Inventive Local Companies Can Apply for Federal SBIR Grants

Federal grant program funds innovation at small businesses

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$119 million locally

Hawaii gets its share of the SBIR largesse. Since 1982, when the program was established, local firms have received 545 awards worth $119 million. In fact, SBIR has become a critical source of R&D funds for Hawaii’s tech industry. Almost every successful tech firm in the state has received at least one SBIR award, and some of them have won dozens. These firms have become sophisticated at developing proposals and strategically integrating SBIR grants into their research. Smaller companies, like Hawaii Fish Co., can learn by studying how  these experienced firms took advantage of the SBIR program.

One of the local companies most successful at getting SBIR and STTR funding is the tech firm Oceanit. Science and technology manager Ken Cheung says one of SBIR’s key advantages is that the companies retain all ownership of products developed through SBIR grants or contracts. The government retains only nonexclusive rights to the technology. With some agencies, such as DoD and the Department of Homeland Security, it’s sometimes even possible to receive Phase III funding to help with the commercialization of the product. Perhaps most attractive to a small tech company, the agency funding your research often ends up being your customer.

“Another thing that’s very powerful,” Cheung says, “is that, once you’ve competed for a Phase I – and especially for a Phase II – you’ve satisfied the conditions under the Federal Acquisitions Regulations so that, if the government wants to buy that technology, now it can do that without requiring an open competition. It can do a sole-source contract. On top of that, the government can’t take your design and have someone else build it; they have to buy it from you. That’s really powerful, because if your company is bought out by a bigger company – a Raytheon or a Boeing or a General Dynamics – those rights transfer to the company that buys you. That’s a big incentive.”

Companies like Oceanit take advantage of the tactical as well as the strategic advantages of SBIR. “Almost every one of our big projects had some SBIR help,” says Oceanit special projects manager Zubin Menon.

Perhaps more interesting, he points out, some companies string together several SBIR contracts to develop and refine complex technologies. He uses the example of FLASH, technology that Oceanit designed to help the military locate and identify hostile fire. “We started off, almost 15 years ago, with an SBIR project related to an airborne laser,” he says. “The idea was to shoot a directed-energy weapon – a laser – from a moving airplane. Because you have a lot of turbulence coming off an airplane, we developed a sensor to detect optical aberrations. That became a Missile Defense Agency technology; because that sensor operated at a very high speed, it turns out it’s very useful for looking at missile intercepts, so we got SBIR funding for that. Using that core sensor technology, we also got an Army SBIR to develop this hostile-fire indicator.” For those counting, that’s three Phase I and three Phase II grants. In addition, the Pentagon has helped Oceanit with non-SBIR Phase III funding to create some field units to test in action.

A company’s success with the SBIR program largely depends on how well it takes advantage of the program’s rules and procedures. For example, Cheung points out, each topic or RFP from the participating agencies has a unique point of contact, often the person who wrote the actual solicitation. After those topics have been announced, but before the official RFP is released, firms are permitted – even encouraged – to communicate directly with the point of contact.

“Up to a certain point, you’re free to email or phone the technical point of contact and ask them what they’re really looking for, what do they think of your idea, and they’ll give you feedback right away. So, we’re certainly going to get this guy on a conference call and ask him what he thinks of our approach. If there’s some resonance, we’ll go ahead; if they say, ‘No, you’re completely off base,’ we won’t waste our time.”

Weidenbach also carefully weighs SBIR’s risks, primarily that funding rarely covers a project’s full cost. “In Phase I, you almost always spend more than is covered by the grant,” he says. “So, if you’re thinking of SBIR as a way to make money, you’ve got the wrong impression. It’s simply a way to defray your research costs. There will almost certainly be significant out-of-pocket expenses. There’s also a significant investment of your time in the application process, which is really a high-risk proposition after all. Only 10 percent to 15 percent of Phase I applications are accepted. I guess your odds are better in Vegas.” In other words, he says, only go the SBIR route if you’re confident you’ve got something the world needs.

Getting It Done

Companies like Oceanit may fit the federal government’s definition of a small business – fewer than 500 employees – but it’s difficult to put them in the same category as really small SBIR awardees like Hawaii Fish Co. But Weidenbach’s operation isn’t unique. Another truly small business that has received SBIR funding is an educational-media developer called WEBFish Pacific. WEBFish president and founder Lynn Wilson was a sole proprietor when she was awarded a Phase II grant last year under the aegis of USDA’s Rural Development program. That makes her a real rarity in SBIR. But her project – creating an educational video to help improve oral health in rural communities – is a good example of how a small firm can use partnerships and collaborators to compete with larger, better-staffed companies. One point Wilson makes is that a company’s Phase I should flow neatly into its Phase II.

“You certainly want to build your case and come out with a Phase I that points to the need to build a full prototype,” she says. “For our Phase I, we developed some video samples and tested them against a print brochure and against video samples developed by a school of dentistry. We had nine focus groups with parents of young children. We did three through Head Start, three through a community health center here and three through a Hawaiian culture-based preschool.

“We’re in Phase II, now,” she says. “So we now have a set of short videos – about 50 minutes of video – geared specifically to parents and young children, and we’re evaluating those using the Early Head Start programs on the Big Island and Oahu.” In all, she says, the project evaluation involves a team of five research specialists and 20 home visitors in two organizations with more than 100 families. She ultimately expects to market her videos through Head Start.

It’s an elaborate process and, like Weidenbach and many SBIR awardees, Wilson expects to need an unpaid extension in order to finish Phase II. “If I was to do this whole process differently, I would make sure that I had the whole thing mapped out long before I put in my Phase I application.”

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