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National Research Council (US) Committee on Capitalizing on Science, Technology, and Innovation; Wessner CW, editor. SBIR and the Phase III Challenge of Commercialization: Report of a Symposium. Washington (DC): National Academies Press (US); 2007.

Cover of SBIR and the Phase III Challenge of Commercialization

SBIR and the Phase III Challenge of Commercialization: Report of a Symposium.

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Jacques S. Gansler

University of Maryland

Dr. Gansler began by providing an overview of both the National Academies’ SBIR evaluation study and the goals of the conference. He noted that while the Department of Defense accounted for fully half of SBIR funding, both the study and the conference were intended to examine all five major agencies with significant SBIR programs.3

Purpose of the SBIR Review

In summarizing the purpose of the National Academies’ review, he pointed out that while the SBIR program itself was over 20 years old and had recently disbursed nearly $2 billion a year in small business funding, most reviews of the program had been largely anecdotal or internal.4 Only recently had the first external study been done of the NIH program, which he called a “very positive step forward.” He said during his time as Under Secretary of Defense, he had initiated the first comprehensive assessment of the DoD SBIR program, with the primarily purpose of evaluating the DoD Fast Track Initiative.5

That assessment recommended more external evaluations. Subsequently, Congress, in renewing SBIR in December 2000, called on the National Research Council to assess the program at the five leading SBIR agencies that together represent 96 percent of total SBIR spending.6

This effort did not begin immediately, partly because it required approval of all the agencies, which agreed to the study parameters only in December 2001. Funding required for work to start was received in September 2002, and the first NRC conference was held in October 2002.

Noting that he had assembled an 18-member committee to oversee the study, he added that it is an outstanding and diverse group, representing all aspects of the program, including the venture capital community, many small firms and prime contractors. This committee also oversees the work of an exceptional research team. Methodologically, the study is using a variety of approaches, including multiple surveys, interviews, and nearly 100 case studies. It would draw from a sufficiently large and representative sample of more than 4,000 firms for the Phase II survey alone.

The NRC plans to produce five kinds of reports:

  • A report for Congress on program diversity and assessment challenges
  • A formal methodology report required by agencies
  • This report on the commercialization and Phase III challenges
    A stand-alone report on SBIR at each of the five principal agencies
    An overview of the program with findings and recommendations.

The first two reports, he said, had already been published.7 The first report documents the wide variety of differences in the SBIR program among the agencies and even within agencies. For example, the NIH SBIR program is highly research oriented, while the DoD SBIR program is focused more on the defense mission. The chair underscored that the purpose of the current study is not to determine whether the SBIR program should continue—Congress has decided that—but to understand what could be improved, to discover what would be best practice, and to disseminate this information more widely through the agencies so as to improve the program’s outcomes.

Wide Variations Among Agencies

Because of the wide differences among agencies, individual programs used various approaches to the funding gap between Phase I and II, Phase III activities, and the length and size of awards. Because of these variations, the Committee’s surveys would need to look at not just five agencies but dozens of different programs within the agencies.

He discussed the dollar values of the programs, with budget estimates for FY04 at $1.002 billion at the Department of Defense, $563 million at NIH and just over $100 million each at NASA, the Department of Energy, and the National Science Foundation (NSF). He emphasized that even though the majority of all SBIR funding was spent by just two agencies, DoD and NIH, the study would include the large number of smaller agencies that also are involved in the program, partly because those smaller agencies might be the source of ideas that would benefit other agencies. Likewise, the committee wanted to ensure that any recommendations for the large agencies would not harm the programs of the small agencies.

Dr. Gansler showed several charts illustrating the range of approaches used by different agencies, in terms of selection procedures, research topics, funding flexibility, gap funding, award cycles, and other parameters (see Figures 2, 3, and 4). It would be the NRC committee’s task to identify the best practices and their most appropriate applications. A theme underlying all three figures, he said, was the program’s high degree of flexibility. A challenge for the committee would be to discern how best to take advantage of that flexibility to support the mission of the SBIR program in each agency.

FIGURE 2. Significant variation among the agency SBIR programs.


Significant variation among the agency SBIR programs.

FIGURE 3. Variation in agency approaches to the Phase I and Phase II funding gap.


Variation in agency approaches to the Phase I and Phase II funding gap. NOTE: The Navy’s SBIR program is an example of the variation within the Defense Department. (more...)

FIGURE 4. Variation in agency activities beyond Phase II.


Variation in agency activities beyond Phase II. NOTE: The Navy’s SBIR program is an example of the variation within the Defense Department.

He turned to the NRC assessment, which is very rigorous; subject to the National Academies’ high review standards of accuracy, balance and quality; and grounded in extensive surveys and case studies. One challenge, he pointed out, is that because of the paucity of information about SBIR programs, a valid, factdriven study—as opposed to an anecdotal or “interest-driven” study—would require new data, adding to the time required.

He reviewed in more detail the research tools that would be used in the NRC study. These include

  • An extensive survey of Phase II awards for the decade 1992-20028
  • A Phase I award survey
  • A survey of program managers
  • A survey of technical managers
  • An extensive set of case studies.

The reason for the large anticipated size of the survey (over 100 firms will be interviewed) is that every case, in effect, is a special case. Only by gathering a large enough sample can conclusions be drawn that are more valuable than mere anecdotes. It is hoped that the case studies, together with program statistics, will lead to a deep understanding of results. He invited conference participants to submit their own suggestions for cases studies, of both successes and failures, to increase the relevant lessons learned.

The Focus on Technology Transition

He then moved to the topic of the “Phase III” challenge, saying that Congress had been urging the agencies to help small firms make the transition from the Phase II demonstration or prototype phase into an ability to commercialize or “insert” a technology into an agency acquisition program or into the public marketplace. This transition is perilous because it requires a small firm—sometimes consisting of just one or two researchers or entrepreneurs—to evolve quickly from a narrow focus on R&D to a much broader understanding of systems and missions (in the case of a federal agency) or business, finance, and competition (in the case of the public marketplace). He listed a series of measures passed by Congress that stress the desirability of Phase III activities and the need to move projects more effectively toward commercialization.9(See Figure 5.)

FIGURE 5. Congress wants to increase Phase III awards and transitions into acquisition programs.


Congress wants to increase Phase III awards and transitions into acquisition programs.

The Meaning of Commercialization

Dr. Gansler noted that an early question in the current study was whether the term “commercialization” should include sales to the government as well as sales to the private, commercial market. The answer, he said, is “yes.” Many agency researchers contribute to projects for which there is little or no commercial market, such as weapons systems or space vehicles. Yet such activities should be counted as sales to a real market that fill a clear need—both important indicators of innovation and business development. One ideal outcome of the SBIR program, he said, might be a dual-use technology,10 for the following reasons: first, the government gains the benefit of an innovation; second, if the innovation moves into the commercial market, the firm succeeds, and competition tends to drive prices down and to force the technology to evolve rapidly; and third, the governmentas purchaser can then take advantage of the lower prices and advancing technology.

Expediting the Transition to Commercialization

He drew his own experience in DoD to recommend a three-pronged approach to assist the transition of SBIR products toward commercialization.

First, encourage program offices within the government need to play an active role. He said that in DoD, many programs took full advantage of the SBIR program by articulating their technology needs, clarifying how small businesses could help them meet these needs, and offering guidance and management assistance to small business to increase the value it delivered to the program. By contrast, he noted that many agencies in government still regarded the SBIR program as essentially a “tax” on their programs, and did not take full advantage of the SBIR program.11 In some cases, acquisitions managers did not see the value of the program until it was explained to them.

Second, ensure that the small businesses understand and focus on technology transition and insertion. This could be accomplished through education and training of small businesses, most of which need this assistance.

Third, increase the involvement of prime government contractors.This could be done by creating incentives for prime contractors to “pull” SBIR technologies toward maturity, as opposed to being “pushed” ahead by a sponsoring agency. This, he said, could make a huge difference, because prime contractors (unlike most small firms) have the resources and experience to quickly bring a technology to the stage of application.

The sum of these three approaches, in his experience, could produce a significant impact on more rapid and significant commercialization and transition. A key was to develop early partnerships among the small businesses, program officers, and prime contractors in order to increase the probability of success, speed product development, reduce cost, and stimulate the defense industrial base.

He also noted additional efforts by DoD to improve SBIR outcomes—notably the Fast-Track Initiative, which provides expedited decisionmaking for SBIR awards to companies that have commitments from outside investors.12

An Increased Need for the SBIR Program

In summary, he said, the federal government had already had a significant impact on technology development through the SBIR program. This impact could become more important in the future as the nation’s need for innovation solutions grows.

He said he had been surprised by early studies that showed how many entities were shrinking their research efforts or shifting them from basic research toward applications research and development. The federal government itself was reducing its research commitment in its 2006 budget, and other agencies were redesigning their missions to focus explicitly on development. This would have a pronounced effect on universities, which are highly dependent on the federal funding for research funding. A reduction in federal grants would increase their dependence on commercialization activities, he said, to the neglect of long-term research with high risks but high payoffs. Industry as well, he added, had reduced its research budgets in favor of an incremental and developmental focus.

These conditions, he concluded, increased the urgency to optimize the SBIR program, which is one of the few large programs available to help small, technology-based businesses survive and expand their contributions to the economy and to federal missions. The government spends about $132 billion a year on a vast range of R&D activities, only about $2 billion of which goes to the SBIR program. A careful strategy was needed if small businesses are to take full advantage of SBIR funding and to make their full contribution. The participants’ help in the current evaluation, he said, would be critical in identifying those practices that best allow the private sector to capitalize on technology-based innovations.



In 2005, DoD accounted for 50.9 percent of total SBIR dollars. Source: U.S. Small BusinessAdministration Tech Net Data Base.


In 2005, the total SBIR budget was $1,851 million. Source: U.S. Small Business Administration Tech Net Data Base.


National Research Council,The Small Business Innovation Research Program: An Assessment of the Department of Defense Fast Track Initiative, Charles W. Wessner, ed., Washington, D.C.: National Academy Press, 2000.


These agencies in decreasing order of size are the Department of Defense, the National Institutes of Health, the Department of Energy, the National Aeronautics and Space Administration, and the National Science Foundation. Together they accounted in 2005 for 96.7 percent of SBIR.


See National Research Council, SBIR: Program Diversity and Assessment Challenges, Charles W. Wessner, ed., Washington, D.C.: The National Academies Press, 2004. The Committee’s methodology report is published on the web. It is available at < >.


The data base stops around 2002, because considerable time is needed both to gather the needed data and to judge the impact of the program.


The most recent of these was the 2005 National Defense Authorization Act.


A dual-use technology is one that has value both for a federal agency (often defense-related) and for civilian applications.


The SBIR program is a “set-aside” program funded by a 2.5 percent assessment on extramural spending for research, development, technology, and engineering.


For a review of the Fast Track Initiative, see National Research Council, The Small Business Innovation Research Program: An Assessment of the Department of Defense Fast Track Initiative, Charles W. Wessner, ed., Washington, D.C.: National Academy Press, 2000.

Copyright © 2007, National Academy of Sciences.
Bookshelf ID: NBK11402


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