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An Assessment of the SBIR Program Appendix C Case Studies CASE STUDY COMPANIES Advanced Ceramics Research Creare, Inc. Faraday Technology, Inc. Immersion Corporation ISCA Technology, Inc. Language Weaver MicroStrain, Inc. National Recovery Technology, Inc. NVE Corporation Physical Sciences, Inc. SAM Technologies Savi Technology Sociometrics Corporation
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An Assessment of the SBIR Program Advanced Ceramics Research1 Irwin Feller American Association for the Advancement of Science Advanced Ceramics Research (ACR) was originally incorporated as a start-up, self-financed firm in 1989 by Anthony Mulligan who had recently graduated in mechanical engineering from the University of Arizona, and Mark Angier who was still a student in mechanical engineering, also at the University of Arizona. Shortly after, they were joined by Dr. Donald Uhlmann, a professor at the University of Arizona, and Kevin Stuffle, a chemical engineer previously employed at Ceramatec Corporation, Salt Lake City, Utah. In late 1996 Dr. Daniel Albrecht, retired CEO of Buehler Corporation, joined as a shareholder and officer until 2000. Since 2000, Angier and Mulligan have remained as the only shareholders and are active in the management of the company. From its inception, ACR sought to become a product development company, capable of manufacturing products for a diverse set of industries based on its technological developments. Although its competitive advantage has been in its advanced technology, it has sought to avoid being limited to being a contract R&D house. Over its history, the relative emphasis on R&D, product development, and manufacturing has varied, being primarily shaped by market demand conditions for its end-user products. The firm has both an extended set of collaborative, network relationships with university researchers, who conduct basic research on materials, and “downstream” customers, for its products. Also, from its early inception, the firm knew about the SBIR program, but viewed its profit ceiling margins, placed at 5-7 percent, as too low to warrant much attention. Only commercial products were seen as yielding an adequate profit margin. Over time though, it has participated in the SBIR program of several federal agencies, including DoD, NASA, Department of Energy, and the National Science Foundation. ACR’s initial 2 products were PVA-SIC grinding stones and Polyurethane friction drive belts for the aluminum memory disk manufacturing industry. These two products were a direct result of a NASA Phase I SBIR program entitled “Laser Induced Thermal Micro-cracking for Ductile Regime Grinding of Large Optical Surfaces.” While the program did not go on to Phase II, the commercial sales generated from the first two products was significant for the growth of the company. The firm also saw market potential in developing products from advanced ceramics. The attractiveness of the SBIR program was that it would underwrite concept development. Firm representatives had several discussions with DoD 1 Based on interview with Dr. Ranji Vaidyanthan, May 3, 2005, at the Navy Opportunity Forum and publicly available information
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An Assessment of the SBIR Program ADVANCED CERAMICS RESEARCH: COMPANY FACTS AT A GLANCE Address: 3292 E. Hemisphere Loop Tucson, Arizona 85706 Phone: 520-573-6300 Web site: <http://www.acrtucson.com> Year Started: 1989 Ownership: Private Annual Sales: FY2002: $5 million FY2003: $8.3 million FY2004: $11.5 million FY2005: $20+ million Number of Employees: 83 3-Year Sales Growth Rate: 250 percent 4-Year Sales Growth Rate: 400 percent SIC: Technology Focus: Advanced composite materials; rapid prototyping, UAV’s, sensors Number of SBIR Awards—Phase I (DoD Phase I)—75 Number of SBIR Awards—Phase II (DoD Phase II)—18 Number of Patents: Number of Publications: Number of Presentations: Awards: 2002 R&D 100 Awards (Fibrous monolith wear-resistant components that increased the wear life of mining drill bits), 2001 R&D 100 Award for water-soluble composite tooling material, 2000 R&D 100 Award for water-soluble rapid prototyping support material officials about the SBIR program, but the catalytic event was a meeting with a DARPA program officer, Bill Coblenz. Coblenz already held a patent (issued in 1988) on ceramic materials. He was interested in supporting ‘far out’ ideas related to the development of low-cost production processes on advanced ceramics, based on the technique of rapid prototyping. DARPA already was supporting research at the University of Michigan. ACR was encouraged to begin work on low-cost production techniques. It did this under a series of DARPA awards and SBIR awards, although never con-
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An Assessment of the SBIR Program centrating on SBIR. Drawing in part on the advanced research being done at the University of Michigan and drawing on its expertise in both advanced ceramics and manufacturing, ACR developed a general purpose technology of being able to convert autoCAD drawings into machine readable code, then to direct generation of ceramic, composite, and metal parts. Initially SBIR awards accounted for nearly all of ACR’s revenues. By 1993 the firm had transitioned to nearly 50 percent of its revenues from the commercial sector and about 25 percent of its revenues from non-SBIR government R&D funding, with the remaining 25 percent as SBIR revenues. For 2005 the company projects about $20 million in sales with about 15-20 percent of the revenues coming from STTR/SBIR Phase I and Phase II programs. The firm’s R&D also has been underwritten by revenues generated by its manufacturing operations. Its primary use of SBIR awards was to develop specific application technologies based on its core technology. One market that it saw as having considerable potential was that of developing and manufacturing “flexible carriers for hard-disk drives” for the electronics industry. After aggressively “knocking on doors” to gain customers, it soon became a major supplier to firms such as SpeedFam Corporation, Komag, Seagate, and IBM. ACR’s competitive advantage rested in its ability to make prototypes accurately, quickly, and at competitive prices. Demand for this product line grew rapidly, enabling the firm to go to a 3-shift, 7-day-a-week operation. In addition, ACR developed ancillary products related to testing and quality control tied to this product line. The firm financed its expansion through a combination of retained earnings and license revenues, primarily from Smith Tools International, an oil and rock drilling company, and Kyocera, a Japan-based firm, which specialized in ceramics for communications applications, which licensed its Fibrous Monolith technology. ACR also reports receiving approximately $100,000 in the form of a bridge loan between a Phase I and Phase II award from a short-lived Arizona’s state economic development program, funded from state lottery revenues. It reports no venture capital financing. It remains a privately held firm. Demand for ACR’s electronic products seemed to be on an upward trajectory through the 1990s. In response to demands from its primary customers for an increase in output from 5,000 to 60,000 units monthly, ACR built a new 30,000 square foot plant. The electronics market for ACR’s products however declined abruptly in 1997, when two of its major customers-Seagate and Komag, two of the largest producers of hard disk drives, shifted production to Asia. This move represented both the shift from 8-inch to 5-inch and then 3.5-inch disks, and lower production costs, which drove down the price of the carrier components they produced from $16 to $1.50 per unit. The loss of its carrier business was a major reversal for the firm. Heavy layoff resulted, with employment declining to low of about 28 employees in 1998. 1998-1999 are described as years of reinvention for survival for ACR. The
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An Assessment of the SBIR Program firm’s R&D division, which formerly had been losing money, was now seen as having to become its primary source of revenue. The explicit policy was to undertake only that R&D which had discernible profit margins and the opportunity for near term commercialization. Previously, ACR had conducted a small number of Phase I SBIR awards, but had not actively pursued Phase II awards unless it could readily see the commercial product that was likely to flow from this research or it had a commercial partner. ACR reports several outcomes from its participation in the SBIR program. As of 2005, it has received 75 Phase I and 21 Phase II awards. The larger number of awards have been from DoD, followed by NASA, with a few from the other agencies such as NSF and DoE. Products based on SBIR awards received from DARPA and NASA have had commercial sales of approximately $14 million. ACR is now actively engaged in development and marketing of Silver Fox, a small unmanned aerial vehicle (UAV). R&D for the Silver Fox has been supported by awards under DoD’s STTR program, and involves collaboration between ACR and researchers at the University of Arizona, University of California-Berkeley, the University of California-Los Angeles, and MIT. The genesis of the project highlights the multiple uses of technological innovations. In 2000, while in Washington, DC, to discuss projects with Office of Naval Research (ONR) program managers, ACR representatives also had a chance meeting with a program manager for the Navy interested in small SWARM unmanned air vehicles (UAVs). At the time, ONR expressed an interest and eventually provided funding for developing a new low-cost small UAV as a means to engage in whale watching around Hawaii, with the objective of avoiding damage to the Navy’s underwater sonic activities. Once developed however, the UAV’s value as a more general purpose battlefield surveillance technology soon became apparent and ONR provided additional funding to further refine the UAV for war-fighter use in Operation Iraqi Freedom. ACR has a bonus compensation plan that rewards employees for invention disclosures, patents, licenses, and presentations at professional meetings. These incentives are seen as fostering outcome from SBIR awards (as with all other company activities). ACR owns a 49 percent stake in a joint venture manufacturing company called Advanced Ceramics Manufacturing, LLC, which is located on the Tohono O’Odham Reservation south of Tucson, Arizona. Fifty-one percent is owned by Tribal Land Allotees. The company, which employs about 10 people who manufacture ceramic products in a multi-million dollar facility (15,000 square feet), is expected to do about $2.5 million in sales revenues over the next 12 months. ACR also has also recently opened 2500 square feet of laboratory and office space in Arlington, Virginia where it is basing its new Sensors Division and providing customer support to its military customers with an initial staff of eight persons. Funding delays between Phase I and Phase II awards have been handled
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An Assessment of the SBIR Program primarily through a process of shared decision making, leading to consensus-based reallocations of firm resources and staff assignments. ACR typically has several R&D projects occurring simultaneously. When delays occur, researchers are assembled to determine whether the firm’s internal funds, including its IR&D funds, will be used to continue a specific project. DoD’s SBIR review and award procedures are seen as fair and timely. The dollar amounts of Phase I and Phase II awards and SBIR “paperwork” requirements likewise are seen as reasonable. The Navy is seen as especially good in the speed with which it handles the selection process. It has reduced the length of time to make awards from 3-4 months to 2 months; NSF, by way of contrast, takes 6 months. The length of the selection process across federal agencies does influence ACR’s decisions. It is more likely to pursue Phase I awards from agencies such as DoD that have short selection cycles than those with long(er) ones. The company has seen great benefit in accelerating commercialization of its SBIR/STTR programs through participation of the Navy’s Technology Assistance Program (TAP). ACR first participated in the TAP program for its Water Soluble Tooling Technology, its Fibrous Monolith Technology, and its UAV technology. ACR’s diligent following to what it learned in the Navy’s TAP program has assisted it in receiving three separate Indefinite Deliverables, Indefinite Quantities (ID/IQ) Phase III contracts totaling $75 million. Each of the three technologies has received a $25 million ID/IQ contract to facilitate continued government use of the technology.
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An Assessment of the SBIR Program Creare, Inc.2 Philip A. Auerswald George Mason University OVERVIEW Creare Inc. is a privately held engineering services company located in Hanover, New Hampshire. The company was founded in 1961 by Robert Dean, formerly a research director at Ingersoll Rand. It currently has a staff of 105 of whom 40 are engineers (27 PhDs) and 21 are technicians and machinists. A substantial percentage of the company’s revenue is derived from the SBIR program. As of Fall 2004, Creare had received a total of 325 Phase I awards, 151 Phase II awards—more in the history of the program than all but two other firms.3 While its focus is on engineering problem solving rather than the development of commercial products, since its founding, it has been New Hampshire’s version of Shockley Semiconductor, spawning a dozen spin-off firms employing over 1,500 people in the immediate region, with annual revenues reportedly in excess of $250 million.4 Creare’s initial emphasis was on fluid mechanics, thermodynamics, and heat transfer research. For its first two decades its client base concentrated in the turbo-machinery and nuclear industries. In the 1980s the company expanded to energy, aerospace, cryogenics, and materials processing. Creare expertise spans many areas of engineering. Research at Creare now bridges diverse fields such as biomedical engineering and computational fluid and thermodynamics. At any given point in time Creare’s staff is involved in approximately 50 projects. Of the 40 engineers, 10-15 are active in publishing, external relations with clients, and participation in academic conferences. The company currently employs one MBA to manage administrative matters (though the company has operated for long periods of time with no MBAs on staff). As Vice President and Principal Engineer Robert Kline Schoder states, “Those of us who are leading 2 This case is based primarily on primary material collected by Philip Auerswald during an interview at Creare, Inc., in Hanover, New Hampshire, on September 16, 2004, with Robert J. Kline-Schoder (Vice President, Principal Engineer), James J. Barry (Principal Engineer), Nabil A. Elkouh (Engineer). It is also based on preliminary research. A source on the early history of Creare was Philip Glouchevitch, “The Doctor of Spin-Off.” Valley News, December 8, 1996, pp. E1 and E5. We are indebted to Creare, Inc., for their willingness to participate in the study and in offering both a wealth of information to cover the various aspects of the study and his broad experience with the SBIR program and with high technology in the context of small business. Views expressed are those of the authors, not of the National Academy of Sciences. 3 The other two firms are Foster-Miller (recently sold, and no longer eligible for the SBIR program) and Physical Science, Inc. 4 A list is given in annex to this case study.
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An Assessment of the SBIR Program business development also lead the projects, and also publish. We wear a lot of hats.” The company’s facilities comprise a small research campus, encompassing over 43,000 square feet of office, laboratory, shop, and library space. In addition to multipurpose labs, Creare’s facilities include a chemistry lab, a materials lab with a scanning electron microscope, a clean-room, an electronics lab, cryogenic test facilities, and outdoor test pads. On-site machine shops and computer facilities offer support services. FIRM DEVELOPMENT: FOUNDING AND GROWTH Creare’s founder, Robert (Bob) Dean, earned his PhD in engineering (fluid/thermal dynamics) from MIT. He joined Ingersoll Rand as a director of research. Not finding the research work in a large corporation to his liking, he took an academic position at Dartmouth’s Thayer School. Soon thereafter, he and two partners founded Creare. One of the two left soon after the company’s founding; the other continued with the company. But for its first decade, Robert Dean was the motive force at Creare. Engineer Nabil Elkouh relates that the company was originally established to “invent things, license the inventions, and make a lot of money that way.” Technologies that would yield lucrative licensing deals proved to be difficult to find. The need to cover payroll led to a search for contract R&D work to cover expenses until the proverbial “golden eggs” started to hatch. The culture of the company was strongly influenced by the personality of the founder, who was highly engaged in solving research and engineering problems, but not interesting in building a commercial company—indeed, it was precisely to avoid a “bottom line” preoccupation that he had left Ingersoll Rand. Thus, even the “golden eggs” that Bob Dean was focused on discovering were innovations to be licensed to other firms, not innovations for development at Creare. As Elkouh observes “the philosophy was—even back then—that what a product business needs isn’t what an R&D business needs. You’re not going to be as creative as you can be if you’re doing this to support the mother ship…. Products go through ebbs and flows and sometimes they need a lot of resources.” Furthermore, Dean was a “small organization person,” much more comfortable only in companies with a few dozen people than in a large corporation. A case in point: In 1968, Hypertherm was established as a subsidiary within Creare to develop and manufacture plasma-arc metal-cutting equipment. A year later Creare spun off Hypertherm. Today, with 500 employees, it is the world leader in this field. By 1975, an internal division had developed within Creare. Where Dean, the founder, continued to be focused on the search for ideas with significant commercial potential, others at Creare preferred to maintain the scale and focus consistent with a contract research firm. The firm split, with Dean and some
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An Assessment of the SBIR Program engineers leaving to start Creare Innovations. Creare Innovations endured for a decade, during which time it served as an incubator to three successful companies: Spectra, Verax, Creonics. The partners who remained at Creare Inc. instituted “policies of stability” that would deemphasize the search for “golden eggs”—ultimately including policies, described below, to make it easy for staff members to leave and start companies based upon Creare technologies. The nuclear power industry became the major source of support for Creare. That changed quickly following the accident at Three Mile Island. At about the same time, the procurement situation with the federal government changed. Procurement reform made contracting with the federal government a far more elaborate and onerous process than it had been previously. As research funds from the nuclear industry disappeared and federal procurement contracts became less accessible to a firm of Creare’s size, the company was suddenly pressured to seek new customers for its services. In the wake of these changes came the SBIR program. The company’s president at the time, Jim Block, had worked with New Hampshire Senator Warren Rudman, a key congressional supporter of the original SBIR legislation. As a consequence, the company knew that SBIR was on its way. Creare was among the first firms to apply for, and to receive, an SBIR award. Elkouh notes that “early in the program, small companies hadn’t figured out how to use it. Departments hadn’t figured out how to run the program.” The management of the project was ad hoc. The award process was far less competitive than it is today.” Emphasis on commercialization was minimal. Program managers defined topics according to whether or not they would represent an interesting technical challenge. There was little intention on the part of the agency to use the information “other than just as a report on the shelf.” IMPACTS From the earliest stages of its involvement in the SBIR program, Creare has specialized in solving agency-initiated problems. Many of these problems required multiple SBIR projects, and many years, to reach resolution. In most instances, the output of the project was simply knowledge gained—both by Creare employees directly, and as conveyed to the funding agency in a report. Impacts of the work were direct and indirect. As Elkouh states: “You’re a piece in the government’s bigger program. The Technical Program Officer learns about what you’re doing. Other people in the community learn about what you’re doing—both successes and failures. That can influence development of new programs.” Notwithstanding the general emphasis within the company on engineering problem solving without an eye to the market, the company has over thirty years generated a range of innovative outputs. The firm has 21 patents resulting
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An Assessment of the SBIR Program from SBIR funded work.5 Staff members have published dozens of papers. The firm has licensed technologies including high-torque threaded fasteners, a breast cancer surgery aid, corrosion preventative coverings, an electronic regulator for firefighters, and mass vaccination devices (pending). Products and services developed at Creare include thermal-fluid modeling and testing, miniature vacuum pumps, fluid dynamics simulation software, network software for data exchange, and the NCS Cryocooler used on the Hubble Space Telescope to restore the operation of the telescope’s near-infrared imaging device. In some cases, the company has developed technical capabilities that have remained latent for years until a problem arose for which those capabilities were required. The cryogenic cooler for the Hubble telescope is an example. The technologies that were required to build that cryogenic refrigerator started being developed in the early 1980s as one of Creare’s first SBIR projects. Over 20 years, Creare received over a dozen SBIR projects to develop the technologies that ultimately were used in the cryogenic cooler. Additionally, Creare has been awarded “Phase III” development funds from programmatic areas that were 10 times the magnitude of all of the cumulative total of SBIR funds received for fundamental cryogenic refrigerator technology development. However, until the infrared imaging device on the Hubble telescope failed due to the unexpectedly rapid depletion of the solid nitrogen used to cool it, there had been no near-term application of the technologies that Creare had developed. The company has built five cryogenic cooler prototypes, and has been contacted by DoD primes and other large corporations seeking to have Creare custom build cryogenic coolers for their needs.6 Cooling systems for computers provide another example. The company worked intensively for a number of years in two-phase flow for the nuclear industry. This work branched into studies of two-phase flow in space—that is, a liquid-gas flow transferring heat under microgravity conditions. In the course of this work, the company developed a design manual for cooling systems based on this technology. The manual sold fifteen copies. As Elkouh observes, “there aren’t that many people interested in two-phase flow in space.” A Creare-developed computer modeling program for two-phase flows under variable gravity had a similar limited market. Ten years later, Creare received a call from a large semiconductor manufacturing company seeking new approaches to cooling its equipment because fans and air simply were not working any more. This led to a sequence of large industrial projects doing feasibility studies and design work to assist the client in evaluating different possible cooling systems, including two-phase approaches. The work covered the spectrum from putting together 5 Numbers as of Fall 2004. 6 See National Aeronautics and Space Administration, “Small Business/SBIR: NICMOS Cryocooler—Reactivating a Hubble Instrument,” Aerospace Technology Innovation, 10(4):19-21, 2002 (July/August), accessed at <ipp.nasa.gov/innovation/innovation104/6-smallbiz1.html>. See also <http://www.nasatech.com/spinoff/spinoff2002/goddard.html>.
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An Assessment of the SBIR Program complete design methods—based on work performed under SBIR awards—to building experimental hardware. Most recently, NASA has contacted Creare with a renewed interest in the technology. From the agency standpoint, there is a benefit to Creare’s relative stability as a small firm: They don’t have to go back to square one to develop the technologies, if a need disappears and then arises again years later. As academic research in the 1990s demonstrated the power of small firms as machines of job creation, the perception of the program changed. In the process, the relationship of perennial SBIR recipient firms such as Creare changed as well. These new modes of relationship, and some recommendations for the future, are described below. Spin-off Companies The success of the numerous companies that have spun off from Creare naturally leads to the question: Is fostering spin-offs an explicit part of the company’s business model? The answer is no to the extent that the company does not normally seek an equity stake in companies that it spins off. The primary reason has to do with the culture of Creare. Elkouh states that, as a rule, Creare has sought to inhibit firms as little as possible. “If you encumber them very much, they’re going to fail. They are going to have a hard enough row to hoe to get themselves going. So, generally, we’ve tried to institute fairly minimal encumbrances on them. We’ve even licensed technology to companies who’ve spun off on relatively generous terms for them.” Does the intermittent drain of talent and technology from Creare due to the creation of spin-off firms create a challenge to the firm’s partners? According to Kline-Schoder, no: “It has not happened all that often and when it has, opportunities for people who stay just expand. It’s not cheap [to build a company] starting from scratch. So there’s a barrier to people leaving and doing that. The other thing—in some sense, is that Creare is a lifestyle firm. Engineers are given a lot of freedom—a lot of autonomy in terms of things to work on. We think that Creare is a rather attractive place to work. So there’s that barrier too.” ROLE OF THE SBIR PROGRAM The founding of Creare pre-dated the start of the SBIR program by 20 years. However, SBIR came into being at an extremely opportune moment for the firm. It is very difficult to say whether or not the firm would have continued to exist without the program, but it is plain that the streamlined government procurement process for small business contracting ushered in by the SBIR program facilitated its sustainability and growth. In the intervening years, the SBIR program and
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An Assessment of the SBIR Program hundreds of practitioners in use of selected kits. These new trainers have in turn returned to their hometowns and home organizations to train more staff, resulting in further sales of the replication kits and dissemination of important prevention programs. Competition CDC has provided the impetus for the only real competition to Sociometrics in the field of replication kit development for effective teen pregnancy and HIV/AIDS prevention programs. The CDC initiatives have been based on a decentralized distribution model, with CDC funding program developers to publish their programs themselves or to seek out their own commercial distributors. In contrast, the Sociometrics distribution model is centralized, with Sociometrics’ Web site serving as a one-stop-shopping-point for highly effective programs in the areas in which the company operates. The inevitable delays in implementing a new initiative, plus changes in policy at CDC and substantial budget cuts, have put one of the CDC’s two development programs on hold (the one on teen pregnancy prevention), leaving the Program Archive on Sexuality, Health, and Adolescence without significant current competition. The other CDC program on HIV/AIDS prevention, a competitor to Sociometrics’ HIV/AIDS Prevention Program Archive, is using replication kits developed at Sociometrics for some of its selected programs, boosting sales of the Sociometrics HIV/AIDS Prevention Program Archive by an order of magnitude. In this manner Sociometrics Program Archives have complemented the larger CDC efforts, just as the Sociometrics Data Archives have complemented the larger University of Michigan efforts. Longer-Term Challenges and Opportunities Over the longer term it is possible that commercial challenges may arise from changes in the academic world, where more and more developers of effective programs are deciding to publish their work themselves, releasing kits or parts of kits through their own Web sites or negotiating other arrangements with commercial publishers. Sociometrics is not overly concerned by these developments as it regards its work as complementary to, and supportive of, developers’ efforts to get their effective programs in the public domain. Recent history is supportive. During the initial establishment of Sociometrics’ HIV/AIDS Prevention Program Archive (HAPPA), the advisory panel recommended 18 effective programs for inclusion in the archive; of these one was withdrawn as “obsolete” by its original developer, seven developers had previously decided to use a commercial publisher, and ten were made available through HAPPA. Thus with the help of Sociometrics’ efforts complementing existing efforts, replication kits for almost all effective programs are now publicly available to community-based
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An Assessment of the SBIR Program organizations striving to prevent HIV. This constitutes an important public service in terms of: (1) packaging the most promising interventions to enhance their usability; (2) facilitating low-cost access to, and widespread awareness of, these interventions; (3) encouraging additional rigorous tests of the interventions’ effectiveness in a variety of populations; and (4) demonstrating the value of, and providing a model for, the research-to-practice feedback loop. Further opportunities for enhanced product dissemination arise from Sociometrics’ collaboration with other organizations besides CDC. In particular, large nonprofit networks provide many opportunities for partnership. For example, on the teen pregnancy prevention program archive, Sociometrics has worked with the National Campaign to Prevent Teen Pregnancy, Advocates for Youth, and the National Organization for Adolescent Pregnancy, Prevention, and Parenting, Inc. These organizations have become bulk purchasers of replication kits. They have provided other marketing support as well; for example, Advocates for Youth placed a link to Sociometrics on its Web site, and marketed Sociometrics’ kits to its constituency from there. Evaluation Research Sociometrics has considerable expertise in program evaluation research and technical assistance. Over the last 15 years, the company has conducted many studies and provided technical assistance to many nonprofit organizations to determine whether a particular social intervention program was able to meet its short-term goals and long-term objectives. While most of the company’s work developing its data and program archives has been funded by the SBIR program, Sociometrics’ evaluation work has been funded primarily by state governments (such as California, Minnesota, and Wisconsin), local governments (such as Santa Clara County), private sources, especially foundations seeking an evaluation of the efforts of their grantees (the Packard Foundation, the Mott Foundation, the Northwest Area Foundation, and the Kaiser Family Foundation), and nonprofits seeking an evaluation of the effectiveness of their work. Sociometrics publishes a number of books and resource materials on program evaluation (e.g., Data Management: An Introductory Workbook for Teen Pregnancy Program Evaluators). It also offers at low cost (15 cents per page) evaluation research instruments that have been used in national surveys or in successfully implemented and published evaluation efforts. Training Services Sociometrics conducts workshops and courses to familiarize practitioners with the tools and benefits of social science and related technologies. These courses have recently been put online to increase their reach while lowering access costs. Training is offered in a variety of social science areas, particu-
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An Assessment of the SBIR Program larly in effective program selection, development, and implementation; program evaluation concepts, design, and execution; and data collection, management, and analysis. Science-Based Information Modules These new products, still under development, will integrate the research literature in a given topical area, describe what science says in language and format easily understood by nonscientists (eighth grade reading level), and disseminate the information online via the Internet for easy “distance learning” access by all. Into the Future Most of Sociometrics’ products are available for 24/7 download (with payment by credit card) on its award-winning Web site at <http://www.socio.com>. Its data archives, collectively known as The Social Science Electronic Data Library (SSEDL), are also available via institutional subscriptions marketed to universities and research libraries by Sociometrics’ dissemination partner Thomson Gale. Sociometrics will continue its development of its Web site as a major product platform. In 2003, this Web site received over 1.7 million hits resulting in 29,729 product downloads. The company will also continue to develop additional subscription products. For example, Sociometrics plans to bundle its HIV and teen pregnancy replication kits, evaluation resources, training courses, and information module products and disseminate these bundled products to academics and health practitioners via online subscriptions. Eventually, mental health resources will be added to the Data Library, HIV, and teen pregnancy subscription resources as a fourth subscription line. Two current and two forthcoming SBIR Phase I grants support expansion into this important topical focus of mental health. Profits and Revenues Sociometrics’ gross annual revenues are approximately $2.3 million with approximately 22 percent of this amount being profit (Table App-C-8). Profits from product sales are now substantially larger than profits from SBIR project fees, a testament to the success of Sociometrics as an SBIR firm. However, the profit stream is still insufficient to replace SBIR as the primary funding engine for future development efforts. Sociometrics does not market price its products, as many of its customers are small, community-based nonprofits that cannot afford products fully priced to market. Rather Sociometrics’ products are priced at the cost of production with a small profit mark-up equivalent to a technical assistance retainer. Sociometrics sees this focus on widespread dissemination
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An Assessment of the SBIR Program TABLE App-C-8 Sources of Revenue and Profit, Sociometrics Corporation, 1984 to 2004 Fiscal Year Gross Revenue ($) Breakdown of Gross Revenue Given in Column 2 ($) Breakdown of Profit Given in Column 4 ($) Project Base (Direct Costs+Overhead) Profit Project Fees Product Sales Other Income 84/85 295,073 279,802 15,271 12,539 977 1,754 85/86 346,502 322,799 23,703 14,873 4,958 3,871 86/87 628,932 593,309 35,622 24,529 5,303 5,789 87/88 597,225 553,748 43,476 17,696 11,739 14,039 88/89 484,871 412,906 71,965 42,308 20,467 9,189 89/90 764,349 632,519 131,829 108,271 12,682 10,875 90/91 728,580 654,255 74,325 45,536 14,409 14,379 91/92 1,225,910 1,087,726 138,184 103,862 9,603 24,717 92/93 1,216,676 1,105,338 111,338 69,787 17,644 23,906 93/94 1,174,597 1,014,256 160,340 106,888 38,053 15,398 94/95 1,328,429 1,152,854 175,575 119,909 33,655 22,010 95/96 1,632,612 1,435,536 197,075 112,533 49,244 35,298 96/97 2,012,046 1,648,160 363,886 264,688 49,063 50,134 97/98 1,929,552 1,646,048 283,503 181,654 64,470 37,378 98/99 2,018,483 1,756,005 262,477 145,565 77,034 39,877 99/00 2,412,523 2,078,184 334,339 154,454 122,231 57,653 00/01 2,861,756 2,448,389 413,367 193,661 128,257 91,448 01/02 2,329,169 1,968,113 361,056 155,909 145,066 60,080 02/03 2,285,660 1,770,709 514,951 207,126 270,178 37,646 03/04 2,322,086 1,814,404 507,682 146,021 333,105 28,556 NOTE: In the last three fiscal years the contribution to profit of the various product lines was as follows: data archives, 18 percent; program archives, 67 percent; evaluation and training, 15 percent. The distribution agreement entered into with Thomson Gale to market institutional subscriptions to the Social Science Electronic Data Library (SSEDL) occurred late in fiscal year 2003-2004; therefore royalties from this agreement are not yet included in this table. SOURCE: Sociometrics Corporation. and use (as opposed to single-minded emphasis on profits alone) as part of its important public service. REVIEW PROCESS Sociometrics is generally satisfied with the SBIR proposal review process. It believes that it has “learned to compete successfully on paper.” The company takes a very pragmatic approach to review. It understands that there is a substantial random element in the process (a study conducted by NSF in the early 1990s found that the chance effect for whether a journal article or proposal is accepted by peers is approximately 50 percent). Therefore it believes that the best
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An Assessment of the SBIR Program approach to unfunded proposals is to consider all reviewer comments seriously and resubmit the proposal whenever these comments can be addressed. Another source of variability is the frequent change in study section make-up from one review to the next. As a result, comments made by one Panel may be negated by the next Panel who have new considerations and concerns. Nevertheless, Sociometrics believes that with tenacity its good proposals will eventually be approved through the current SBIR peer review mechanism. The company estimates that 70 percent of its applications for SBIR Phase I support and 95 percent of its applications for SBIR Phase II support are eventually successful. Forty percent of Phase I applications and 75 percent of Phase II applications are successful at first submission; the other applications require one or two resubmissions before they are eventually funded. Commercialization has always been a strength for Sociometrics. The company has been pleased that this success criterion has received increased emphasis in recent application guidelines. Consistent with this, Sociometrics staff have observed that reviewer comments have recently praised the company’s strength in this area. Sociometrics makes sure that its SBIR applications highlight its sales track record as well as its sales and marketing expertise. The company notes that this is very different from R01 research grant applications, for which these capacities are essentially irrelevant. There needs to be ongoing evaluation of reviewers serving on study sections, providing some accountability. Sociometrics supports the concept that “bad reviewers” should be eliminated, but also understands that it is hard to find reviewers. Related to this problem is the concern that reviewers have appropriate expertise for the proposals they evaluate, which is a challenge when study sections cover quite broad areas. OTHER OUTCOMES Other Funding Sociometrics has been funded by many NIH agencies and by government agencies outside NIH. Initial SBIR funding came from the Office of Population Affairs under the Deputy Assistant Secretary for Population Affairs, Department of Health and Human Services. Other projects have been funded by the National Science Foundation (NSF), the Centers for Disease Control and prevention (CDC), the Veterans Administration (VA), the National Center for Health Statistics (NCHS), private companies, nonprofit organizations, state and local governments, and private foundations. Sociometrics has never sought venture capital funding because its profits, while impressive for a behavioral and social science firm, are not large enough to make the company sustainable without SBIR funding, a requirement for venture capital funding.
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An Assessment of the SBIR Program Changing the Field NIH and CDC officials, among others, regard Sociometrics’ effective-program replication kits as an important innovation helping to bridge the gap between health-related research and practice. The program-in-a-box opened the door for researchers to generate something more than an article or book as an output from their studies, and many researchers were especially pleased to find a way to connect their work to the improvement of practice. Publications Sociometrics’ staff members have more than 250 peer-reviewed publications; approximately 60 of these are based on the company’s SBIR work. Training Effects Sociometrics is poised for expansion now that younger staff are becoming qualified as PIs in their own right, which relieves some of the PI burden from the two senior managers, who were until recently PIs on all projects. NIH Institutes and Centers (IC’s) Sociometrics has had the longest relationship with—and is closest to—the National Institute on Child Health and Human Development (NICHD). Sociometrics’ Founder and CEO, Dr. Josefina Card, has served on several NICHD study sections, and has also been on the NICHD National Advisory Council. SUPPLEMENTAL FUNDING Supplemental funding procedures vary substantially by IC. Typically, small supplement requests—up to 25 percent of the annual award amount at NIMH—are available at the discretion of the program officer (depending on funding availability). These are referred to as “non-competing administrative supplements.” Large supplementary funding requests must compete with other similar requests, seeking a “competing supplementary award.” Sociometrics has obtained a few non-competing administrative supplements. It has also obtained three larger supplement awards by expanding the scope of the funded Phase II grant in a way deemed “high priority” by the funding agency or by competing successfully via another funding mechanism (such as an RFA) with the funding agency then deciding, for administrative simplicity reasons, to add monies to the SBIR grant instead of issuing a new grant award. Examples include: Teen pregnancy prevention program replication kits. Originally funded by NICHD, Sociometrics sought a third year of Phase II support through
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An Assessment of the SBIR Program a supplement to expand the scope of the Program Archive on Sexuality, Health & Adolescence (PASHA) from teen pregnancy prevention alone to teen STD/HIV/AIDS prevention as well. This expansion had been recommended by the PASHA Scientist Expert Panel, in light of the national spotlight on HIV/AIDS and the similar sexual-risk behaviors underlying both unintended pregnancy and STD/HIV/AIDS. The supplement request was forwarded by NICHD to the Deputy Assistant Secretary of Population Affairs who serves simultaneously as Director of the Office of Population Affairs. This political appointee interviewed the Sociometrics PI, and then personally approved the requested additional $750,000 in Phase II funding, transferring the monies to the NICHD grant. Program Archive for HIV/AIDS in adults. Initially funded by the National Institute of Allergy and Infectious Diseases (NIAID), supplementary funding was requested for the HIV/AIDS Prevention Program Archive (HAPPA) to expand the project to include programs targeted directly at minorities. In this case, the request was for approximately $575,000 over three years. However, an end-of-year budget under-run at NIAID resulted in the full requested funding being provided over one year, instead the requested three years. Complementary and Alternative Medicine Data Archive. Sociometrics had Phase II funding from the National Center on Alternative Medicine (NCAM) to establish the Complementary and Alternative Medicine Data Archive (CAMDA) when it responded to an RFA issued by NCAM encouraging research on minorities and CAM. Sociometrics responded to the RFA by proposing to expand CAMDA to include data sets especially focused on minority populations. Its proposal received a high priority score and NCAM decided to fund the project via an administrative supplement to the Phase II project rather than via a new grant award. RECOMMENDATIONS Sociometrics believes that the SBIR program provides an essential resource for generating innovative and effective research-based products in efficient fashion. In response to questions about its support for various issues and trends in the program, Sociometrics makes the following recommendations: Normalization of scores. Scores should be normalized across SBIR study sections. Award size and duration. Phase I duration should be one year, and additional funding (beyond $100,000) should be available with justification. Phase II size and duration limits could remain as they are ($750,000 over two years); Sociometrics has always found it possible to split larger projects into two or more ideas qualifying for separate SBIR funding. While
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An Assessment of the SBIR Program Sociometrics has no a priori objection to “supersized” Phase II awards (awards exceeding the Phase II guidelines of $750,000), it recommends that if such awards are indeed becoming common, then information about them should be fully communicated to applicants and transparency increased. The increasing prevalence of larger Phase II awards might tend to benefit well-established companies and could result in fewer SBIR grants being made. These consequences should be taken into account in approving very large Phase II awards. Direct to Phase II. Phase II competition should be open to all applicants meeting small business qualifications, permitting bypass of Phase I awards (though not of the need to show equivalent results). This might also, however, tend to benefit well-established companies. Resubmission. The one-page Phase I proposal limit for summarizing applicants’ responses to reviewer comments is insufficient. The limit should be increased to two pages or even three, as is the case for Phase II proposals. Evaluation. NIH should develop a program to evaluate the health, social, and economic impact of SBIR projects. Sociometrics would very much like to undertake evaluations either of its own SBIR projects, or of a group of projects that would include some of its own. Chartered study sections for SBIR. Given the now-permanent character of the program, NIH should consider asking Congress to charter what are currently Special Emphasis Panels (SEPs), or should consider changing its guidelines for SEPs to mimic those for chartered study sections. In this manner, the composition of review panels would be more stable from one review round to the next, resulting in better reviews.
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An Assessment of the SBIR Program Sociometrics—Annex: Sociometrics’ SBIR Awards, NIH-Sponsored Phase I Projects Started in FY 1992-2002 Fiscal Year Phase Type Award Amount ($) Project Title IC 1994 Phase I 80,991 AMERICAN FAMILY DATA CENTER HD 1995 Phase II 216,369 AMERICAN FAMILY DATA CENTER HD 1996 Phase II 222,496 AMERICAN FAMILY DATA CENTER HD 1998 Phase II 114,998 AMERICAN FAMILY DATA CENTER HD 1997 Phase I 99,817 ARCHIVE—EFFECTIVE YOUTH DRUG ABUSE PREVENTION PROGRAMS DA 1998 Phase II 343,632 ARCHIVE—EFFECTIVE YOUTH DRUG ABUSE PREVENTION PROGRAMS DA 1999 Phase II 396,232 ARCHIVE—EFFECTIVE YOUTH DRUG ABUSE PREVENTION PROGRAMS DA 2001 Phase II 24,999 ARCHIVE—EFFECTIVE YOUTH DRUG ABUSE PREVENTION PROGRAMS DA 1999 Phase I 95,825 CHILD WELL-BEING & POVERTY: STATISTICAL ABSTRACT & DATA HD 2001 Phase II 377,391 CHILD WELL-BEING & POVERTY: STATISTICAL ABSTRACT & DATA HD 2002 Phase II 371,768 CHILD WELL-BEING & POVERTY: STATISTICAL ABSTRACT & DATA HD 1999 Phase I 94,833 COMPLEMENTARY AND ALTERNATIVE MEDICINE DATA ARCHIVE AT 2002 Phase II 375,345 COMPLEMENTARY AND ALTERNATIVE MEDICINE DATA ARCHIVE AT 2003 Phase II 374,587 COMPLEMENTARY AND ALTERNATIVE MEDICINE DATA ARCHIVE AT 2004 Phase II 215,070 COMPLEMENTARY AND ALTERNATIVE MEDICINE DATA ARCHIVE AT 2005 Phase II 258,084 COMPLEMENTARY AND ALTERNATIVE MEDICINE DATA ARCHIVE AT 1992 Phase II 162,492 DATA ARCHIVE ON MATERNAL DRUG ABUSE DA 1993 Phase II 174,720 DATA ARCHIVE ON MATERNAL DRUG ABUSE DA 1993 Phase II 18,336 DATA ARCHIVE ON MATERNAL DRUG ABUSE DA 1997 Phase I 99,834 DATASET DEVELOPMENT SOFTWARE & FAMILY RESEARCH ITEM BANK HD 1998 Phase II 382,614 DATASET DEVELOPMENT SOFTWARE & FAMILY RESEARCH ITEM BANK HD 1999 Phase II 356,870 DATASET DEVELOPMENT SOFTWARE & FAMILY RESEARCH ITEM BANK HD
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An Assessment of the SBIR Program Fiscal Year Phase Type Award Amount ($) Project Title IC 1995 Phase I 70,770 ESTABLISHING A CONTEXTUAL DATA ARCHIVE HD 1996 Phase II 338,926 ESTABLISHING A CONTEXTUAL DATA ARCHIVE HD 1997 Phase II 409,298 ESTABLISHING A CONTEXTUAL DATA ARCHIVE HD 1993 Phase I 49,975 ESTABLISHMENT OF A RESEARCH ARCHIVE ON DISABILITY HD 1994 Phase II 236,145 ESTABLISHMENT OF A RESEARCH ARCHIVE ON DISABILITY HD 1995 Phase II 230,731 ESTABLISHMENT OF A RESEARCH ARCHIVE ON DISABILITY HD 1996 Phase II 31,288 ESTABLISHMENT OF A RESEARCH ARCHIVE ON DISABILITY HD 1997 Phase II 149,709 ESTABLISHMENT OF A RESEARCH ARCHIVE ON DISABILITY HD 1992 Phase II 220,955 ESTABLISHMENT OF AN AIDS/STD DATA ARCHIVE HD 1993 Phase II 236,301 ESTABLISHMENT OF AN AIDS/STD DATA ARCHIVE HD 1994 Phase II 42,070 ESTABLISHMENT OF AN AIDS/STD DATA ARCHIVE HD 1995 Phase II 10,000 ESTABLISHMENT OF AN AIDS/STD DATA ARCHIVE HD 1998 Phase II 350,655 HIV/AIDS PREVENTION PROGRAM ARCHIVE AI 1999 Phase II 397,449 HIV/AIDS PREVENTION PROGRAM ARCHIVE AI 2000 Phase II 574,670 HIV/AIDS PREVENTION PROGRAM ARCHIVE AI 1997 Phase I 99,221 INSTITUTE FOR PROGRAM DEVELOPMENT AND EVALUATION HD 1999 Phase II 337,465 INSTITUTE FOR PROGRAM DEVELOPMENT AND EVALUATION HD 2000 Phase II 412,385 INSTITUTE FOR PROGRAM DEVELOPMENT AND EVALUATION HD 2001 Phase II 49,987 INSTITUTE FOR PROGRAM DEVELOPMENT AND EVALUATION HD 1993 Phase I 49,494 INSTRUMENT ARCHIVE OF SOCIAL RESEARCH ON AGING AG 1992 Phase II 223,017 MICROCOMPUTER DATA ARCHIVE OF SOCIAL RESEARCH ON AGING AG 1993 Phase II 19,106 MICROCOMPUTER DATA ARCHIVE OF SOCIAL RESEARCH ON AGING AG 2001 Phase I 197,562 PROMOTING EVALUATION/TEACHING/RESEARCH ON AIDS (PETRA) MH 2003 Phase II 420,281 PROMOTING EVALUATION/TEACHING/RESEARCH ON AIDS (PETRA) MH
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An Assessment of the SBIR Program Fiscal Year Phase Type Award Amount ($) Project Title IC 2004 Phase II 329,507 PROMOTING EVALUATION/TEACHING/RESEARCH ON AIDS (PETRA) MH 1994 Phase I 80,991 SOCIONET—ONLINE ACCESS TO SOCIAL SCIENCE DATA HD 1995 Phase II 446,682 SOCIONET: ONLINE ACCESS TO SOCIAL SCIENCE DATA HD 1996 Phase II 303,033 SOCIONET: ONLINE ACCESS TO SOCIAL SCIENCE DATA HD 1998 Phase I 99,340 STATISTICS ON DEMAND: DATA ANALYSIS OVER THE INTERNET HD 2000 Phase II 381,525 STATISTICS USING MIDAS: DATA ANALYSIS OVER THE INTERNET HD 1999 Phase II 367,726 STATISTICS USING MIDAS: DATA ANALYSIS OVER THE INTERNET HD 2002 Phase I 99,011 VIRTUAL PROGRAM EVALUATION CONSULTANT (VPEC) HD 2003 Phase II 383,357 VIRTUAL PRACTIONER EVALUATION CONSULTANT (VPEC) HD 2004 Phase II 363,923 VIRTUAL PRACTIONER EVALUATION CONSULTANT (VPEC) 1993 Phase I 50,000 ARCHIVE OF TEEN PREGNANCY PREVENTION PROGRAMS HD 1995 Phase II 408,644 PROGRAM ARCHIVE ON SEXUALITY, HEALTH, & ADOLESCENCE HD 1996 Phase II 987,378 PROGRAM ARCHIVE ON SEXUALITY, HEALTH, & ADOLESCENCE HD 1997 Phase II 45,000 PROGRAM ARCHIVE ON SEXUALITY, HEALTH, & ADOLESCENCE OPA 1994 Phase I 79,383 ESTABLISHING A STROKE DATA ARCHIVE NS 2002 Phase I 199,922 PROMOTING CULTURALLY COMPETENT/EFFECTIVE HIV/AIDS PREVENTION PROGRAMS AI 2004 Phase II 361,223 PROMOTING CULTURALLY COMPETENT/EFFECTIVE HIV/AIDS PREVENTION PROGRAMS AI SOURCE: Sociometrics Corporation.