Wolff, a colleague of Baumol at New York University, estimates that innovators can expect to earn about 10 cents a year from each dollar they invest. But because the innovation leaks to other companies and other sectors, the economy as a whole reaps a benefit of about 50 cents. The implication, according to the textbooks, is that capitalism provides entrepreneurs too little of the profit that investments create for the economy. So they invest too little in the development of products. Consumers suffer from high prices, restricted choice and delayed innovation. [New York Times, Jun 5] Suing Each Other Now that big profits are in prospect for laser eye surgery, the inventors are all suing each other over the patent. Even an Air Force scientist is suing. The openness of government-funded research and the novelty of the ideas led a lot of people to talk to other people about the ideas. Result: a tangle of claims of thinking it up first. Today's Wall Street Journal features a Page One piece on the tangle "Eye Shadow". SBIR played a role not in the excimer laser idea for the cutting but in an eye tracking idea of Autonomous Technologies (Orlando, FL) now a subsidiary of Summit Technology, the Number Two in the market. In May 1998 for the third time in its history, Disneyland opened a revamped Tomorrowland. [V Postrel, The Future and Its Enemies, The Free Press, 1998] If you are proposing innovation often, the same rule applies - your future will change even if the government isn't ready (it never is).   Got a Great Semiconductor Industry Idea? Consider this Wall Street opinion by Chaudhri: The commoditization of hardware has negative implications for the semiconductor capital-equipment companies. These companies provide the equipment that is used by chip companies like Intel, Texas Instruments and Motorola to make their products. And this industry consists of companies like Applied Materials, Lam Research, Novellus, etc. One, that because the demand for leading-edge semiconductor technology at end-user level is not as strong as it has historically been, the need for the chip companies to invest in vast amounts of the latest and greatest semiconductor capital equipment is also diminished. So the secular growth rates for the semiconductor capital-equipment sector have been negatively impacted. ... There is also a cyclical negative: D-ram prices have started to come down again. Now the semiconductor capital-equipment companies ship anywhere from a third to a half of their equipment to the D-ram makers. And the D-ram makers' capital spending plans are intimately tied to their cash flows, which in turn are a function of D-ram prices. So as D-ram prices have come down quite sharply in the last few months and look like they will continue to come down in the foreseeable future, that is going to put a crimp on the cash flows and therefore the capital-spending requirements of the D-ram companies. The bottom line is that the rate in which the capital-equipment sector will grow in the next couple of years is quite a bit lower than what Wall Street is expecting will happen. [Barron's, May 10] Your SBIR is a capital-spending item for your strategic partner. At the moment it costs around $4000 per KW to make a fuel-cell engine, compared with $40 per KW for an internal combustion engine. [The Economist, Apr 24] Which is why only a cost-insensitive government will invest. Until the environmental concerns drive up the acceptable price. The Economist story on fuel cells starts with This week two nails were hammered into the coffin of the internal combustion engine. But SBIR proposers in general make claims and beg for government support for ideas that have little economic justification. Fortunately for many of them, government sees itself as an uneconomic investor and will ignore its own economic ignorance in pursuit of a dream. Doing it with SBIR though raises false hopes in the naïve companies who deceive themselves into believing that government will help them hurdle the economic barrier. No such thing is likely to happen and the most likely outcome is a complete SBIR project with no future. Be careful not to fall into that trap. Into fuel cells DOD SBIR, for one, has poured a lot of money - 32 Phase 2s in 22 companies (from 95 Phase 1s) with no hint of cost-effectiveness in the published abstract as a motivator. Government could, of course, help keep economic reality-check by insisting on third-party play. But that is unlikely in a government that wants performance and is willing to pay almost any price to get it. If you want to be a government service R&D contractor for higher performance fuel cells, by all means propose. If you want to sell the resulting product in any volume market, you will have to have cost-effectiveness as a prime criterion - say $40 per KW.   Wozniak offered the then unnamed PC to HP, which rejected it on the grounds that there was no money to be made from selling a computer for less than $3000. .. Apple's third co-founder, Ron Wayne, was bought out for just $17,000 in early 1977 and left. [D Smith reviewing MS Malone, "Infinite Loop: How Apple, the World's Most Insanely Great Computer Company, Went Insane", 1999, The Sunday Times, Apr 25] Would any agency have flexibly invested SBIR in something so radical as a personal computer? Not if 15 years of defensive management is any guide. To be sure, VCs are riding high these days, investing more than $14B last year in more than 2800 deals. .. Most VCs don't see good business plans. What they see is somebody else's dream, pie in the sky, a concept presented without a lot of rigorous analytical thought or even the hint of practical results. ... They're [money guys] investing their money because they think they can make money on it. You're nothing more than a vehicle for them. [M Bloomberg, Bloomberg Personal Finance, May 99] SBIR agencies should take note that if a VC isn't willing to invest in a new technology, there may be no business prospect regardless of the glowing blather of commercial potential in a cloud of unrealistic assumptions. Says a small software company CEO, Today I had a customer in Taiwan really want to order straight from us via the Internet, not from our distributor in Taiwan. Each morning I wake up to see 25 or 30 downloads of our product from Europe or Asia. I compete each day against products developed in the US, Switzerland,Germany, England, and even Japan. Cultures that sweat this are just going to cause strife for their members. You can't fight it. What's that CEO's attitude toward SBIR as government help against the tide of global competition? Been there, done that, no thanks, government doesn't get it.   Q: How do VCs view companies that are heavily funded by government contracts? Milton Chang's A: I have never seen any VC funding of "contract mills" that work on technologies with no commercial potential. On the other hand, a large fraction of the companies in our [photonics] industry with venture funding have their initial technologies developed with government funding. Most sophisticated investors, however, do not believe that the transiiton of company culture from contract to commercial sales is an easy one. So there is a likelihood that a VC would require a change at the top soon after funding. [Laser Focus World, Apr 99] Good news or bad for SBIR? Bad news for any government agency that funds "contract mills" in the hope that the technology will commercialize because neither the company nor the technology makes a decent investment candidate. Investment, you may recall, is to make a future profit. It is the heart of capitalism. Government spending goes for other goals, like societal good and buying votes from interest groups, but should NOT be thought of as investment. Politicians only use the term to cover their true intentions. When the SBIR debate heats up next year, watch the language and keep your airsick bag handy for the arguments.   This is Europe where technology companies are scattered over several countries and VC is hard to find. A growing band of visionaries - like McKinsey & Co - are building their own VC networks from scratch. They are introducing entrepreneurs to the Continent's growing pool of venture funds, handing out advice for the inexperienced, and encouraging Europe's shy capitalists to step up. ... Even much-hyped technology clusters in cities such as Cambridge or Helsinki fail to match the dense community of lawyers, money men and start-ups that make up Northern California. ... To kick start his now-growing Internet service provider, Cybernet AG, Andreas Elder had to use private possessions as collateral for bank loans. That was after applications to several funds sponsored by the German government came to nothing. One of the funds sent him a 20,000 mark bill for evaluating his company. [M Rose & K Strassel, Wall Street Journal, Mar 23] Well, our bureaucrats may be as dense about entrepreneurs but at least they don't charge $11K to misread a proposal. Sounds like Europe has the problem that most areas of the US except MA and CA have - a non-critical mass of entrepreneurs and their supporters; for a substitute some look futilely to government which cannot supply the needed service no matter how many bureaucrats are assigned to the jobs. Nor is a subsidy like SBIR the answer unless it drives start-ups into the arms of the true capitalists that made America the economy it is.   What Makes Technology Grow? In another undercut of SBIR favorite myths, economist Paul Romer derides the idea that our national growth came from technology. In the traditional economic view, technological progress comes in two steps: the heroic discovery and the ensuing transformation of the economy. .. James Watt invents the steam engine, then the industrial revolution just happens. ... It's not the opportunities in nature that are scarce; it's the human talent to pursue the many opportunities. .. we make progress in almost any area we put our minds to ... overnight delivery at FedEx, just-in-time management at Toyota, and discount retailing at Kmart and Walmart. ... In the traditional account, the flip side of the heroic discovery is the critical roadblock. This too is vastly over-rated. If it had been impossible to build transistors, audio equipment would still have improved over the course of my lifetime. Vacuum tubes would have become smaller, cheaper, and more reliable. ... historians believed that the invention of the railroad fueled the rapid growth of the early American economy. Fogel showed that if there had been no railroad, North America would have invested more extensively in canals, wagons, and roads. But the rate of the economy's growth, he concluded, would have been about the same. [P Romer, "What Makes Technology Grow", Outlook, No1, 98, reprinted in part in Wilson Quarterly, Spring 99] The canal industry was going well in the early 19th century until the railroad suddenly blossomed from nowhere, and canal transportation today is still a lot cheaper than rail. As the Serbians will discover when they cannot get barge traffic on the Danube.   Americans Beat Europeans at Pharmacy. European pharmaceutical companies, which 10 years ago dominated the drug industry, will supply only three of the world's top-selling 25 drugs by 2002, according to forecasts of a British drug-research group. Pharmaceutical-research team Evaluate Pharma said the marketing power of the major US pharmaceutical companies, patent expirations on European-made blockbusters and the trend toward lifestyle drugs such as Viagra are giving US companies the lead in the biggest-seller stakes. [M Reid, Wall Street Journal, Apr 12] Economic nationalists rejoice! SBIR advocates despair - the nationalism card gets harder to play (unions and Pat Buchanan excepted). QWERTY Myth Innovation lock-out? The QWERTY keyboard has suppressed better versions like the Dvorak keyboard because of market lock-in? Think again, say Liebowitz and Margolis ["The Fable of the Keys", Journal of Law and Economics, Apr 1990]. The Economist's series on economics reminds us that market failure isn't always what economists believe. Actually, the Navy tries to re-inforce the myth by studying comparative speed of QWERTY and Dvorak in 1944. Strangely, the Navy hired the same Dvorak to conduct the study. Guess the result! GSA in 1956 showed no advantage to either. Moral: don't believe everything you know about market economics of innovation (and don't necessarily rely on a government study). Enough Biotech Investment . a [biotech] company determined to eke out a living can probably get by. R&D partnerships with pharmaceutical firms (or indeed, with larger biotech companies) can provide badly needed cash. Private money, toto, is still available; VC financing reached $3B in 1998, a 50% rise over the previous year. That is why, despite the frosty climate on wall Street, a mass-extinction among small biotech firms is not going to happen just yet. [The Economist, Mar 27]   In a continuing effort to tackle the labor shortage conundrum, the Minnesota High Tech Association (MHTA) said Thursday that it will spend about $300,000 on an initiative to attract and train workers for the fast growing tech industry. The program, titled "Upgrade Minnesota," will be led by a former state representative and chairwoman of the House Education Committee, Becky Kelso. ... One estimate claims that Minnesota companies have about 9,000 information technology job openings each year, while Minnesota's Department of Economic Security predicts there will about 1 million jobs of all types vacant by 2006. [Minneapolis Star Tribune, Mar 6] The first [railroad] engines seemed to run mostly on hope. Rail cost outrageous sums to lay, a massive sink of both capital and labor. Trains were slower and less reliable than the creatures they competed with. Locomotives eternally exploded, setting fire to the fields, boiling clientele alive by the hundreds per year. Extorted by canal companies, foreign interests and politicians alike, the start-up railroad companies nevertheless plowed into the frontier, as inevitable as the grave to which all expansion leads. [Richard Powers, "Gain" (a novel), 1998] Yet chip making is a notoriously conservative and financially competitive business, and companies won't embrace major change until the industry is painted into a corner. And, with the price of a new fabrication plant starting at around $3B, no one can blame them for wanting to be sure before betting all their chips on one particular number. "If you were starting out today to design a car from scratch, the last thing you might choose to power it is an internal combustion engine", says Vecco's Kania. "But that is the current technology, and no automaker is going to change it until they're forced to."" Likewise, chip makers are working hard to get every last nanometer out of optical lithography before turning to new technology. [D Voss, "Chips Go Nano", MIT technology review, M/A99] The reality is that your new technology, that you got government to support with a small SBIR, has a big barrier to hurdle with no government help to ever make it into economic return.   The Internet reaches far. A company discussed here in late 1998 got a cold e-mail from Russia inquiring about employment. The investors have heard/ a discouraging word. A Wall Street house downgraded ATMI and the stock price tumbled 30% in two days. Forbes on WDM: the component vendors sell to systems vendors. Uniphase (recently merged with JDS Fitel and will become JDS Uniphase), Corning (GLW) and E-Tek (ETEK) are the leaders here. [Forbes, The Digital Tool, Mar 1] . Venture capitalists invested $274M in Baltimore-Washington area companies during the fourth quarter, according to Price Waterhouse Coopers. Far above the $90M in 1997's quarter. Local venture capitalists said the difference during the fourth quarter of 1998 was the number of opportunities available to venture capitalists. [William Glanz, Baltimore Business Journal, Feb 22] Think Balto-Wash needs SBIR and other subsidies? Depends on what you think SBIR is and what you think government should be doing. If you get the free money, you can convince yourself that it is right for government to do so.   Buy Tech Stocks, Just Not the Ones I BuyThe worst-performing technology fund of the past three years is run by one of the most ardent proponents of technology investing. Michael Murphy, editor of California Technology Stock Letter, regularly urges investors to load up on technology stocks and mutual funds as a way to profit financially from society's dramatic technological advances. The "buy tech" message is in his late-1997 book, "Every Investor's Guide to High-Tech Stocks & Mutual Funds," just released in its second edition. ... Monterey Murphy Technology has the worst three-year record among 44 tech funds tracked by Morningstar, a negative 8.3% average annualized total return, compared with a 27.6% average annual gain for the tech-fund category. ... In his book, published by Random House, Mr. Murphy says most people "are woefully underinvested in the greatest opportunity of our generation." He explains that "the world is no more than halfway through a massive 30-year to 40-year growth cycle in electronics and computer technology" and just beginning a similar period of huge growth in medical technology and biotechnology." [Wall Street Journal, Feb 26] Win a Few. Murphy proves there is a gap between average industry performance and individuals company's fortunes. So it is with SBIR. Government support for technology is needed but government does no better than Murphy's dismal record in picking winners. Not only are subsidies to individual companies not needed, but government's record in picking SBIR winners for their future market potential is equally dismal. Fortunately, the politics of American small business will overlook such inadequacies and continue to let the federal agencies pour SBIR money into nice and useful (to the agency) science. Economics and ROI will not be used as a measure of program value. If you're a small R&D company looking for some service business, there will still be $1B on offer (less the 5-10% actually targeted to commercially valuable technology). Get yourself a good science story accompanied by a commercial fantasy and propose! You'll win a few. "The electric light is very probably a great invention, and .. let us take for granted that its future development will be vast. But this, unhappily, cannot be urged as a reason why the pioneer companies should be prosperous." The same [1882] sentiments apply to today's great invention, the Internet. ... Venture capitalists in Silicon Valley have more money than they know what to do with [The Economist, Jan 30] If then, you have the next electric light invention, what position should the government take on your SBIR proposal for money to keep improving it? 1) since government cannot do anything to speed up market acceptance of a revolution, you will just have to wait; 2) since your invention won't be useful for at least another decade, no mission agency should consume its R&D budget in funding it; 3) government money should be spent on things that have no market value (closer to what government actually does with SBIR); 4) give you money as a well-deserved prize for your invention; 5) what policy do you prefer? New sayings that should be on buttons... Well, this day was a total waste of makeup. I started out with nothing & still have most of it left. If I throw a stick, will you leave? Did the aliens forget to remove your anal probe? Better living through denial. How do I set a laser pointer to stun? [Washington Post, Feb 4] we think semiconductor stocks have moved too far, too fast, on too little news of importance., says Individual Investor. One beneficiary has been ATMI which has zoomed up to the high 20s from the low teens. Why? the Semiconductor Industry Association is projecting only 9.1% growth in revenue for 1999, 39% off the industry's historical growth rate of 15% and well below the golden days of 1993 to 1995 where the industry grew 30% to 40% annually transforming itself from a $60 billion business to one worth almost $150 billion. Applying this discount relative to the historical P/E would mean that the basket of stocks above would be fairly valued when sporting an average P/E of 25, a 24% reduction from current levels.   The Y1K News Business and Finance Vikings earned substantial profits from Slavic slave trade; Ghana again dominated the gold trade; Horseshoe prices rose in Europe; China's harvest rose sharply; Mayan farmers produced bumper crop of specialty vegetables and fruit; Byzantium increased taxes and enacted trade measures for more Treasury revenue; Moorish ceramic makers introduced polychrome glazed pottery; The recession in Central Asia worsened. World-Wide Famine in France has worsened as constant feudal warfare ravages fields; A sex scandal swirled in Japan's ruling court; Norway threatened Ireland with trade sanctions and possible invasion; Danish Vikings continued pillaging England; Moors engaged in a power struggle following Sultana Subh's death; Toltec leader Ce Acatl Qutzalcoatl reportedly escaped to the Gulf of Mexico; Explorer Leif Ericson disclosed plans to sail to Greenland; Polynesian settlers have cleared land in Hawaii and Easter Island with fires; Viking women have win the right to divorce by public declaration; The world's population was estimated at 250 million, unchanged from 1000 years ago. From the Wall Street Journal, Jan 11,1999 Analysis Companies Can Go Big Time. San Diego-based SAIC (San Diego, CA) set a new share price of $69.82, a record high for stock in the employee-owned company - an 18.6 percent increase over the previous price of $58.87. During the past 12 months, the price of SAIC shares has gained 78%, compared 51% last year. It's one of the only American companies with an internal trading of its own stock which can be bought and sold only by the company's 34,000 employees, consultants and directors. Setting a high price protects present holders from dilution. Whether an open market would offer the same price is mere speculation. SAIC started as an assemblage of essentially independent scientist cells and has expanded into system building. Although it's too big to compete for SBIR, it occasionally offers to partner with SBIR projects. This week SAIC got part of a $1B contract from GSA, one of SAIC's 5,000 contracts a year. [facts from San Diego Union Tribune, Jan 9] "An entrepreneur to me," said Bennett M. Shapiro, the executive VP of Merck's worldwide basic research, "is someone who picks up something not going on at Merck, but is important to the future development of a drug, and then makes the case for why we should fund a relationship, as if he were an independent entrepreneur appealing to venture capitalists for money." [Louis Uchitelle, NY Times, Sep 23]   Atlanta. Industries of the Mind program. The Metro Atlanta Chamber of Commerce's campaign to attract technology talent to Atlanta will be the central initiative for the next five years and has the potential to "define economic development for the next 20 years in the Atlanta area," according to Sam Williams, the chamber's executive director. The chamber already has spent $1M in preparation for the project and could spend an additional $6-8M the next five years. The campaign is sponsored by Forward Atlanta, the major funding source for the chamber's economic development initiatives during the past 70 years. [Atlanta Business Journal, Jan 4] Baltimore. Delegate Kumar Barve, recognized as the General Assembly's leading tech industry advocate and chairman of its subcommittee on science and technology, said using money from the State Retirement and Pension System, which holds some $27B, is among the changes he will push for this year. Barve sees the use of public funding as an efficient way to provide capital for Maryland's surging technology industry. Last year, though, a similar attempt to introduce legislation that would authorize such use of pension funds failed. [Baltimore Business Journal, Jan 4] Portland A San Francisco-area venture capital firm recently decided to break with tradition, much to the delight of a promising local internet start-up company. RuleSpace, which makes internet filtering software, last week finished its first round of funding, netting $4 million. The successful first-round fundraising was completed just one month after the company finished off its $1.1 million seed round of financing. Taking the lead in the most recent round was Sequoia Partners, not to be confused with a larger venture firm called Sequoia Ventures. [Portland Business Journal, Jan 4] Why More R&D? When Mariko Sakikabara of UCLA told the academic AEA audience that the more diversity in an industrial R&D consortium, the more R&D done by the individual firms, Sam Kortum of Boston University said so what. More R&D has no value per se; the objective is more innovations with less R&D. R&D needs outcome measures, not input measures. Good call, Sam. Sound like SBIR's problem? The beneficiaries and the R&D performers and the government R&D agencies want more R&D and will scare up whatever argument they can find to justify it. Motherhood. Justify it with output measures or go hungry! blunders of the modern world (from The New Scientist) * Cloning sheep when they all look the same anyway and growing an ear on a mouse that could hear perfectly, Justin Byrne * Bubble packing for arthritis pills, Mike Collins * Giving men the vote, A. McGary * Mission statements, P. Naghten * One-size tights that don't fit anyone, Catherine Side * Computer "help" menus, Phil Boland * Car theft alarms, M. O'Neill *** SBIR proposals that say nothing new.   Peter Bernstein from "Against the Gods", 1996 When the Soviets tried to administer uncertainty out of existence through government fiat and planning, they choked off social and economic progress Venturesome people place high utility of the small probability of huge gains and low utility on the larger probability of loss.   Arthur Clarke from "Profiles of the Future", 1977 It is impossible to predict the future, and all attempts to do so in any detail will appear ludicrous within a very few years. With few exceptions scientists seem to make rather poor prophets; this rather surprising , for imagination is one of the first requirements of a good scientist. Korean DRAM manufacturers are no longing closing their fabs for one week out of the month but instead are running them full out. Given that situation, coupled with increased production from Intel and Advanced Micro Devices, Hambrecht & Quist analyst Gus Richard believes that microprocessor production will reach between 33-35 million units in the fourth quarter, 3-5 million units, or 10-15%, more than expected consumption. [iionline.com] Where to sell the excess? NIMBY, say American makers. Of course, cheaper microprocessors mean cheaper computers for American consumers, which makes an opportunity for the Intels to compete with the Dells for political protection. May the better lobbyist win. Actually, the economic lobbyists have a problem with Washington being consumed in a silly impeachment squabble. The Customer Doesn't Know Best. If you're listening to your customer it's almost preordained that you'll miss the new market. And when the new market expands to encompass the old market ... that's when companies becomes obsolete. David Eisenberg, AT&T techno-nerd. A good principle for SBIR from Edwin Land: Don't undertake a project unless it is manifestly important and nearly impossible. Land's principle would enable a cutback of SBIR to a fraction of its present size and would free the agencies to pursue their normal R&D with small business without having to pretend about irrelevant commercialization. Those few agencies who wanted to use SBIR for seeding new technologies that would go through the private market to volume use could still do so.   Humans share 98% of their DNA with the great apes. But that last 2% - the intellectual part - is enough to permit our species dominion over the Earth, while the apes occupy a corner of the local zoo. [Rich Karlgaard, Forbes, Oct 19] If we go to Monterey for the weekend and leave the light on, we will have consumed as much in the way of artificial illumination as an average pre-1850 American household consumed in a year. Such consumption would have cost that household about 5% of its income in candles, tapers, and matches. [J B DeLong, [Wilson Quarterly, Autumn 98] GaAs Rides Finally. The wild popularity of the cellular phone has propelled gallium arsenide technology from the niche military market into the consumer mainstream. And Massachusetts has emerged as one of the leaders in gallium arsenide semiconductor production, with several companies that have watched sales boom as gallium arsenide products find their way into all kinds of wireless communications products, including futuristic intelligent household devices, personal digital assistants, even automotive radar. .. Alpha is among a group of Massachusetts companies - which includes Kopin of Taunton, M/A-COM Inc. of Lowell, Hittite Microwave of Woburn, and Raytheon Microelectronics of Andover - that makes or designs gallium arsenide wafers, amplifiers, receivers, and other communications products [Boston Globe, Dec 23] All that government money poured into the material of the future finally came to some fruition - a sure sign that more such wishful thinking will also rationalize other uneconomic R&D. John Cramer's "Einstein's Bridge" (Avon Books, 1997) tale involves time travel and high-energy particle physics, but in one scene, we witness his protagonist, George Griffin, finishing his work on a plane flight. Here he explains to a fellow passenger how his 21st-century laptop works: "[Data cuffs] go around my wrists a