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Pane! V Observations and Policy Issues: Agency Perspectives INTRODUCTION Charles W. Wessner National Research Council The purpose of the day's concluding panel, Dr. Wessner said, was to provide SBIR program managers an opportunity to comment on the proceedings. He put forward several questions: What have the managers found most helpful? What have they disagreed with most strongly? Are there features of their own programs they regard as key? Have they gained any new insights? Arlene de Blanc U.S. Department of Energy Tensions with the SBIR Program Ms. de Blanc introduced herself as one of three people who manage the SBIR program at the Department of Energy (DoE) which at about $75 million annu- ally is the fourth largest in the government. Ms. de Blanc said that the most difficult problem she has seen in her 18 months with DoE's program is the ten- sion between the goals of the agency program offices and the academic R&D 103

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104 THE SMALL BUSINESS INNOVATION AND RESEARCH PROGRAM community on the one hand and those of the SBIR program on the other. Invok- ing a scene from Lewis Carroll's Through the Looking Glass, she recalled that when Alice, fresh from stepping through the mirror, reacts to the White Queen's disarray by tidying her up, the monarch is so impressed that she offers the young girl a job. When the White Queen attempts to persuade the reluctant Alice to accept by offering to pay her wages in jam, Alice replies: "I do not care for any jam today, thank you." At this point, the White Queen becomes irate, telling Alice: "You could not have it today anyway, because we have jam every other day. We had jam yesterday and we have jam tomorrow, but never jam today." This, declared Ms. de Blanc, parallels what she saw in the DoE research community. The researchers were willing to recognize SBIR's past history of substantial and very positive economic and social results "that's our 'jam yesterday."' They were also willing to recognize that there would be future fruits of commercialization in the form of spinoffs "jam tomorrow." But, they asked, "where is the contribution to our research program today where's our 'jam today'?" Over more than a decade, Ms. de Blanc observed, DoE was not particularly good at providing "jam today," having been focused on the other two days. As evidence, she pointed to the recommendation of a process improvement team, formed by the Department in response to discontent over the issue, that program research offices be given the ability to select their own projects. Reading the team' s report, she had been "dumbfounded" to learn that the department had for years collected the SBIR "tax" from the research programs without permitting them to select projects. In the past year and a half, however, program managers have been able to select their own projects, with the result that the projects have been much more relevant to their programs than had someone else selected them. In addition, the program offices are virtually guaranteed to get back very close to the total dollar amount that they put in. "All of a sudden, we see less tension between the SBIR program and the R&D community in DoE," she remarked. "All of a sudden, we see cooperation and joint efforts between SBIR projects and other non-SBIR projects as programs realize that they can further leverage their funds through partnerships with other organizations that are similarly oriented." She then pointed to a first for the department: a new partnership in carbon management under which three DoE research offices fossil energy, biological research systems, and materials are collaborating on one SBIR topic. "In order to get the 'jam today,"' she said, "we have to make sure that these constituent communities have a real stake" in the SBIR program. Commercialization Ms. de Blanc recalled Dr. Morgenthaler's suggestion that Phase II applica- tions be evaluated for commercial potential. She noted that DoE has made such

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PANEL VI 105 evaluations for 15 years, with sales, cost-sharing, and follow-on funding commit- ments making up a good percentage of a proposal's score. But that also has been a source of tension in the research community, which looks at research rather than commercial potential. The department has therefore created a scoring struc- ture under which commercial potential, although important, is not controlling. "A research project that has no commercial potential can still make it through," she stated, "but it had better be very good." Ms. de Blanc emphasized what she sees as the importance to SBIR of "match- makers," without whom the program will be unable to "get all of [its] little mom and pop groups to marry off their progeny." DoE, realizing that one size does not fit all, this year has provided two very different matchmakers to address the needs of projects that have gone through Phase I and Phase II and are now looking into Phase III. She speculated that results of these efforts would be available in two years' time. Finally, she promised that if Congress will define what SBIR is supposed to be "whether it is high risk, low risk, high R&D risk, low R&D risk, grant, contract, domestic, foreign, or all of these things together" then the pro- gram managers will find a way to deliver "jam today." Kenneth Gabriel U.S. Army The Opportunity to Expand SBIR's Impact Pointing to SBIR's overall budget of $1.1 billion and to the fact that hun- dreds of smaller organizations are represented by the agencies that participate in it directly, Dr. Gabriel observed that the more latitude allowed to constituent organizations, the more difficult it becomes to administer a program that is explicitly focused on a given objective. In light of the divisions that separate government, industry, and academia from one another, he suggested that the most powerful benefit that the SBIR and Small Business Technology Transfer (STTR) programs could deliver might be in bringing the academic world closer to industry, both large and small. Large businesses can fulfill the infrastructural requirements, and academic institutions offer knowledge. "I believe that the big- gest opportunity we have," he said, "is to make SBIR and STTR available not only to small business but to the entire ensemble of the marketplace." The Role of Entrepreneurs The entrepreneurial engine being provided by small firms has the potential of introducing new ideas into large corporations, while many growth ideas are being spawned at research institutions like MIT and in the complex that surrounds it. The efforts of the Army, Dr. Gabriel said, are in the direction of enhancing the

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106 THE SMALL BUSINESS INNOVATION AND RESEARCH PROGRAM participation of large businesses and academic institutions in developing tech- nologies and in getting them successfully to the marketplace, so that small business does not carry the burden of doing the entire work of innovation alone. It should be possible to make the SBIR program much more suited to these pur- poses than it is now; intellectual property rights are of concern if small businesses are to interact with large businesses with the assurance that such legal issues as transfer are covered. Concluding, Dr. Gabriel named two crucial aspects of the Army's efforts: Technical merit. "We will fall on our sword on the technical merit" of an award, he stated. Decentralization. To ensure the broadest possible participation in the program, the Army allows final decisions on proposals to be made at its local facilities, "at arm's length from the collusion and 'neighborhood culture' that grows among the small businesses." Robert Norwood National Aeronautics and Space Administration Dr. Norwood, who is responsible for SBIR at NASA as well as for the agency's commercialization programs overall, agreed with Ms. Eskesen's com- ments about the desirability of program officers' interacting with awarders. He said, however, that the decline in levels of both personnel and funding in the federal government makes it hard to see how SBIR would be able to support activities comparable to those that venture capitalists or investment bankers take in the process of due diligence to increase the chance of successful commercial- ization. Metrics Dr. Norwood expressed doubt that any one measure of success could prove useful for the SBIR programs of all 11 participating agencies, because their approaches vary so widely. He cautioned against relying on "success stories" of individual SBIR award recipients; doing so, he pointed out, assumes the validity of a cause-and-effect link between program support and business success that has not been well enough established to support an overall metric. Increasing the Flow of Venture Capital A potential route to improving the technology coming out of the program, Dr. Norwood suggested, might lie in determining whether private resources such as venture-capital funds can be brought in at an early stage of an SBIR project.

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PANEL VI 107 This must be done in such a way that there is no intrusion on the awarding agency's mission. He asked to hear from anyone in the audience who knew how to accomplish this within the terms of the law. To conclude, Dr. Norwood placed NASA's SBIR program in the context of the agency's overall involvement with small business. Such activities come to about $1 billion annually, with between $500 million and $700 million going to firms in the high-technology sector. Kesh Narayanan National Science Foundation Promising to enumerate the strengths, weaknesses, and opportunities associ- ated with NSF' s SBIR efforts, Dr. Narayanan began by describing the program' s external advisory board and naming three conference attendees who serve on it: Terry Bibbens and Dan Hill of the Small Business Administration and Ann Eskesen of the Innovative Development Institute. This body looks at the NSF program in a very critical manner in the positive as well as the negative sense- and program officials not only pay attention to its advice but implement its recommendations. Proposal Selection Dr. Narayanan said that SBIR relies on the same method for proposal selec- tion that is applied in all programs at NSF: external peer review. The fact that not only program officers but members of the outside research community evaluate the proposals helps ensure that proposals selected are of high quality. And the outside reviewers, a very large percentage of whom are academics, have uni- formly praised the quality of the proposals submitted. He observed that this is "at odds with the general noise that you may hear about this gap between the aca- demic community and small business." If there is a dichotomy, he said, it is between science and engineering in the composition of the proposals received: Although only 10 percent of NSF's activities are in engineering, that field's portion of NSF's SBIR program is about 40 percent. Weaknesses of SBIR Dr. Narayanan acknowledged the perception within NSF that SBIR funding amounts to a tax on R&D resources. A second weakness is the low volume of proposals received by its STTR program, which mandates a partnership. And although university involvement in NSF's SBIR program is, at 40 percent of proposals, fairly high, there is room for improvement in this case as well: Much

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108 THE SMALL BUSINESS INNOVATION AND RESEARCH PROGRAM of the academic participation takes the form of faculty consulting, and actual dollars invested remains low. Dr. Narayanan attempted to build the NSF and academic communities' in- volvement in the agency's SBIR program by reminding reviewers that, as the ones who selected the projects, they share in their successes. Making the SBIR program subject to the Government Performance and Results Act offers another opportunity for building inclusiveness among the academic, NSF, and small busi- ness communities. Finally, as Rita Colwell, nominated to succeed Neal Lane as director of NSF, has had extensive experience with SBIR, he foresees significant gains for the agency's program. John Williams U.S. Navy The Need for Flexibility in SBIR Mr. Williams began by warning against the imposition of government-wide rules that would standardize SBIR, arguing that the program's flexibility allows it to respond to the specific agencies' needs. He stressed that, because SBIR funds are derived from a "tax" on an agency's R&D budget, their disbursement should be geared toward benefiting that agency's research program directly. But this principle may become obscured: Whereas the emphasis of the Navy's SBIR pro- gram is on development of products the service itself will buy rather than those whose primary market is the private sector, the term "commercialization" is often taken to refer mainly to the latter even, at times by the Navy's own evaluators. "We need to do a better job of training people," Mr. Williams admitted, but he nonetheless argued that agencies in general should keep in mind "where the money is coming from" when deciding how to spend it. Measures of Success Similarly, the program's success will be measured differently by different agencies. Setting a specific time within which products must be commercialized as a measure of SBIR success would be a mistake, Mr. Williams suggested. A Defense Department agency, for example, may need to get a program into its budget before it is able to buy a technology, something which may not be true across the federal government. He also reminded the audience that, when R&D proves that an idea is not technically feasible, this can be valid R&D. But it may be "viewed as a negative" in evaluating the success of a program. He also urged caution in obliging program managers to spend a great deal of time measuring the impact of their activities, saying that this would impinge on their ability to work with companies and technical monitors. This may loom even larger as R&D

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PANEL VI 109 budgets decline, leaving "less and less money [that would allow] program man- agers from the government to work with the technical officers of the companies." Returning to commercialization, Mr. Williams observed that many who evaluate SBIR proposals for the government agencies are far more qualified to judge technologies than business plans. Of the companies he has reviewed, "many are very strong technically but have not thought out how they are going to do their marketing plans." He suggested that pointing firms toward economic devel- opment groups in their areas might help them acquire better tools for crafting marketing plans. But he warned that the problem of finding a government evalu- ator skilled in reviewing such material might remain. DISCUSSION Working with the States Brian Belanger of the Advanced Technology Program at the National Insti- tute of Standards and Technology observed that state economic development agencies now have "very aggressive" programs to help high-technology firms with commercialization. He asked whether the state agencies' role in working with companies is growing. Dan Hill of the Small Business Administration responded by noting that a group he co-chairs under the U.S. Innovation Partner- ship a joint effort of the White House, the National Governors Association, and the U.S. Department of Commerce is looking into how the SBIR program might be leveraged with state and local resources, including the public partnerships that have been formed in many states. "My personal view is that we in Washington tend to think we have all the answers," said Mr. Hill, who also serves, along with Dr. Davis, on the National Science and Technology Council's Subcommittee on Innovation Partnerships. "In fact, we really do not. What we need to do is to get better at listening to the states, learning what's hot in the technology fields, getting ideas from them on what they are supporting, and then working together to leverage those dollars. And that's what we are trying to do in our groups." Agency-Awardee Interactions Mark Crawford, a reporter with New Technology Week, asked Dr. Norwood, who had mentioned not having enough funding to travel to SBIR applicant and awardee firms, whether he had the latitude to require them to visit him at NASA headquarters. Dr. Norwood stated that because the administration of SBIR must be funded out of other R&D management accounts, such spending takes away from other activities, a fact that imposes limits on it. Second, as NASA's many SBIR Phase II awarders are spread across the country, the problem of keeping in touch with them is in itself daunting. He has observed that venture-capital com

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110 THE SMALL BUSINESS INNOVATION AND RESEARCH PROGRAM panics tend to fund a "well-defined set" of firms that is generally limited to a particular geographic "sphere in which they have some influence-perhaps a tech- nology region like Silicon Valley." In this way, they are able to have access to their companies on a daily basis; he questioned, however, whether this approach offers a practicable solution for an agency with a widespread constituency. Responding to the same question, Ms. de Blanc noted that the DoE's travel budget is included in its personnel budget, which has shrunk with the extensive reductions in force of the past two years. "We have to prioritize travel funds with exquisite discretion," she said. "It gets down to what are you going to do go out and review an entire national laboratory or four SBIR projects" of the 350 that the department is funding? Increasing the size of individual SBIR grants is under consideration, which in some areas would make it more reasonable to devote funds to personal oversight of the projects. Nevertheless, DoE prefers that grant recipients' use their funding for research rather than spending it on trips to meet program officials.