Look around and take notice of the things you see. For the most part, the “stuff” around you was probably produced, marketed and sold by large corporations. But look back at the genesis of those items, and you’ll see that the overwhelming majority were originally conceived and created by solo inventors or innovative young companies. Across America today there are innovative entrepreneurs in the mold of Henry Ford, Bill Gates and Steve Jobs working in basements, garages and small labs on the next innovation that will transform society.
“Since the beginning of time, it’s been entrepreneurs that drive the creation of innovation. True breakthroughs have been the result of an individual or small team who had an idea and the determination to see it through to fruition. In many cases, ignoring the advice of friends and the lack of what many would call standard market research/validation. While we enjoy the fruits of the rapid pace of innovations, it is the entrepreneur, slaving away alone or within a small firm, who is inventing the future,” blogged Phil McKinney, vice president and chief technology officer for Hewlett-Packard’s Personal Systems Group, and a nationally recognized voice on innovation.
Patently Innovative
One measure of innovation is patent activity, and a 2008 Small Business Administration report found that small businesses are a significant source of innovation and patents. In fact, they develop 16 times more patents per employee than larger businesses. Further, companies with fewer than 25 employees produced the greatest number of patents per employee, according to An Analysis of Small Business Patents by Industry and Firm Size.
While large companies overwhelmingly lead in the sheer number of patents, owning 92 percent of all patents, small companies own 24 percent of patents in top 100 technologies.
“This suggests that the patents of small firms in general are likely to be more technologically important than those of large firms,” the report said.
The SBA also found that small companies are focusing their efforts on the newest high-tech, high-growth industries, such as biotechnology, pharmaceuticals, information technology and semiconductors.
Unlike their bigger counterparts, small companies usually don’t have the financial resources to self-fund that innovation. That’s where a 30-year-old federal program comes in.
Funding Innovation
A major source of funding for supporting technology development in small companies is the federal Small Business Innovation Research (SBIR) program. Established in 1982 to strengthen innovative small businesses’ share of federal research funding, the program has been extremely successful by all accounts and is an important driver for commercializing innovation and technology in the United States.
“It’s very important to technology and bioscience companies, not only in Kansas City, but throughout the U.S.,” said Larry Lee, business development specialist, technology and commercialization, at the University of Missouri-Kansas City Small Business and Technology Development Center.
Each year, the 11 federal agencies with more than $100 million in research and development spending must allocate 2.5 percent of their research dollars through the SBIR program. The program allows small companies to develop technologies without taking on debt or seeking funding from outside investors.
“The great thing about these grants is they’re non-dilutive. You don’t have to give away part of your company,” said Maria Flynn, CEO of Orbis Biosciences, a multiple SBIR grant winner.
The other benefit, Lee said, is that the company retains rights to the intellectual property it develops.
Practical Application
Each agency administers its own program, designating R&D topics for solicitations and accepting proposals from small businesses. Those proposals are evaluated by a panel of experts and competitive awards are made based on pre-established criteria.
Unlike university and other basic research programs, the SBIR program is focused not on simply exploring fundamental research questions, but rather on commercializing new technologies—turning the research into an economic driver.
“They’re not just doing research for the sake of research. They want you to have a product come out of this,” said P.J. Piper, co-founder and CEO of QM Power, another multiple SBIR winner.
Piper said because the agencies are funded through taxpayer dollars, they’re looking for products that will be successful in the market and generate tax receipts that are many times more than the SBIR grant itself.
Lee’s Summit-based QM Power has won a number of SBIR awards, including from the Department of Defense, NASA, Department of Energy and the National Science Foundation, for developing clean technologies, particularly low-cost, high-efficiency and high-power density motors, generators and actuators.
Still, some agencies are more focused on market commercialization than others when it comes to the technology, Piper said. The Department of Defense, for example, is generally the end-user of the SBIR technology.
Suman Saripalli has won many SBIR grants, including from the Department of Defense. He said, “The Department of Defense is looking at it as a very rapid technology development and demonstration program that can quickly be transitioned to the field.”
The SBIR has proven successful on both counts: commercializing technology and meeting the rapid technology development needs of the government itself.
Saripalli, too, has been successful in doing both—even with the same technology. An SBIR project that one of his companies developed for the Department of Defense has commercial potential in the medical industry, too. So, Saripalli has spun out a new company to focus on the medical applications of that technology.
SBIR Success Stories
Since its inception, the SBIR program has funded more than $27 billion in research, $3 billion in 2011 alone. More than 15,000 small companies and 400,000 scientists and engineers have participated in the program, and they have generated 50,000 patents.
Kansas City-area SBIR winners are hoping to reach the kind of success global companies such as Qualcomm have achieved. Qualcomm received an SBIR grant in 1985 as a small company, and has since grown to 17,500 employees with $11 billion in revenue and 13,000 patents. Computer security giant Symantec is another big-name success story. The company received an SBIR grant in 1982 and has grown to more than $6 billion in annual revenue.
Orbis Biosciences has won two National Institutes of Health SBIR grants for research to improve pharmaceutical, food additive and other products by controlling the release of particles. One example is the timed release of active ingredients in pain relief medication, which is what one SBIR grant is funding.
Orbis Biosciences CEO Flynn said the first grant is helping the company accelerate its platform technology, and the second grant is for a specific application using the technology.
“So, the program has really been beneficial to us because we can, one, advance the platform, and two, develop specific products with the platform,” Flynn said.
One of the most prolific SBIR winners in the Kansas City region is Saripalli, who has won more than 20 SBIR grants with his three companies, KalScott Engineering, Intellispeak and Aerometrix. He said the technology itself and the market potential are two keys to winning SBIR grants.
“The technology has to be absolutely world-class, leading edge,” Saripalli said. “You need to have a great technical idea. The second thing is—is there a market for this and how do you get to the market?”
Lee also lists technology as the most important component to a successful SBIR proposal.
“If you don’t have good technology, you’re not going to win,” he said.
Even with great technology, the SBIR program is very competitive and winning a grant isn’t easy, especially the first time. The proposal process itself requires something entrepreneurs are well-familiar with: perseverance. Lee said a first-time proposal could take 100 hours to prepare.
“Your first SBIR, especially, is a long road,” Flynn agreed. “It does take some endurance—and some luck.”
Long Road to Reauthorization
While winning your first SBIR grant may be a long road, the road to Congressional reauthorization of the program has been long, as well.
The original SBIR program legislation required that the program be reauthorized. That authorization expired in 2008, and since then the program has been operating under a series of 14 stopgap continuing resolutions. While the program has broad bi-partisan support, political wrangling over specifics has stymied efforts to pass a reauthorization bill. The conflict isn’t necessarily along party lines, but rather between the House and the Senate.
Congress in December reauthorized the Small Business Innovation Research program for six years and increased the award amounts for both Phase I and Phase II.
Lee said the program not only has economic benefits, but that the innovative technologies developed with SBIR grants also have societal benefits. With federal spending in the crosshairs, the uncertainty in the
SBIR program operating on a temporary basis was a cause for concern.
“If we cut out research from small business sectors, we’ve hurt ourselves as a country,” Lee said.
David Day is executive editor for Thinking Bigger Business magazine. This e-mail address is being protected from spambots. You need JavaScript enabled to view it
