La Derivada

Small businesses where chosen for this case study analysis because they have competed in the SBIR program and received phase I or phase II funding for an IST R&D project. Additionally, these firms possess the unique skills to develop IT systems and components that advance open systems architecture initiatives in the DoD to enhance innovation and reduce program life-cycle costs. Most firms described in the case studies appear to be oriented toward defense industry and federal government research and development by providing specialized products and services that are unique to government use. Most participating companies receive additional revenue through the sale of products or services either as prime contractors to the DoD, or as sub-contractors who partner with larger defense prime contractors in the defense industry; however, many also sell or lease technology in the commercial marketplace. As a point of comparison between firms, Figure 36 graphically depicts revenue sources of the firms reviewed in this research. These case studies, as well as information obtained from interviews with program participants, highlight how small businesses use the SBIR program to align R&D efforts with identified customers and with the specific needs of the DoD and, consequently, the defense industry. This supports the notion that the SBIR program is an effective mechanism for the DoD to communicate R&D requirements directly to small businesses to achieve maximum participation. SBIR Awards 21% Other  Revenue 79%

Architecture Technology Corporation 2006‐2010

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Figure 36. SBIR Firm Annual Revenue Comparison

Participants tend to be fairly young companies; nine of the 14 were founded within 10 years of the time period used in this research and the average founding date was 1991. The businesses reviewed in these case studies employed an average of 76 people and most companies were classified in the industry Research and Development in the Physical, Engineering, and Life

Sciences (Except Biology) by the SBA (NAICS code 541712; Executive Office of the President,

OMB, 2007). The largest firms reviewed in these case studies regularly participate in the SBIR program and have consistently received numerous SBIR awards; excluding first-time award winners, SBIR participants received on average approximately $4.3 million annually through SBIR phase I or phase II awards. Furthermore, of the 14 firms reviewed, only three (Future Skies, Traverse Technologies, and Orielle LLC) appear to be first-time award winners entering the SBIR program; of those, only Future Skies appears to still be an active company in software development and sales. The steady participation in the program by most participants demonstrates how small businesses participating in the program leverage SBIR R&D financing to augment R&D financing and develop IST products and services for transition to DoD programs or for commercialization. Furthermore, the information obtained from interviews as well as the data collected from these case studies support the notion that successful participation

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in the SBIR program facilitates company growth and frequently contributes to commercialized products and services.

One of the congressional goals of the SBIR program is to “foster and encourage participation by minority and disadvantaged persons in technological innovation” (SBID Act, 1982). Three major categories used to track participation by minority and/or disadvantaged persons are women owned, minority owned, or located in a historically underutilized business zone (HUB Zone). These case studies presented very little evidence that the SBIR program is effectively fostering and encouraging participation by minority and disadvantaged persons in technological innovation; of the firms reviewed in these case studies, only 29% reported to be woman owned, 7% minority owned, and 7% in a HUB Zone. However, generalizing program effectiveness at meeting this congressional objective is difficult because no data is collected on the number of SBIR proposals submitted by these types of small businesses, and, therefore, an analysis of the trends in SBIR proposals is difficult to accomplish.

Finally, revenue data collected in the case study portion of this research provided me with a point of comparison between participating SBIR firms. Figure 37 compares total revenue for the 2006–2010 time period with the percent of that revenue received from SBIR awards in terms of contract obligations received. Smaller firms (total revenue of less than $40 million) have much more variability in the percent of total revenue attributed to SBIR awards than do their larger counterparts, who, with one exception, do not exceed 25% of total revenue from SBIR- related contracts. Some small high-tech R&D companies are young and rely heavily on SBIR funding to provide or supplement startup costs, other small businesses appear to focus primarily on DoD R&D through SBIR contracting, while other small companies use SBIR funding to augment existing external R&D funding, but rely heavily on private sector sales (or other federal contracting) as a primary source of revenue. This demonstrates higher volatility, and, thus, potentially higher risk, among the smaller firms participating in the SBIR program.

As total revenue increases, reliance on SBIR funding tends to decrease. The percent revenue attributed to SBIR awards among larger firms does not exceed 25%, with the two largest firms having only 10% and 9% of total revenue from SBIR-related contracts. This suggests that larger, well-established firms in the program use SBIR funds primarily to augment R&D funding and to align technologies with potential customers, and that the primary sources of revenue result

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from commercial market sales/lease and/or federal contracting action other than SBIR. The one outlier represented in the data is Physical Optics Corporation (POC), which appears to be a larger firm that relies heavily on SBIR funding as a source of total revenue (67%, according to data collected in this research). While this seems to suggest POC’s failure to commercialize SBIR products and, subsequently, increase revenue from other sources, POC has, in fact, successfully commercialized SBIR products by spinning off separate companies to develop, manufacture, and sell those technologies. This common approach to phase III commercialization highlights the difficulty in assessing phase III commercialization success and SBIR program performance. If this approach to technology transition/commercialization is not thoroughly understood by researchers attempting to quantify the performance of firms in the SBIR program, it could result in underestimating the performance of participating firms or even the success of the SBIR program in general. Attempts to estimate the SBIR program’s return on investment of federal funding can become particularly complex when revenue resulting from a commercialized SBIR technology is received by a different firm than the one who initially received the award. This highlights the difficulty in any academic research that attempts to assess program performance by evaluating revenue from commercialized technologies of SBIR participants if the research excludes spin-off companies that might exist solely as a result of SBIR-funded technology.

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