SMALL BUSINESS INNOVATION RESEARCH | SMALL BUSINESS TECHNOLOGY TRANSFER

DISCOVER - INNOVATE - LEVERAGE

This study was conducted by TechLink, a DoD Partnership Intermediary (per 15 USC 3715)at Montana State University, Bozeman, MT, for the Air Force SBIR/STTR Program

under Contract Number FA8650-15-3-9353

TABLE OF CONTENTS U.S. Air Force Small Business Innovation Research / Small Business Technology Transfer Program Best Practices Handbook

March 2018

SECTION I AIR FORCE SBIR/STTR BEST PRACTICES STUDY

Background 1

Study Process 2

Study Purpose 5

SECTION IIBEST PRACTICES TOPICS

Pre-Proposal 7

SBIR/STTR Phase I 13

Post-Submission 24

Commercialization Readiness 29

SBIR/STTR Phase II 37

SBIR/STTR Phase III 42

Additional Considerations 45

SECTION IIIAIR FORCE SBIR/STTR SUCCESSES

Company Success Stories 53

SECTION IV Abbreviations 81

References 82

A P-51 Mustang, A-10C Thunderbolt II and an F-22 Raptor. (Eric Summers Jr. / U.S. Air Force)

SECTION I: AIR FORCE SBIR/STTR BEST PRACTICES STUDYBackgroundSince 2000, TechLink has been helping companies to compete effectively for federal Small Business Innovation Research and Small Business Technology Transfer (SBIR/ STTR) awards, with primary focus on the Department of Defense (DoD) opportunities. Operating as a DoD Partnership Intermediary at Montana State University, TechLink has helped companies achieve an award/success ratio that is more than double the national average. Altogether, TechLink has helped companies to secure more than 350 SBIR/STTR awards by instructing them in known “best practices” to guide them to success.

This present study was undertaken to spotlight the best practices of highly successful companies engaging in the Air Force SBIR/STTR program. The study leverages data from earlier survey work completed by TechLink to identify the economic impacts of Air Force SBIR/STTR Phase II award projects that achieved completion during the period of 2000-2013 (2014 Air Force SBIR/STTR Phase II Economic Impact Study).

The study population of the 2014 Air Force Economic Impact Study included 1,750 companies that received 4,524 Phase II contracts from the Air Force which were completed during the years 2000 – 2013. Companies were asked to divulge the total sales of new products and services directly related to their Air Force SBIR/STTR Phase II contracts. They were also asked about related sales to the U.S. military, follow-on research and development (R&D) contracts, acquisitions, licensing revenue, and sales by licensees and spin-out companies.

Analysis of the survey data quantified the Air Force SBIR/STTR program’s overall contribution to the nation’s economy and defense. Fifty-eight percent of the Air Force Phase II contracts resulted in sales of new products and services based on the innovations developed from the contracts. Total sales reported totaled $14.7 billion, including $4.4 billion in military product sales. The data analysis concluded an average yield of 16,751 new full-time jobs per year, with an average wage of $65,968.

The Air Force Economic Impact Study was a first-ever comprehensive insight into the impacts of the federal SBIR/STTR program. It provided a firm foundation of data for the identification of companies to be re-interviewed with a focus on the best practices they considered to be important to their achievements. The key metrics of success in the SBIR/STTR program relate to the attainment of contracted awards, and commercialization of the SBIR/STTR-funded technology. Commercialization can take any number of pathways but ultimately, must result in revenue to the small business and commercial (including government/military) availability of the SBIR/STTR technology or its derivative.

1

Study ProcessIdentifying Top PerformersImplementation of the Air Force SBIR/STTR Best Practices Study began with identification of the most successful companies according to survey data from the 2014 Air Force SBIR/STTR Economic Impact Study. This group of companies represented the top 40 performers in each of seven categories that were considered to represent important indicators of commercialization success. As might be expected, many companies were successful in more than one category. As a result, the top-performers group consisted of 174 companies (rather than 280). Together, this group represented approximately 10% of the 1,750 companies involved in the initial Economic Impact Survey.

2

TABLE 1: Summary of the seven commercialization categories and revenue ranges for the 40 top-performing companies in each category.

COMMERCIAL CATEGORY

DESCRIPTION REVENUE RANGE FOR TOP PERFORMERS

Acquisition The amount for which a company was acquired as a direct result of technologies developed with Air Force SBIR/STTR Phase II funding

$12.4M to $2.45B

Military Sales The amount of reported sales to the U.S. military of technology developed with an Air Force SBIR/STTR Phase II award

$20M to $500M

Spin-off Company Sales

The amount of reported sales generated by a spin-off company created to commercialize an Air Force SBIR/STTR Phase II technology

$2.6K to $20M

Total Combined Sales

The cumulative total of six categories: commercial sales, military sales, license royalties, licensee sales (not included individually as a best practice category), spinoff sales, and follow-on contracts

$65M to $1.5B

License Royalties The royalties received from licensing the Air Force SBIR/STTR technology

$5K to $17.7M

Follow-On Contracts

The amount of follow-on R&D funding received to further develop the Air Force SBIR/STTR technology

$18M to $90M

Commercial Sales The U.S. non-military sales of technology developed with an Air Force SBIR/STTR Phase II award

$20M to $1.4B

3

Interviewing Top PerformersTechLink contacted the most successful 174 companies identified and fully completed “best practices” interviews with a total of 104 companies. A standardized questionnaire was used to collect information about company adherence to known best practices, while also promoting open discussion about what strategies best enabled their successes in obtaining awards and in achieving commercialization. Company responses were documented during the study interviews, permitting best practices to be accumulated in a database and represented in this report.

ReportingBest practices topics distilled from the interview process were organized to correspond chronologically to a company’s engagement in the SBIR/STTR process. The following best practices topics are represented in Section II of this report:

• Pre-Proposal • SBIR/STTR Phase I• Post-Submission• Commercialization Readiness • SBIR/STTR Phase II• SBIR/STTR Phase III• Additional Considerations

Section III of this report will feature company success stories selected to illustrate diverse approaches to achieving project and commercial success.

“We’re always seeking where technology is

being used and which businesses

are using it.”Advice from top performer

4

Study Purpose Innovative R&D under DoD SBIR/STTR programs is solicited through the publication of topics relating to technical issues experienced or anticipated opportunities within DoD programs. This approach is unlike that followed by other federal SBIR/STTR sponsoring agencies, which publish more generalized topics to serve public interests. When a company achieves an innovative solution to the DoD technical topics, it becomes highly desirable to connect the resulting technology with relevant military applications. This process is called “transition” or “insertion” of SBIR/STTR products and services to benefit the Warfighter. At times, the transition occurs when a company contracts directly with a military Component or Defense Prime Contractor for continued R&D, or for the sale of goods and services. However, sometimes technology needs to become commercially available through pathways such as licensing or spin-out of a new company before it can be successfully transitioned to meet military needs, or enter the commercial marketplace.

This report of best practices guidance is intended to increase both the award success rate and the rate of commercialization and transition success achieved by participants in the Air Force SBIR/STTR Program. Small business newcomers to the program can use the tips to engage more competitively with Air Force program requirements, and seasoned SBIR/STTR participants will gain insights into engaging gap and Phase III opportunities and alternative pathways of commercialization success. Finally, all program applicants can benefit from specific examples of how other companies have successfully achieved revenues from their commercial results.

5

U.S. Air Force F-22 Raptors from Joint Base Elmendorf-Richardson, Alaska (Gregory Brook / U.S. Air Force )

SECTION II: BEST PRACTICES TOPICSPre-ProposalThe Air Force SBIR/STTR program invested $337M into FY2016 SBIR/STTR projects through the Air Force Research Laboratory (AFRL) Directorates and other Air Force organizations. Broad Agency Announcements (BAAs) are published as part of the DoD-wide SBIR/STTR process, with three releases each year. The majority of approximately 170 Air Force technical topics in a year are published in the first fiscal year release, although the Air Force may also participate in the second and third DoD BAA publications.

Each published topic includes information indicating the DoD Component and program office sponsoring the topic, a specific description of the technology being sought, and general expectations for Phase I and Phase II projects and dual-use commercialization. Relevant literature citations will be displayed, and a Technical Point of Contact (TPOC), is referenced with contact information during the “Pre-Release” period. The TPOC is typically the topic author and/or otherwise involved in the related military program. TPOC information is removed when the BAA officially opens.

At the outset of the SBIR/STTR process, small businesses must review published research topics and assess their team capabilities to achieve a technical solution that will serve both the military and commercial market needs. A “Bid & Proposal” process is a resource-demanding investment and should only be engaged if the company expects to be competitive. Before engaging, consideration initially must be given to whether all the company’s electronic submission requirements are in place. The required registrations are interdependent and can result in delays that have potential for derailing the proposal planning. The requirements include business entity formation, a fully current System for Award Management registration (SAM.gov), the Small Business Administration Company Registry (SBA.gov), and access to the DoD SBIR/STTR proposal submission portal at: https://sbir.defensebusiness.org.

Top-performing companies in this study identified many best practices that they employed before beginning to write a proposal. These included topic selection and assessment, project team identification and development, early contact with the Air Force TPOC, and development of planning and timelines for both the proposal writing and the R&D project. These pre-proposal best practices are described in further detail below.

Topic Selection and AssessmentThe small business must have one or more lead technical persons responsible for reviewing technical topics as soon as the DoD SBIR/STTR BAA is published on FedBizOpps.gov (also located at: www.fbo.gov) and https://sbir.defensebusiness.org. Each DoD BAA links to the Air Force and other participating DoD Components’ proposal preparation instructions, as well as the general DoD SBIR and STTR instructions. Each DoD Components’ instructions include the current round of topics being advanced by that DoD Component.

7

Rather than reading all the topics, keyword searches related to the company’s core competencies can be performed with varying results at the following websites: www.sbir.gov/sbirsearch/topic/currenthttps://sbir.defensebusiness.org/topics

Searches based on keywords can be fallible if not applied in a well-diversified approach. Study participants also suggested being alert to topic referrals from past TPOCs, customers, sales representatives, and industry or academic peers.

On locating topics of interest, a preliminary review can be performed to ensure the technical need is fully understood. Accompanying citations should be fully investigated to develop a thorough understanding of what the topic author is seeking. Successful companies will initiate a multi-faceted preliminary assessment to determine awardable project potential.

• Technical assessment: A small business must seriously consider whether pursuit of a novel technical solution fits well with its vision, mission and business model, regardless of compatibility with company expertise. It can be very tempting to engage on a project just because of confidence in being able to achieve a solution. The assessment process needs to focus primarily on whether that effort will be an enhancement to the company’s prevailing business trajectory. Furthermore, the envisioned solution cannot be expected to be meaningful or implemented without size, weight, performance, and/or cost and time savings to the Air Force and for other applications. If determined to be a good fit, the company may need to quickly perform preliminary experimentation or design work to formulate a Phase I project that will adequately demonstrate technical feasibility.

• Team assessment: After determining a topic is a technically suitable pursuit, the company will need to assess whether it can make available the skills and time that will be demanded by the Phase I and Phase II projects. Technical skills are required to achieve proposal construction, project management, work plan execution and project reporting requirements. Access to suitable business skills is equally important for the proposal development process, commercialization planning and implementation, post-award contracting requirements, and government accounting. Assessment of the team requires holistic consideration of the company commitments for the next 1 to 3 years post-Phase I award. Team building might involve hiring personnel, and/or accessing expertise through the company’s subcontracting, consulting, and services relationships.

• Commercial assessment: All too often, SBIR/STTR companies are focused on their technical solutions, and delay an assessment of commercial potential until the proposal is already being written. If the small business has not already achieved commercial success in the topic field of interest, attention to the means of commercialization is critical in the pre-proposal process. The Commercialization Strategy section of the proposal plays a significant role in overall scoring, and successful companies carefully correlate potential technical solutions with their business roadmap and perceived market potential. Many study respondents stated that one criteria for moving forward on a proposal was having confidence in being able to achieve an end-product or service within a

8

specific time frame. Clarity of business and commercial purposes were repeated themes, as was a focus on what must happen in Phase II to properly position the company for Phase III commercialization efforts. Understanding the military need for a solution is identified as a key driver to designing appropriate testing, demonstrations, and deliverables for the proposed Phase I and II projects.

• Financial assessment: Pursuit of an SBIR/STTR proposal initiates an immediate demand on the company’s financial resources. In addition to the value of staff time invested in developing the proposal, consideration needs to be given to whether the SBIR/STTR funding is actually necessary to the company pursuit of the technology. For startups, SBIR/STTR funding may be the only option available to develop a technology and advance the business, whereas experienced companies may be positioned to attract investment funding or leverage off of existing sales revenue to fund further R&D, and potentially reach the marketplace faster than the SBIR/STTR timeline. To enable informed decisions, study respondents described generating precise cash flow analyses and detailed financial modeling. The post-award timing of SBIR/STTR funding also impacted the decision process, with unavoidable time gaps between proposal submission, award announcement, receipt of funds, and the transition between opportunity phases.

Pre-Proposal Contact with the TPOCA proposal can easily go a wrong direction when it depends only on company knowledge and assumptions. Best practices of leading SBIR/STTR companies include forceful reminders about developing relationships with the TPOC named under a topic, and the Air Force sponsors in the SBIR and program offices. Networking efforts benefit the company’s depth of perception about the sponsors’ expectations and the technical problems to be solved.

All the published DoD SBIR/STTR announcements include a schedule for Pre-Release and Open periods, plus the BAA Close date and time, which is a firm deadline for final proposal submission. During Pre-Release, the government does not accept proposals, but permits the companies to discuss technical questions directly with topic authors.

Once a BAA is in the scheduled Open period, company proposals can be submitted through the online portal, and direct dialog with a topic author is no longer permitted. At that time, further technical questions can be sent anonymously through the DoD’s SBIR Interactive Topic Information System (SITIS) at: www.sbir.defensebusiness.org. SITIS requires registration and questions can only be submitted during the Open period, up until two weeks before the BAA Close. All questions

“Always know your customers; be able to name the person who will buy your product when you submit a

proposal.”Advice from top performer

9

and answers are posted at the site anonymously for general viewing. Throughout the proposal process, it is advisable to keep a close eye on SITIS for updated interactions with the TPOC.

Companies should also check in regularly with the BAA download site where topics are occasionally listed for deletion, and special instructions can be posted from the participating DoD Components.

Following are further tips for engaging pre-proposal contact with the topic TPOC.

• When to make contact: Prospective applicants are strongly advised to initiate contact with the TPOC in the 30-day Pre-Release period during which a private discussion can be conducted. Contact information is made available within each published topic. It is a best practice to make contact early in Pre-Release as the TPOC cannot always be responsive when a high volume of contacts accumulates right before the Open period. If further technical questions arise while the proposal is being written, those can still be advanced by using SITIS. A company needs to carefully consider posting on SITIS, balancing concerns about providing technical insights that will be publicly viewed against proceeding with technical assumptions that could go in a wrong direction.

• How to make contact: A technical representative from the small business can make contact by telephone or email, and in increasingly rare cases, may be able to visit in person. Of all the study respondents who commented on making contact during Pre-Proposal, none perceived email as a sufficient means for building rapport and obtaining necessary information. Some of the companies strongly advocated for the value of face-to-face contact, but recognized that a TPOC will not always be receptive to a site visit, or more often will be prohibited from doing so after the BAA is first posted in Pre-Release. Those companies making contact by telephone during the Pre-Release period felt the conversations enabled informed decisions without expending the time and resources for a personal visit. All companies making Pre-Release contact recommended that calls be well-directed and limited to 5 to 10 minutes. They advised against leaving telephone messages, and warned that the TPOCs will not always interact in a meaningful fashion. Nonetheless, it is an imperative to engage at the fullest extent permitted, to access any insights that might also be obtained by competing companies.

• Discussion during contact: Contact with Air Force personnel is all about learning the sponsor’s reasons for posting the topic, in addition to any specifications, opportunities, and applications anticipated for the requested technology. The company’s discussion about its own technical solution should be very concise, providing only enough information for the TPOC to interact on whether a project will be sufficiently innovative and technically challenging to be appropriate for the funding opportunity. When a proposed technical solution is not a complete match with topic expectations, the company should cultivate responses that enable them to assess the level of interest and adaptability being expressed by the TPOC. Study participants indicated their commercial assessments were aided by getting a sense of the TPOC’s commitment to the topic and as a potentially strong future advocate for the technology being

10

developed. The communications occasionally revealed if there was any specific prime contractor of interest for partnering, and whether other companies and technical solutions were of specific interest. Finally, the TPOC was perceived as being instrumental in customer discovery, providing insights useful to the company in developing compelling and actionable commercialization planning.

Project PlanningThe online-published BAA links to DoD instructions for constructing and submitting an SBIR/STTR technical proposal, and the criteria against which a proposal will be scored. The DoD guidelines are further supplemented by specific instructions and topics from the Air Force and other participating DoD Components. The most fundamental advice offered by all the study respondents was to very carefully read the DoD and Air Force instructions, and revisit the site regularly for any updates.

Identifying the Project TeamA company’s leadership must take immediate steps to identify its business and technical team for the proposal and project planning process. In a new startup company, this team may consist of one or two persons. Whereas, a large company often has many projects being bid and underway at any given time, and will assemble a team based on suitable skill sets and availability. Study respondents tended to concur that proposal development teams of more than four people can unnecessarily complicate coordination of a plan.

At the outset of the planning process, careful consideration should be given to the person who will be the project Principal Investigator (PI). This person will be responsible for the scientific and technical direction of the project. The PI must meet eligibility requirements and should have a compelling technical profile. For an SBIR proposal, their primary employment must be with the small business at the time of award and throughout the proposed project. For a DoD STTR proposal, the PI may be employed by the collaborating Research Institution (RI), if appropriate. The PI will provide project leadership and needs to be able to give the effort sufficient time and attention.

When lining up the project team, some of the personnel may be provided access only on a “need-to-know” basis because of the proprietary information revealed in project planning and a proposal. Proper steps need to be taken to protect the confidential technical discussion that must be conducted. Existing employee or consultant agreements, and/or a Non-Disclosure Agreement, can provide protection for information that must remain confidential. For example, revealing enabling details about a company invention to be applied in the project could invoke an unintended patent bar, and jeopardize future patentability.

Outside parties are valuable and necessary team resources for most of the companies developing a project plan. For an STTR project, there will be technical leadership and researchers from the collaborating research institution. Other project collaborators may be university and industry consultants with specialized levels of technical expertise, companies with complementary capabilities or R&D interests, manufacturing companies, and DoD prime contractors. In fact, a partner might be a

11

future potential customer for the project technology, and offer valuable perspective to the commercial strategy. It is in the best interest of all parties to be deliberate about how the relationship will be structured for the project duration. This structure may shape up as an employment opportunity, a subcontract, a consulting agreement, or perhaps even an equity position in the company.

Companies reported that they located outside technical partners through conference proceedings, technology expositions, scientific and engineering literature, patents in that technical field, and outreach to universities and community organizations. Another valuable resource recommended by study respondents can be found in review of past SBIR awards in similar topics and fields of research. Previous awardee abstracts and related company websites might reveal partnering prospects, but also can offer insights into alternative, and possibly competing, technical approaches pursued under SBIR funding.

Defining the Work PlanThe first task of the proposal writing team is to make a firm commitment to the company’s proposed technical solution. The scope of a Phase I work plan will focus on achieving a meaningful demonstration of the feasibility of the proposed solution. Funding is very limited for the SBIR/STTR Phase I project, and it is imperative to have a tightly directed first effort. At times, an early dialog with the TPOC may reveal specific requests for the Phase I effort to be factored into the work planning. The technical personnel will need to whiteboard the tasks identified and rough out how the Phase I Statement of Work will ultimately position the small business for transitioning into Phase II.

When a work plan has been roughly scoped out, the team can begin to articulate the project objectives. Objectives are not just summaries of the tasks to be performed; they represent what the project team expects to achieve as a direct outcome of the work plan. Objectives should be quantified whenever possible and fully representative of the Phase I project plan. When written correctly, an Air Force proposal reviewer will be able to read the proposal Technical Objectives and have clear understanding of 1) what the company expects to achieve with the Phase I funding, and 2) whether that will sufficiently validate the project’s technical feasibility to solve the problems presented in the topic. At the end of Phase I, the objectives are the accomplishments by which the project success is measured. Defining the project objectives before proposal writing commences will also yield better cohesion in the representation of the work plan.

The tasks and objectives will sharpen while the proposal is being written, however the advanced planning will allow company leadership to further assess the project staffing. There must be well-credentialed expertise on the project team for every aspect of the proposed Statement of Work. When the team has committed to a basic plan, a schedule of major project events can be outlined, and a timeline also can be developed for completion of the Phase I proposal writing assignments.

SBIR/STTR Phase IA DoD Phase I proposal consists of four “volumes” to which entries must be completed, including the Cover Sheet, the Technical Volume, a Cost Volume,

12

and a Company Commercialization Report. Following are practices by successful companies relating to each of the volumes.

Proposal Cover Sheet (Volume One)A company official will need to take the lead on preparing the Cover Sheet. The information required draws directly on the advance registrations completed (e.g. SAM.gov and the SBA Company Registry). The Cover Sheet includes a technical abstract and anticipated benefits statement that are publicly released in the online awards database after a project is contracted. To properly represent the team and its proposed solution, those Cover Sheet parts should not be written until the proposal is well underway. Companies need to exercise due caution in how they represent themselves and their technology for post-contract public viewing.

Technical Volume (Volume Two)Technical writing skills are critical to producing a smoothly readable proposal that meets all announcement requirements. At times, companies are tempted to hire a proposal writer to fulfill this role. However, without a good scientific or engineering background and strong company insights, that person is unlikely to be able to yield an award-worthy proposal. At the least, they must be paired with internal expertise to achieve sufficient depth in the text.

The Technical Volume must describe an innovative technical approach with reasonable prospects for meeting the topic objectives. It also must represent a proposing firm that has the capabilities to implement that approach.

Companies frequently fail to introduce themselves into the opening of the proposal, simply presuming reviewers have read all forms and registrations supporting the submission. It is very important for the company to succinctly state its expertise and value proposition, early in the proposal.

Proposal DevelopmentStudy respondents universally agreed that writing the proposal requires a fresh review of the DoD and Air Force guidelines, checking repeatedly for any changes or missed information, and being careful to understand the criteria by which a proposal will be evaluated. Before writing begins, a template can be created with attention to meeting formatting details such as fonts and margins. Failure to adhere to the guidelines, even on seemingly minor details, can result in a proposal not being reviewed upon submission. The solution is having at least one team member take responsibility for policing responsiveness to the announcement, and to help the writing team as needed on its inquiries about program requirements.

Being in tune with the guidelines leads to creation of a well-formatted proposal template that directly corresponds with the opportunity announcement instructions. The primary instructions for each text section can be copied into comment boxes that are inserted into the proposal template. This is particularly important since a proposal may be written by multiple authors and can easily veer away from the content requirements. Instructions should not be inserted in-line with the text. The insertions throw off page limit considerations and all too often, companies fail to get those deleted before submission. The guidelines comment boxes can also be used to include an estimation of page counts allotted to each section, helping to promote a balanced

13

proposal. Finally, a system of version control is important when there will be more than one author. This practice can be handled through a software system that allows sections to be checked out (library style), or under management of a staff person, or through a company system of folders and file labeling. Following these technical writing practices will save copious hours of text editing.

An assigned editor also can reinforce strong writing conventions. The proposal authors are frequently scientific or technical personnel. They need to be cautioned about undue use of insider industry jargon and acronyms. Every section should be opened with a lay explanation that then gives way to the technical discussion. This approach will yield a proposal that is understandable for all reviewers, regardless of their level of peer expertise. The proposal editor can also help to break up lengthy compound sentences, and prompt writers to communicate in active voice. The text is far more effective when using positive, action-oriented statements such as, “We will investigate,” as opposed to conditional statements such as “We hope to achieve” and “If the project is successful.” It is remarkably easy to slip into conditional and passive communications that have a tepid influence on reviewer perceptions of the proposed project. As the text progresses, key word searches can be performed to help eliminate these unduly cautious phrases and verbs.

In addition to the editing role, non-technical team members also can be instrumental in the development of Volume Two by collecting and formatting information such as key personnel technical resumes, facility and equipment information, and commercial market insights. Other materials that are non-mandatory but that can be important to documenting the proposed project include graphics or figures, and letters of support from subcontractors, future customers, and partners. Creating or obtaining these materials can take time and it is advisable to get those started early in the proposal-writing timeline.

As the text develops, company business personnel will be able to provide additional support to the technical team in identifying and marking proprietary information in accordance with the DoD guidelines, performing editing and formatting, and monitoring adherence to the announcement guidelines and the proposal development timeline. In smaller companies, these many writing functions may be dependent on one founder/researcher, which is all the more reason why the many proposal elements must be broken out in detail, and scheduled for completion.

Identification and SignificanceThe opening section of Volume Two is an opportunity to discuss the problem or opportunity that will be addressed by a project. This section is all about impact – the societal and technical importance of achieving a solution or advancements for this field of interest. Though it should be written within the context of the published topic, it is a waste of valuable page count to simply recite back to an Air Force TPOC the information provided in the topic. Instead, this section is a first opportunity to demonstrate the applicant’s subject matter expertise. Best practices suggest opening the section with at least one line to introduce the company’s specific expertise in the required field of research, followed with one or two lines on their overarching approach to the opportunity or problem(s) identified in the topic. The suggested

14

introduction gives relevance to the more detailed discussion that is shaped up in this section.

Technical Objectives and Statement of WorkThe core of the Technical Volume relates to a very thorough project justification and proposed plan for the work to be performed. If the objectives and tasks were laid out in Pre-Proposal planning as recommended, the technical authors will be well positioned to write the Phase I Technical Objectives and Statement of Work sections.

The Technical Objectives section is not a summary of the work plan tasks, and it is not where the company technical approach is explained. The Phase I Technical Objectives should be written in one page or less to succinctly state the anticipated achievements or outcomes from performing the tasks described in the Statement of Work. Forecasted achievements are the most effective when quantified, even if expressed as a range of variables or measurements. Objectives will clearly indicate the feasibility of the company’s technical approach to the topic, and should not include Phase II expectations. The means by which Phase I lays a foundation for Phase II efforts is discussed later in the proposal section, “Relationship with Future Research.”

It is very common for companies to overlook the part of the Technical Objectives guidelines that requests “the questions the research and development effort will try to answer to determine the feasibility of the proposed approach.” A good practice is to enumerate each separate objective to be achieved, followed immediately by the primary questions that the research team must resolve. Writing objectives in this fashion provides an outline that fully illuminates project expectations. This page will permit proposal reviewers to comprehend very quickly how a company’s project can meet expectations of the published topic. The section also becomes a useful reminder to the research team when they eventually need to report on their project performance.

Unique to the Air Force guidelines is its request for a Phase I Work Plan Outline. Companies need to follow these instructions carefully, providing a one- or two-page outline as described, which would be used as the Statement of Work (SOW) in any resulting Phase I award contract. The Milestone Schedule can be presented as a GANTT chart and does not have to be repeated in the more detailed Statement of Work section. The Air Force SBIR/STTR Phase I program offers a 9-month base funding amount and does not separate out Option funding as offered by the Army, Navy, and DARPA. Accordingly, all tasks will relate to the base funding work plan.

In devising the work plan, it’s important to remember that despite the Air Force’s 9-month Phase I base period, the company “must accomplish the majority of their primary research during the first six months of the contract.” This includes proving feasibility of the project within that six-month initial period.

Following the requested outline section, companies will then adhere to the DoD guidelines for a detailed Phase I Statement of Work. An initial subsection can be used to discuss the technical approach, which can then be followed with detailed plans for execution of each enumerated task. This is not simply a top-level summary of what will be done in the task. Well-written Statements of Work detail how and why the task will be performed, plus where, when and by whom. The tools,

15

instruments and methods to be deployed must be explained. If those methods are proprietary or otherwise not commonly known in the field of research, those should be discussed in detail. Within the task discussions, the researchers should address any decisions or barriers that may be encountered and how those can be resolved. The accomplishment of each task will directly relate to yielding at least one of the stated technical objectives.

Project DeliverablesBeing disciplined and intentional about proposal content can reduce stress later during execution of a Phase I project. The successful Air Force companies strongly advised against “over-promising” in the proposal. The Phase I budget is very limited, and project managers must be careful to control work efforts that will not directly contribute to demonstrating the technical feasibility of the proposed concept. The delivery of strong results increases chances for the company to eventually achieve a Phase II award and proceed with more substantial prototyping and testing.

The contract deliverables for SBIR/STTR Phase I projects will include a kickoff meeting, and reporting and review requirements on the project technical accomplishments. Additional deliverables will vary depending on the technology and stage of research, and may include proof of concept data, initial prototyping, analytical results, and function-limited software.

Related WorkIn the Related Work section, the guidelines seek information about significant activities related to the proposed research. Clearly, researchers need to resist the temptation to discuss related efforts at great length. The section should be used to yield insights into whether the applicant is aware of the state of the art, which may include their own work and that of others. If the company has already engaged in projects bordering the proposed effort, they need to create a brief explanation of each, taking care to explain what differentiates that effort from the work plan being proposed.

This section is not the place to describe the company’s past product launches, nor should it be used to discuss the proposed project technical approach. That discussion belongs in the Statement of Work, or can be introduced in the Identification and Significance section.

Relationship with Future R&D The next section, Relationship with Future R&D, is a very important part of the proposal. It permits the company to reiterate the results they anticipate achieving in the Phase I project, and explain how that will enable them to move forward under Phase II. As discussed earlier, companies need to have a long vision for their technologies if they expect to move beyond Phase I. The material in this section can also briefly describe a plan for achieving any certifications and clearances necessary to the future R&D efforts.

Commercialization StrategyOver the years, SBIR/STTR managers have sharpened their expectations for program commercialization successes. Early identification of technology commercialization opportunities is a strong indicator of a company’s commitment to connecting its

16

technology with customers. The DoD proposal guidelines suggest approximately one page for the Phase I, Volume Two, Commercialization Strategy. Despite the brevity, a company is seriously remiss that does not recognize the impact of that section on the project scoring.

Depending on the nature of the technical problems to be solved, a Phase I SBIR/STTR project might have to be written without deep insights into the exact nature of the military needs. This section is developed from the perspective that the Phase I and II projects will have been successfully performed. It is a business-oriented discussion, and should be written in understandable, lay language. This strategy is not the place to rehash technical issues or to engage complex scientific jargon and abbreviations.

Furthermore, the focus of the Commercialization Strategy is not on past successes; instead it should describe the anticipated commercial path for the project R&D efforts. The allowed page space is short, and copying and pasting boilerplate about previous products into this section is non-responsive to the guidelines. Since prior commercialization can benefit a company’s credibility, that information should be revealed in other proposal sections, such as Related Work, Key Personnel bios, and in the Volume 4 Company Commercialization Report (CCR).

The Commercialization Strategy can be challenging for scientific and technical writers who are primarily focused on the research efforts. They are encouraged to discuss elements of planning with company business advisors to get clarity on how the technology can connect with market opportunities. A Commercialization Strategy must succinctly explain a pathway from the research bench, all the way into end user hands. There are no “right” answers but a plan must make sense and ideally, be reasonably supported by company culture, relationships, and actions. Though not specifically detailed in the Phase I guidelines, top-performing companies recognize that the following information must be developed to yield a cogent commercialization strategy.

• Product: A meaningful discussion cannot be had without first introducing the initial form factor expected to be commercialized by the company. This revenue-generating form factor can be a product, a service, a component, a system, software, a method and/or combinations and variations of the same. The proposing company must resist the temptation to overreach to a grand vision. For example, a component that can be sold on a moderate scale to a sub-system integrator may represent a more realistic and compelling plan for commercialization than promising technology to change the global communications industry. The component sale can be described as a first point of

17

market entry and insights can be added as to how that will enable the technology to be further developed in the future.

• Business model: The company may be a startup formed for the purposes of providing R&D services. However, to achieve sales revenue, that business model will undergo growth and changes. The company must commit to a commercial pathway before it can meaningfully strategize about customers and markets. For example, if a company is committed to its R&D profile, its best business model for commercialization may be licensing technology out to a manufacturer. That does not give the company a free pass on understanding its future licensees’ market challenges, customer needs, manufacturing costs, and more. To further extend that example, the R&D company may select to manufacture a low level of initial units to truly confront the production and sales problems that will be experienced by future licensees. For this business model, the company assumes the role of manufacturer even if they opt to work with a contractor for that purpose. They will be expected to identify prospective contractors with the requisite skills, and demonstrate an understanding of how they will connect the resulting product with customers. Business models will be further identified and discussed in an upcoming Commercialization section of this best practices report.

• Market and end user: Initial market perceptions should have grown out of the technical topic review process described earlier, and become further developed in the team proposal planning meeting. Companies have become more astute about performing basic market research to cite in the Commercialization Strategy section. However, lengthy recitations of market data can be nothing more than a smoke screen if not tied back into the end user needs, and the initial product and business model expectations. There will be military needs that are often considerably different than non-military market demand, and both market segments should be clearly addressed in the Commercialization Strategy. Companies are reminded to be keenly aware of their military sponsors’ expectations and the Warfighter needs for the technology.

• Outside interest: The more seasoned SBIR/STTR companies reported that they almost always have a commercial partner lined up as part of the Phase I project planning. The brief Commercialization Strategy gains critical validation when a company can document outside support for its planning. Relationships of importance to the DoD sponsors are found in its network of prime contractors and supply chain vendors. Companies must learn how that network impacts military access to their SBIR technology. In addition to reaching out to the prime contractor network, a concerted effort should be made to identify and interact with other companies that can become commercial partners, customers, and/or advisors.

• Letters of support: Outside interest should be represented by letters of support to demonstrate that a small business is taking steps on its commercialization and project planning. The letters need to be on company letterhead and not longer than one page. Content includes a brief introduction of the outside party, the nature of their interest or commitment to the project, and a statement of their support for the proposed effort. Not all letters can be inserted in a proposal

18

because of page limit restrictions. However, the letters in hand can be referenced in the text, or partially displayed as an inserted graphical image. The impact on a proposal reviewer is comparable to the effect of a well-devised letter of reference accompanying a job application.

• Quantitative schedule: Companies frequently overlook the longstanding solicitation request for a schedule quantifying commercial results, and are skeptical of the value of projecting revenue at such an early stage of R&D. However, they are advised to perceive this request as an opportunity to provide a concise snapshot of the commercial strategy discussed in their proposal. Take for example, the company manufacturing a small quantity of product before moving into a licensing business model. A five-year schedule could show product sales revenue in years one and two following the SBIR project years. Year three might be the beginning of the anticipated licensing revenue for that product, and maybe the beginning of some R&D services to launch another product grown from the technology. In a glance, a proposal reviewer can understand the strategy and gauge whether it represents a viable means to achieve commercialization.

Key PersonnelThe SBIR/STTR company must document its access to all expertise and skills necessary for execution of the proposed work plan. The Key Personnel section includes concise technical resumes for those company employees and outside team members who are critical to the project. A technical resume is not the full Curriculum Vitae requested by other SBIR agencies. It is a summary of each person’s skills and background as directly related to the technical proposal. These summarized resumes permit a reviewer to perceive whether the project plan will be staffed appropriately, and the technical excellence to be expected from the team.

The Key Personnel resumes should be written in parallel fashion to enable easy review and assimilation of the many details provided. Rather than stating job titles, each technical resume needs to establish that person’s role in the work plan. Referencing related commercial achievements by these personnel can also help to enhance perceptions of the company’s abilities to achieve market success. The Key Personnel section should represent individual contributions to the project, and further discussion of outside service provider companies can be handled in the Subcontractors/Consultants section (later in Volume 2).

The citizenship (or dual citizenship) of key personnel is of considerable importance in DoD projects because of federal International Traffic in Arms Regulations (ITAR), controlling the export and import of defense-related articles and services. Applicants must develop awareness of ITAR as the regulations are not just applicable to the shipment of products, but also apply to subject technical information that might be communicated orally or in writing. ITAR-controlled information may not be released to non-U.S. citizens or non-permanent residents.

Our hiring practices

attribute to our commercial

success. Advice from top performer

19

The company can address this issue in its technical resumes, and provide further information in the following section, Foreign Citizens. The information to be specified includes the country of origin, the type of work to be performed, and whether the individual has a work permit or a green card. A green card indicates theimmigration process is underway to become a permanent resident and permits its holder to reside and take employment in the U.S.

Subcontractors and ConsultantsOutside service providers can add critical expertise to enhance the small business research capabilities. Companies will need to check the guidelines to ensure they meet announcement requirements for including a subcontractor or a consultant. The role of a subcontractor is to assume control of some part of the SBIR/STTR project, providing project labor, services, and materials or goods to accomplish the assigned task. Under STTR projects, the research institution or university is always included in the project as a subcontractor. Consultants are typically brought in for their subject matter expertise. They provide guidance and technical knowledge but typically, do not have full control of any activity under the project.

Outside parties might not be a subcontractor or consultant if they are not project collaborators. For example, a laboratory can provide test services or a machine shop can make a part, in accordance with standard industry methods and using samples or specifications provided by a company. In these examples, they do not need to be included as a subcontractor or consultant, though the use of outside services should be referenced in the proposal text.

Beginning with the Phase I work plan, many of the successful companies interviewed took steps to include a DoD prime contractor or systems integrator as a consultant to their projects. Outreach to a suitable prime contractor demonstrates that the company understands how technology achieves military insertion. A project collaboration can help to develop an important relationship, and allows the prime contractor to provide input on a component that will often be integrated with complex systems already in development or production. Later, if the company is awarded a Phase II, that prime contractor might become a subcontractor on the work plan, providing requirements and system data, supporting test opportunities, and more.

The SBIR/STTR applicant must take full responsibility for achieving good clarity with the subcontractors and consultants on all aspects of the collaborative effort. It is very damaging to receive an award and then realize the outside party has not fully understood or agreed to the presumptive terms of the relationship. These terms should be clarified in writing and preferably, under an agreement before the proposal is submitted.

Other Phase I ContentThe SBIR/STTR applicant also must adequately describe its access to facilities and equipment necessary for the project work plan, and distinguish between what is owned and what is being purchased, borrowed, or rented. At times, a subcontractor is bringing important resources to the project, and those can be described in this section as well.

20

Bordering research efforts already performed will have been described in the Related Research section. However, the section titled “Prior, Current, or Pending Support of Similar Proposals or Awards” will capture information about other proposals pending or projects contracted, that are substantially the same. For example, there are times when a company will submit different representations of the same project plan to more than one agency. This approach is acceptable so long as the company does not contract awards from more than one federal source. To support complete transparency, similar proposals or awards should be detailed in this Phase I section.

Cost Volume (Volume Three)The Cost Volume will provide all the details on the purpose, necessity, and reasonability of each project cost element. The information required by the Cost Volume generally should not be prepared until the Technical Volume has been substantially or completely written. If developed too early, project elements may still be changing and there is a risk of improperly representing the costs. Companies that lack experience in working with the government will need to seek out experienced accounting help and/or further educate themselves on the principles of government accounting. A tutorial on “Accounting and Finance” for the SBIR company can be found at www.sbir.gov/tutorials. This and other tutorials at the site can be accessed in audio/visual format, as multi-media presentations, or as PDF.

An on-line form is provided for Volume Three. However, companies are well-advised to develop a spreadsheet that will help them to distribute and calculate all allowable costs before entering to the form. The company person taking lead on cost information must coordinate very carefully with the technical team to ensure that every aspect of the Statement of Work is represented in the Cost Proposal. For example, if the work plan references a task that involves an outside machine shop, that effort must be represented as a line item in the cost proposal. The same is true in distributing labor hours for key personnel, and representing materials, equipment, travel, and all other details of the work plan. A best practice in developing Cost Proposals is to retain full documentation of all the cost decisions as those are developed. It may be many months until an award is contracted, and it is easy to forget some of the logic and quoted cost details underlying the project budget.

Successful program participants recognize that Cost Proposal discussions and further cost documentation can be required post-award. Companies must take responsibility for understanding and properly applying government accounting principles represented in Federal Acquisition Regulation (FAR) and Defense Federal Acquisition Regulation Supplement (DFARS).

Company Commercialization Report (Volume Four)The Company Commercialization Report (CCR) completes a Phase I proposal submission. This report is often confused in various fashions with the Commercialization Strategy section of Volume Two. There is no overlap between these two different discussions. After completion of a Phase I project, and within one year from the start of Phase II, SBIR awardees are required to periodically update their commercialization results through the online site located at: https://sbir.defensebusiness.org/. They will be prompted to continually update their firm’s commercialization track record by posting sales revenue directly related to the

21

SBIR technology, additional investments from other resources to achieve further development, resulting patents, and other commercial information.

The web site compares the results achieved with historical averages from the DoD SBIR program to calculate a Commercialization Achievement Index (CAI) for companies that have received four or more Phase II projects. A CAI at 20% or below will be rated no higher than “marginal” which can negatively impact overall proposal scoring. If a company has not received a Phase II award within 2 years prior to the BAA under which they are applying for a Phase I, there will be no impact from the Commercialization Report. However, Volume Four reporting is still required even if a company has never received prior SBIR funding.

The use of CAI scoring is an effort to quantify SBIR commercialization success. However, there are many legitimate variables that extend the time required to achieve commercial sales. Therefore, it is important for companies to take advantage of the “Add/Edit Narrative” section of the Volume Four online form. This narrative is an important opportunity to explain slow commercial performance, or to account for commercial efforts that may not be fully apparent in the quantified results. It can also be valuable to explain cost savings/cost avoidance the military or industry have experienced as a result of applying the SBIR/STTR technology.

Note that while the DoD SBIR/STTR Web Portal will lock out any proposal submission activity at the BAA Close deadline, the Company Commercialization Report portal always remains open for editing and updates. The day or so after completing a Phase I proposal submission by the Close deadline is thus an excellent time to update the company CCR information, and in particular to use the Add/Edit Narrative option. The narrative allows for up to 50,000 characters, and for companies that have not had prior Phase II awards or an SBIR commercialization track record, this Narrative can be used to provide other relevant information that demonstrates the strengths and experiences of the company and/or individuals involved, indicating their capabilities for commercialization. The CCR is typically printed out with the other proposal volumes when it will be reviewed.

STTR ProgramThe STTR program is similar in structure to SBIR and shares the same program objectives. However, it is a separate funding opportunity designed for small companies working cooperatively with researchers in non-profit organizations including universities and qualified research institutions (RI). For an STTR proposal, the RI must perform a minimum of 30% of the effort, normally measured by budget, while the small business must perform a minimum of 40% of the effort. As noted previously, the PI on a DoD STTR may be employed primarily by either the small business or the RI. Some companies find that having the PI at the RI allows better allocation of scarce company resources, as long as the selected PI is appropriately committed to the project and its deadlines. Because agency STTR budgets are allocated separately from SBIR, and because fewer companies tend to submit STTR proposals, the odds of winning an STTR may in some cases be higher than for SBIR. Under current rules, an award may be switched from STTR to SBIR for Phase II (or vice versa). The DoD offers three STTR solicitations with the same

22

dates as the SBIR announcements, and the Air Force is one of the participating DoD Components.

The for-profit company is always the STTR applicant, and their proposal must achieve the same focus on commercialization as emphasized under the SBIR program. The partnering research institution can bring valuable expertise and capabilities to an STTR project. However, before a company becomes committed to submitting a proposal with interested faculty or researchers, it is very important to have them confirm their hours available for a project, and their organization’s guidelines for outside collaborations. Work planning and costs need to be fully negotiated between the partners before the proposal is submitted. The research institution will be a subcontractor on the project, and they will complete an independent budget at the same level of detail as the company. The total of that budget then becomes a line item in the company’s cost proposal.

STTR data rights are shared between the collaborating entities, so it is important to factor Intellectual Property (IP) issues into the planning. A consortium agreement will help the parties address rights and obligations that will be consistent with DoD contracting, if awarded. Developing an agreement can take negotiation and multiple iterations. Though an agreement does not have to be completed before a proposal is submitted, it should be initiated immediately on receiving Notice of Award. The STTR project should never be started without having a consortium agreement completed between the two parties.

Proposal SubmissionAll SBIR/STTR proposals must be prepared and submitted electronically through the DoD SBIR/STTR Web Portal and in accordance with the program BAA. Once the proposal is fully developed, a final review and checklist process should be instigated by the applicant to ensure responsiveness on all elements. There is no “submit” button – if a proposal package is not marked for deletion, it will automatically be submitted when the BAA opportunity closes. At that time, the Web Portal will no longer accept changes, although companies can still view and print their proposal that was submitted.

The Air Force Phase I proposal submission must include a Certificate of Training Completion for its online tutorial on SBIR/STTR program compliance. This is part of an initiative to combat fraud by educating companies about the forms it takes in the SBIR program, and the consequences of fraudulent representations or actions. In the process of submitting a proposal for SBIR/STTR funding, many certifications are made about company eligibility, qualifications, and cost principles. Though it is understood that Phase I SBIR companies often are new to working with the government, that does not waive responsibilities for understanding the program rules and getting help as needed. The Air Force compliance training offers many examples to help make these certifications and related issues understandable.

Small businesses

must always be adaptable and willing to

change.Advice from top performer

23

Best practices cited for proposal submission invariably included completing proposal preparations well ahead of the closing date and time. Study participants recounted frequent stories of proposal submissions not being completed or fully posted before the opportunity ended. Air Force submission instructions remind program participants that computer traffic gets heavy as the announcement nears closing, and can complicate or slow the submissions. There are no special allowances for servers being down or inaccessible.

Post-Submission

DebriefingRegardless of whether a submitted proposal is successful, the applicant is strongly advised to send a written request to the Air Force sponsor for a debriefing on factors contributing to their ranking of the proposal and project. That request must be sent within 30 days of notification that the proposal was/was not selected for an award, and should be directed to the Contracting Officer named on the non-selection notification. The Contracting Officer is not required to provide a debrief, and may sharply limit the ratings information provided. Successful SBIR companies have found the debriefings provided highly valuable insights for their future topic assessment and proposal-writing efforts.

Contracting Following notification of award, the DoD contracts with successful applicants to acquire the proposed project and its outcomes. Until contracting is completed, the award sponsor is not obligated to fund the research project, and companies are advised to exercise constraint in publishing announcements of the award or starting any work plan commitments.

In the contracting process, the SBIR/STTR company will be required to make legal commitments to provisions required by FAR and DFARS through acceptance of the government contract clauses. Model DoD Component contracts can be accessed at the following site: www.acq.osd.mil/osbp/sbir/sb/resources/model-contracts.shtml.

The SBIR BAA and proposal process fulfill federal acquisition requirements for full and open competition, and there are no requirements to develop further justification regarding announcement, price competition, market research, and interested sources. However, the Contracting Officer is permitted to engage in post-selection exchanges or negotiations on performance expectations, and cost and pricing data. For this reason, the company needs to be knowledgeably represented in the contracting stage following award. No-cost, small business, government contracting assistance can be found in the nationwide network of Procurement Technology Assistance Centers (PTAC) represented at: www.aptac-us.org.

Phase I contracts are typically firm-fixed price, in which the contract value remains fixed (the same) after the point of final negotiations. On fixed-price contracts, payment normally is not made until project completion. Few small businesses can carry the cost of the project without receiving interim payments, and they will need to negotiate the financial options with the Contracting Officer. These payment options can include progress payments based on costs incurred, performance-based

24

payments, or interim partial payments (as guided under FAR 52.232-2).

The Air Force SBIR/STTR awardee will be contracted for deliverables generally in accordance with its Work Plan Outline provided in the Phase I proposal. Deliverables will be listed as a contract data requirements list (CDRL), and the SBIR company should very carefully review the CDRL and all proposed terms of the contract.

Data Rights Every DoD SBIR contract will include an SBIR data rights clause that provides five years of protection for project-related technical and scientific data, and trade secrets that have been recorded in writing. During the period of protection, the government can use the data generated under a project, but it cannot disclose that data outside of the government. The government may not use the SBIR data to solicit competing technology through an announcement, or extend those rights to its prime contractors. However, the government can disclose the data to defense prime contractors for evaluation purposes, and can ask the SBIR company to disclose its data to outside parties.

The DoD SBIR data rights clause can be found in DFARS 252.227-7018 (often referenced as the “7018 clause”), and is identical for both SBIR and STTR contracts. This clause also allows for identification of technical data being used by the awardee for the project being contracted. During contracting, a chart is completed to assert all data rights whether those are privately or government-funded, or if the rights belong to a third party. SBIR-developed data belongs to the SBIR company and cannot be compromised by the government. However, the data rights chart will acknowledge that the government has non-exclusive, limited use rights for SBIR technical data, and restricted rights for SBIR computer data and software.

The DFARS data rights clause also provides the correct identifying legends to be affixed to all project deliverables as a requirement for retention of the rights granted. This legend provides notice to government personnel that the data cannot be shared. Failure of a company to apply the legend to documents, software, presentations and prototypes risks compromising these important rights under the program.

SBIR/STTR data rights are granted under the SBA’s SBIR Program Policy Directives, and they are not subject to negotiation with the sponsoring agencies. The five-year period of data protection is extended without limitation, upon completion of each SBIR contract (Phases I, II & III) for the technology, potentially offering considerable IP protection beyond what can be secured through trade secrets or patenting. To receive the five-year extensions, it is the responsibility of the SBIR/STTR company to make the original awarding agency aware of use of the data under

25

any new contracts. If errors have been made in handling its data rights, a company should take steps to make remedy as soon as those are discovered.

The Air Force companies engaged under this survey expressed widely differing levels of comprehension about SBIR data rights. The more knowledgeable companies tended to have experienced situations prompting better understanding of the rights. These experiences included negotiating transfer of rights for acquisition or licensing, Phase III opportunities, and/or perceived infringement by competitors. Companies shared that they did not always trust the government to properly safeguard data rights. In fact, they found that Contracting Officers were typically more familiar with standard acquisition contracts than with SBIR contracting. The survey companies advised awardees to be attentive to inclusion of the correct data rights clause in their contracts and when needed, to complete the associated data rights table to identify ownership rights in technical data being brought to the project. The frequently repeated advice for SBIR/STTR companies was to take responsibility for being knowledgeable about their data rights to ensure proper assertion and protection – these represent considerable IP asset value.

Partner Agreements When an outside party will be hired for project services as a consultant or subcontractor, the SBIR company needs to prepare and complete an agreement before the project begins. This effort is not a federal requirement, but the awardee is responsible under its SBIR/STTR contract for the work performed by others. Therefore, it becomes important that all parties are perfectly clear about the commitments and guiding laws.

The legal instrument typically will be a subcontract, a consulting agreement, or a teaming agreement. When working with a research institution, as is always the case for an STTR project, a consortium agreement is needed to specifically address IP rights and ownership. To be effective, the selected agreement must clearly identify the work to be performed, timeline commitments, and all other responsibilities of the outside party. Compensation may need to be further negotiated beyond what was originally represented in the cost proposals. Any changes of significance should be reported by the awardee to the Contracting Officer. The partnering agreement should indicate that the outside party is responsible for the same federal regulatory clauses under which the small business concern has committed for the project award. A full representation of those contract clauses needs to be made available with the agreement.

Other concerns that should be addressed in such an agreement include non-disclosure of confidential information, ownership and allocation of IP resulting from the SBIR/STTR relationship, and responsibilities regarding foreign workers on the project.

Project ExecutionThe top-performing companies related their SBIR/STTR successes to quality work delivered on time, that went above and beyond the sponsor’s expectations. Even as the Phase I proposal was being written, the strongest teams were focusing well into the planning stages for Phase II and III.

26

Companies should not presume that the PI will be the project manager. The PI will take leadership for scientific and technical direction, but that person may not be suited to managing all project details. The project manager must monitor the flow of hours and funding for each milestone and task, aggressively controlling elements that increase demands on the project budget and schedule. The project manager must have a strong understanding of the contracted commitments, and be a capable communicator to interface with the staff, outside partners, and the government Contracting Officer. There are risks in every SBIR project, but many complications can be averted with good project management.

Typically, a kick-off meeting with the military sponsors will be expected following project contracting. This meeting is a very important opportunity to get personal insights into the military as a first customer for the SBIR technology. Successful companies attend the kick-off to enhance their understanding of the program requirements driving the topic, and any nuances or changes in the published topic. Good communications at the kick-off meeting can head off potential confusion after the project is already underway. Companies tend to focus on technical issues in the kick-off meeting. However, their presentations and discussions should also bring up points about government acquisition, prime contractors, and other matters that will impact decisions for commercialization. The feedback cultivated during the kick-off meeting can have a significant impact on how the Phase II proposal will eventually be prepared.

Following the kick-off, communication with the Air Force TPOC during Phase I is not required; nor is excessive contact encouraged by study respondents. When problems arise, respondents stressed the importance of providing timely and honest communication with their SBIR sponsor, helping to build trust between the parties. When calling to discuss problems, companies also should be prepared to suggest solutions to help enable an informed decision.

It is vitally important for every company to devise internal reporting systems to reinforce team responsibilities to the project timeline and full completion of objectives and deliverables. Outside partners can become distracted by other responsibilities. It is incumbent on the SBIR company to establish and enforce reasonable and quantifiable expectations.

ReportingThe Air Force SBIR Office posts at its website the standards for scientific and technical report writing in accordance with American National Standard Institute format guidelines. Additional reporting guidelines are provided by the TPOC at the time of contracting. All reports need to reference the contract number and program name, the CDRL number and must be marked with the appropriate data legend.

Each report should synthesize a summary of activities, results, conclusions, and decisions. Lengthy details and recitations of technical achievements can be referenced from the report as Appendices. This approach allows program personnel to become quickly acquainted with the status of a project, while still making available the full technical details. When done in this fashion, a small business author can also easily draw on the reported conclusions later, when developing the Phase II proposal. SBIR

27

companies are reminded to report on commercialization efforts in addition to their technical achievements.

The small business remains responsible for reporting requirements beyond what is returned to the program office. The Bayh-Dole Act of 1980 requires that inventions made with federal funds must be reported. The SBIR/STTR teams are encouraged to file patents on inventions in support of future commercialization strategies. To enable these rights, the small business must meet several reporting requirements that also protect the government’s right to use the invention. Meeting these requirements extend beyond the limited life of the contracted project, and ignorance or misunderstanding of the law are not justifications for non-compliance.

Post-Phase I Gap FundingThe Air Force SBIR/STTR program contract allows a nine-month period for the Phase I project. The first six months of this schedule is intended for the primary research, followed by three months for reporting. Companies need to stay within this time model or risk being uncompetitive if the Air Force sponsor requests Phase II proposals before full completion of the reporting period.

At the end of a Phase I project, SBIR companies are advised to plan for at least a six- to twelve-month gap before a Phase II award decision and contracting will occur. Study respondents made many suggestions for mitigating funding gaps between the SBIR Phase I and II contracts.

• Operational practices: Study feedback included general comments about tightening belts and running lean. The companies often mentioned having to reduce staff hours, or cut staff altogether. It was suggested that a way to mitigate the negative impact on staff morale is to communicate with the team well in advance of any possible cuts. Some companies recommended using time-limited employment contracts for the shorter Phase I project periods. This approach made end date planning transparent so that all personnel could adjust accordingly. One respondent recommended assigning alternative duties and allocating indirect cost funding for salaries, when direct project labor allowances were depleted. That company found their technical team was highly motivated to develop customer and partnering relationships that would enhance follow-on projects and commercialization potential.

• Alternative revenue streams: Diversity of funding is critical to mitigating funding gaps between Phase I and II. The more mature companies may already have commercial product sales, and the revenue collected can be used to build cash reserves. Early-stage companies that don’t have product sales, may be able to leverage their in-house expertise to provide consulting or specialized R&D services. Companies can also reserve their SBIR project fee or profit rate to address the unallowable expenses of project cost overruns.

• Debt and equity funding: Some aspects of technology development can require an infusion of capital that is not available through SBIR/STTR or other R&D programs. At least one study respondent reported they obtained equity funding from a local angel investor group. Some of the more established companies had tangible assets, permitting them to qualify for conventional cash flow loans to

28

weather gaps in SBIR project funding. One respondent reported being able to secure a small bridge loan based on historical proceeds from a licensing agreement. All companies shared awareness that financial institutions are very cautious about creative financing, given the high-risk nature of R&D efforts.

• Other R&D opportunities: Receiving one SBIR contract does not preclude a company from applying for other SBIR/STTR awards so long as the projects continue to advance the technology without project overlap. Multiple awards help to achieve a measure of stability for the company in the early developmental stages. Many states offer various forms of R&D grants and incentives, and/or SBIR matching funds programs. Companies also need to stay in contact with the SBIR/STTR program offices to learn of any special opportunities that might be available, including Phase IIIs discussed further below.

Commercialization Readiness

Business DevelopmentAs the Phase I project proceeds, there will be new insights into what motivated the military topic and requirements. Successful companies take steps to advance their commercial strategy directly in parallel with technology development, to better ensure coordination of the business and research elements. Preparation for the SBIR/STTR Phase II proposal needs to start from the time the Phase I project is contracted. Though technical decisions might have to wait until feasibility is established, much can be done to advance the technology commercialization readiness.

This is the process of business development during which the company actively investigates, and begins to position its future financial and business model. The selected business model is how the company expects to achieve earnings from its technology. At a most basic level, the company must distinguish between value protection and/or value extraction pathways. In a value protection approach, IP assets (e.g. patents, data rights, copyrights) must be carefully protected to gain future revenue through technology transfer mechanisms. This approach is clearly associated with a licensing strategy, but also can be important to joint ventures, acquisitions, and mixed commercial strategies. A value extraction approach is more traditionally represented in manufacturing which requires investment in production assets and personnel expansion to achieve revenue from the technology.

Some of the companies surveyed recommended hiring qualified business personnel during Phase I to take on the tasks of researching industry and military markets, and assembling preliminary pricing and cost data. Regardless of the business model pursued, all companies must understand their technology end users, and begin building connections with future strategic partners. Having suitable market materials can significantly smooth the way when introducing the technology and company to these outside interests. Before making the first contact with prospective customers and partners, or a prime contractor, companies need to develop a capabilities brochure and technical quad charts in both print and e-copy.

29

A capabilities brochure focuses on the company’s core competencies and supports its positioning and value proposition – benefits the company can deliver. Though a specific technology might be referenced, it is only in the context of clarifying the company capabilities. Divergent versions of the brochure should be prepared for variable uses by the business development team. For example, the information delivered to a prime contractor’s small business liaison officer might be very different from how the company wants to represent itself to a military sponsor, or a prospective project collaborator. The capabilities brochure should only include non-confidential information.

Quad charts are developed for each company technology of interest and can be delivered with the capabilities brochure. The quad charts are highly favored by the military Components as means to quickly review a technology or project. A quad chart is a single page summary divided into four sections. It is intended to be an introductory piece and should not be overloaded with too many abbreviations and details. One section provides an image or figure, and the other sections offer succinct, non-confidential information regarding the problem solved, technical benefits and specifications, and/or milestones to completion.

Companies also need to provide contact information and identification of the technology readiness level (TRL). Technology at TRL-1 is at the lowest level of readiness with scientific research just beginning to be observed and reported. TRL-9 is the highest level, with an actual system proven through successful mission operations. Similarly, the DoD Manufacturing Readiness Levels (MRL) can rapidly provide substantial insights into the maturity of a technology. MRL-1 is at the assessment level, whereas MRL-10 represents the highest level of production readiness. If more detailed information must be delivered, the company should have a technical data sheet ready for use under the protection of a Confidentiality Agreement.

Armed with print materials to attract interest, opportunities to build connections can be found through networking at industry-specific conferences, military expositions, and trade shows. Or, telephone contact can be made remotely, followed with emailed PDF files. In addition to developing relationships in this fashion, the cultivation of market feedback and information was cited by survey participants as having a critical impact on the research direction and on building commercially oriented relationships for the Phase II project.

Maturing the Commercial PathwayFollowing are business strategies favored by the top-performing companies surveyed.

ManufacturingCompanies pursuing manufacturing will typically use their SBIR projects to yield materials, product, system components, and/or to achieve superior production capabilities. Acting as the manufacturer does not always require building a facility and production line. Many companies align with a suitable contract manufacturer to handle part or all of the production, packaging, and shipping. Toll manufacturing is another option, in which the SBIR company provides raw materials or semi-finished goods to a service provider that has the specialized equipment to complete a part

30

of the production for a fee. Also, those companies developing and selling software will be following a manufacturing pathway, but with low capital investment in production.

The manufacturing business model is traditionally seen as connecting with end users through distribution channels. Alternatively, the company might develop business-to-business sales. For example, they can sell parts and components to an original equipment manufacturer (OEM) for inclusion into more complex systems. When selling for use in a military system, the OEM will be a federal prime contractor or systems integrator.

SBIR companies pursuing a manufacturing business model must be able to properly discuss the operational elements of that model including production and packaging, sales and marketing, distribution, and customer service. They need to understand whether those functions will be contracted out, or if they can be performed by their company or its partnering entities. A manufacturing model also requires that they develop a solid understanding of the Cost of Goods Sold and the markup to their customers. This may be a changing perception as the Phase I and II projects progress, but it cannot be overlooked if the company expects to be credible.

For early-stage SBIR companies, a valuable manufacturing strategy is to focus first on a product model closest to market readiness. This product might not have all the capabilities needed for military sales, but it can permit the company to launch moderate production during or immediately following Phase II. The preliminary product can become useful for demonstration purposes and to yield revenue in support of production and marketing staff. In this fashion, the company can fully address all development issues from R&D through the demands of production and distribution. The result is a company well-positioned for further manufacturing growth, or future acquisition.

LicensingA licensing pathway to market allows the SBIR/STTR company to receive revenue from other entities in exchange for rights to make, use, or sell products and services related to its IP assets. This business model is appealing to R&D companies that are typically disinterested in, or unaccustomed to, the demands of commercial production and sales.

Licensing can be a lengthy and time-demanding process, and it should be started even as the technology is in development. Although the licensors (the SBIR companies) do not need to sell product, it is critical for them to develop a very full vision of how their technologies will achieve market readiness. This knowledge impacts the prototyping, testing, evaluation, and regulatory efforts that reduce risk and add value for attracting licensees. A preferred strategy is to involve licensing prospects in project efforts, increasing their commitment to the end results. Initiating license prospecting at an early stage will enable the SBIR company to speak knowledgeably about developing that important relationship, and how their technology will be deployed by prospective licensees.

31

The SBIR company will need business development and/or marketing expertise to identify and engage prospective licensees. A Certified Licensing Professional can be brought in to guide the process and negotiate often complex terms and options. Guidance also may be available from corporate or IP counsel. When licensing-out an SBIR technology, the license does not enable transfer of the SBIR data rights to the licensing partner, or the right to sole source the SBIR technology to the federal government. Those rights can be transferred in an acquisition, but not by licensing.

It should be noted that DoD is not a target licensee for SBIR innovations. The DoD labs and centers contractually receive non-exclusive rights to use federally funded SBIR technologies. If that innovation is integrated with other technology of interest, the DoD will use standard acquisition channels to procure a product or system of interest.

Licensing-out IP assets also must not be confused with software licensing to end users. If a company will produce, maintain, and sell software, they are pursuing a manufacturing model. Their sales revenue will be derived from licensing their software for end use by customers. If a company decides to license-out rights to their software copyrights and/or patents (the IP assets) for production and distribution by another company, they will fall within a licensing business model.

Spin-outA spin-out occurs when a company or organization breaks off parts or divisions to form a new business entity. The spin-out company is formed around a specific technology or a team with a special skill set, and will take with it some of the parent assets. In return, the parent organization retains a stake in the profits and equity of the newly formed company.

Academic research institutions are a rich environment for company spin-outs. Study participants cited success stories in which university researchers organized companies around their grants-funded technology. Some universities took an equity position in the spin-out. Others preferred to license-out their rights in the technology to the spin-out, receiving license fees, patent reimbursements, royalties and/or other financial terms. By becoming a small for-profit business, the spin-out company can then qualify as an SBIR/STTR applicant rather than relying on university subcontracts under the program. Leaving the academic incubation environment, the spin-out faces all the same business and commercialization decisions as any SBIR company.

Spin-outs also occur within corporations when a technology is segmented into a separate division. At times, this is done to protect and strengthen the core mission of the parent company from being diluted by an alternative technical path. For example, the spin-out might be a research group that wants to further develop a technology that the parent company has decided not to pursue. Another reason for this action might be to isolate tangible and intangible assets that can be more powerfully leveraged to achieve further SBIR/STTR funding for the technology, or to become attractive for investment or acquisition interests. An agreement is created between the parent organization and its spin-out to govern the transfer of technology rights and to enable monetization of the parent company’s equity position.

32

AcquisitionsIn the tech industry, successful startups are frequently acquired by more established companies. The startup assets are transferred and at times, merged into the acquiring organization. Some best practices study respondents described acquisition as a deliberate strategy to more quickly achieve market penetration. For others, acquisition grew out of events such as competitors wanting their technology, and/or being underfunded for the next stage of growth.

To be attractive for acquisition, companies must develop strong IP assets and produce initial revenue from a product or service. Established companies will investigate the SBIR company and its technology for a demonstrated ability to achieve revenue growth and profits. They will be seeking a good fit with their own company culture, and indicators that key acquisition and merger terms can be successfully resolved.

Acquisition is a strong exit strategy that permits the SBIR company to benefit from its investment and innovation, while moving on to pursue other technology and R&D interests.

Military SalesAs discussed earlier, the DoD publishes SBIR/STTR topics to yield technical solutions critical to the Warfighter. Therefore, the Air Force and other DoD Components are the first customer of interest for an SBIR awardee. At times, a company will achieve commercial sales before, or at the same time as the military sales, building revenue potential in both directions.

Most SBIR companies find military sales must be accessed through relationships with DoD prime contractors. Government acquisition channels and regulations present significant challenges to the uninitiated, and military needs are often at a scale that exceeds the capabilities of a small business. The SBIR technology also may be a component or system that requires integration into a more complex system by the prime contractor.

Some study participants found the DoD Component TPOC to be of high value in identifying prime contractor contacts. Many prime contractors send representatives to regional or national SBIR/STTR conferences, who are looking for SBIR firms as sources of new innovation and capabilities. Some, such as Boeing and Lockheed Martin, regularly send out a listing of internal company contacts interested in talking to SBIR firms that may be submitting proposals to specific topics in the current SBIR/STTR solicitation. They are often willing to provide a letter of support for the company’s proposal that can help them stand out in the evaluation process. Other valuable resources are the databases of federal contracts awarded in the field of interest. Federal contracts are public information and searchable online at sites such as www.fpds.gov and www.usaspending.gov.

33

Military primes are not always substantially motivated to work with small companies. In part, this is because SBIR companies have strong expectations about retaining ownership of their technology, and often have little understanding of how the military prime relationship operates. It is incumbent on the SBIR/STTR business to find and cultivate the primes, and demonstrate superior technology solutions and responsible business skills. If the company expects to sell directly to the military, they can begin by working with their local PTAC (www.aptac-us.org) to develop the skills and knowledge required.

Mixed Commercial PathsThe many companies surveyed for this best practices study frequently deployed more than one business model to move technology to market readiness. As described, a company might launch production to attract acquisition or licensing interest. An SBIR company with marketing and sales strengths might contract out its manufacturing. Or a company determined to stay in R&D might spin off a technology that is ready for production and sales.

Many companies develop methods or unique knowledge bases under the SBIR/STTR programs. These capabilities lend well to developing innovative services as the “product” for commercialization. A services model can take many forms, including web-based or cloud application of proprietary software, performing analytics, design and customization to meet customer needs, contracted R&D, and more. At times, a services offering can be very instrumental in bridging the SBIR company from its initial R&D business model to commercial revenues.

Doing Business with the DoDAccelerator ProgramsThe DoD Components extend a variety of commercialization training opportunities to participating SBIR companies, increasing the odds for commercial success. These programs can include the Discretionary Technical Assistance Program, Industry Days, Commercialization Readiness Programs (CRP), Innovation Forums, and Technology Acceleration Challenges. Some DoD Components make available Phase II Enhancement Programs, providing additional Phase II funding if the company can match the SBIR funds with non-SBIR funds from DoD acquisition programs or the private sector.

The Air Force hosts a series of Small Business Industry Days which bring together diverse technology transition stakeholders including program management, acquisition, small businesses, and large prime contractors. The Industry Days are designed to increase company awareness and interaction with the Air Force supply chain.

Another Air Force effort is its CRP which directly links Air Force product, sustainment, and test centers to AFRL TPOC. The CRP enables identification and evaluation of innovative solutions to meet Air Force needs, and accelerates technology transition. The Air Force CRP team is involved in the SBIR/STTR program from origination of topics to follow-on Phase IIs and Phase IIIs to mature

34

the projects. Companies are included in the CRP by invitation and at the discretion of the Air Force.

Licensing-InDoD SBIR companies are encouraged to investigate technology transfer opportunities with the Air Force and other DoD Components as a means to enhance R&D and commercialization. The DoD labs and centers file hundreds of patents every year for inventions growing out of their research efforts. When practical, and as permitted by law, these patents are available for licensing by private sector interests. Patent licensing can connect companies with substantially researched technologies and IP assets to enhance their own innovations, or become an added product line. Being enabled to make, use, and sell a military-developed technology can be a considerable benefit to the company’s sales profile.

All DoD research organizations have representative technology transfer offices to assist licensing interest. Additionally, TechLink is a nationwide partnership intermediary with a primary mission to broker license agreements between DoD labs and U.S. industry for the manufacture and use of DoD inventions.

To find these DoD patents and featured technologies, companies can perform keyword searches for technical fields of interest at the TechLink website (www.techlinkcenter.org). Technology managers are represented in the staff section of the website and can provide no-cost assistance to interested companies. The tech managers will help a company learn whether patents of interest are available for licensing, how to learn more about the research, and how licensing from the DoD works. As suitable, they will serve as a broker, facilitating technology transfer efforts between the lab and the company.

Cooperative Research and Development Agreements (CRADA)Cooperative research and development agreements are technology transfer agreements that can be used by federal research organizations to engage with outside parties in collaborative R&D activities related to and consistent with their missions. Funds cannot be transferred by the federal laboratory to the partnering organization, which must sponsor its own costs. However, DoD facilities, test instruments, equipment, and expertise can potentially be accessed under a CRADA work plan. If the collaborative activity by the federal partner will not fall within a program budget, the DoD lab will work with the company to devise a budget. The company then deposits funding for the laboratory’s portion of the work plan. The CRADA can be supported with SBIR funds, but those arrangements need to be authorized before contracting the SBIR project.

CRADA projects are a valuable means for building a relationship with a military customer, while establishing credibility for a company and its technology. The collaborative projects can be very diversified, including joint testing, sharing data and specifications to apply the company’s technology, or bringing federal and non-federal scientific and technical personnel together to solve specific problems. For example, collaborative research can be an opportunity to take a technology developed under Navy SBIR funding, and further practice it to meet the needs of an Air Force

35

program group. A well-devised CRADA work plan can advance R&D efforts at little or no cost, and yield internal contacts for other opportunities.

Finding a federal CRADA partner depends on networking efforts by the SBIR/STTR companies. Companies need to follow leads cultivated from program personnel, the prime contractors, collaborators, and through searching online information. They might find it useful to perform keyword searches on patents to find DoD inventors in their technology field of interest. The inventor names can be used in a further search for literature that might reveal potential for a joint research project.

Financing the Commercial StrategyRegardless of the commercialization strategy initially selected, a company must develop a reasonable understanding of how it can be funded during and after the SBIR contract. Companies frequently indicate in their proposals that they will simply seek additional SBIR funding under related topics. However, that reveals a certain naivete and lack of realistic planning, given the restrictions of each topic and the competitive nature of the program.

A company must examine its resources and choice of business models to make a cogent statement about follow-on funding plans. For example, the company planning to build a production plant must be able to access capital funds. This plan will require an equity loan, company reserve funds, and/or outside investors. If a company asserts this commercialization model, they need to demonstrate knowledge and documentation of the funding to be accessed. For example, they can approach an appropriate investment resource and request a letter of interest that can be included in their Phase II proposal.

Alternatively, a licensing strategy is usually less costly, but a company still needs to know how it will support itself while seeking a licensee, maintaining an IP portfolio, and waiting for that revenue stream to commence. If this planning were to be implemented during the Phase I and II projects, the related costs could be factored into the company’s projection of allowable indirect cost rate elements and use of the project profit or fee. Post-project efforts could potentially be funded by the prospective licensee. In that case, a Contingent Commitment letter would document the plan, with the prospect stating that its follow-on funding will be contingent on variables that might include the successful outcome of Phase II. Another funding resource could emerge from proposed licensing terms, such as an Option License fee for a licensee to retain some position of exclusivity while research is completed.

As another financial option, many SBIR/STTR companies advance a bootstrap strategy which is a self-starting plan to use the proceeds of early sales to grow future sales. Bootstrapping can be particularly effective for software commercialization since the capital and operational costs are low.

Other financial options suggested by study respondents included mortgages on their homes, investments by family and friends, tapping state resources, and seeking Phase III opportunities (further discussed below). Collaborations with established companies can yield an investment resource, and some companies already have established sales profits that can be reinvested to support commercialization of the SBIR technology. Typically, companies rely on a combination of these many

36

resources. By starting early to develop funding options, those efforts can be effectively documented in the Phase I and II proposals.

SBIR/STTR Phase II

Historically, about 40% of DoD Phase I awards will lead to Phase II projects. Many topics initially have two or more Phase I awards and those are most frequently reduced to one Phase II award. Phase II proposals may only be submitted by Phase I awardees, unless a company is participating under a designated Direct to Phase II Program (a pilot program that expired as of FY2017, but may be reauthorized in the future). Phase II proposals can be requested by the TPOC at any time during a Phase I contract, or can be delayed indefinitely without time limitations.

As already suggested, the SBIR/STTR applicant will need to be developing Phase II planning and materials from the time they start Phase I. The DoD Components no longer issue selective invitations for Phase II projects, and all Phase I awardees can participate. For most of the topics, only one Phase II award will be granted. With an open invitation process, the company has an added responsibility to carefully examine whether their Phase I results are strong enough to justify preparing a Phase II proposal. Significant labor is involved in planning and writing each R&D proposal, and companies will want to analyze that investment based on their technology strengths, the TPOC’s receptivity, and the nature of the competitive field.

It is recommended that every SBIR awardee take steps to understand the solutions being investigated by fellow awardees, and the technical state-of-the-art being advanced. Phase I abstracts may not be publicly available immediately, but the awardee names are posted and information about the competing technologies can often be gleaned through online search efforts. A search can yield prior federal R&D contracts granted to those companies. Names of company principals can be searched for published literature and the competitor’s website can reveal useful insights. During Phase I, awardees should take advantage of every opportunity to interact with the TPOC and program personnel. As advised before, rather than touting their own technical solutions, companies should use those interactions to open-mindedly seek insight and feedback from the sponsoring agency.

Phase II Planning and PartnersThe Air Force Phase II proposal is limited to 50 pages. That seems generous compared to the tight page limitations of Phase I, but the page space must be carefully allotted between sections as discussed earlier. There are many added proposal demands when seeking a $750,000 Air Force award with a 27-month effort (24 months for technical performance and 3 months for final reporting). The Phase II proposal includes reporting on the Phase I results, added specifics to represent the statement of work, and a more detailed commercialization strategy. Many Phase II practices and tips are the same as for the Phase I proposal and will not be repeated in this section.

The Air Force Phase II Instructions are posted at its SBIR website at: www.afsbirsttr.af.mil for use together with the current DoD Program BAA guidelines. Companies should also return to the originally published topic to review exactly what the

37

topic author said about Phase II expectations and Phase III dual use applications. The Warfighter has a continuous need for innovative, battle-ready technologies and products. In Phase II, companies will advance prototyping, testing, and demonstrations critical to this technology transition objective. The project plan must approach these tasks comprehensively, even though prototypes may not be fully functioning or prepared at manufacturing levels. It is better to do limited functionality well, than to overreach the team and funding capabilities.

Many technology issues beyond form and function can be addressed in the prototyping efforts – safety, materials sourcing, meeting military certifications, manufacturing costs, and more. For example, military aerospace and electronic technologies must achieve SWAP-C benefits – reductions in size, weight, and power demands, plus costs. A review of the Air Force evaluation criteria for Phase II reveals they are seeking all of the Phase I expectations plus other factors such as affordability and expedient manufacturing approaches. With military budgets being cut at the same time as global warfare puts demands on innovation, SBIR companies must establish a strong value proposition in Phase II that clearly identifies how their solution will achieve increased performance at advantageous costs.

While the military needs are a first consideration in Phase II project planning, companies also need to explore civilian uses of the technology. Military sponsors are supportive of company efforts to achieve civilian sales, as that strategy can enable more long-term company stability. The broadened sales volumes also can yield cost reductions and further development that may enhance technology transition to the military. Phase II offers an opportunity to advance relationships with partners that are identified as prospective customers or collaborators. The military prime contractors are increasingly important. A company must show they understand how the military is likely to directly benefit from the technology in which they invested. Best practices respondents emphasized having multiple partners to increase access to expertise and skills, and improve future commercialization avenues.

Phase II DeliverablesThe top-performing companies surveyed concurred on the importance of having something tangible to deliver by the end of a Phase II contract. One respondent said that without a tangible deliverable, it’s still just an idea. However, companies differed on what is meant by “delivering” a prototype, with some of the SBIR companies being reluctant to relinquish their technology to the TPOC. The military Components certainly must be given an opportunity to inspect the prototype and see it in demonstration. That requires the company to visit the sponsoring lab, or bring the TPOC out to their facility or demonstration site. If the TPOC wants an opportunity to more carefully inspect the prototype or run their own testing, some companies will provide their technology for a time-limited basis and arrange for it to be shipped back to them.

Relinquishing prototypes as a project deliverable must be given strategic consideration by the companies and may require some negotiation with the TPOC. One reason for this caution is that the prototype is likely to have high value to the company in its future commercialization efforts. It can be used for compelling demonstrations to customers and in attracting industry interest. Another reason for

38

caution is whether the prototype will be stored at the military lab in a well-secured fashion, out of the hands of competitors, and away from any potential for reverse engineering. A properly-marked prototype is protected by contract data rights and must be withheld from public disclosure. It is appropriate to discuss these points with a TPOC when determining what will be delivered during the Phase II project.

Depending on instructions from the program manager, deliverables will also include an interim summary report, a Phase II final summary report, periodic progress reports, and the final technical report. When required, summary reports are submitted electronically. The Phase II summary reports highlight SBIR/STTR R&D efforts to facilitate Phase III opportunities with military acquisition program offices and prime contractors. Companies also can post their SBIR success stories, using an online form at the Air Force SBIR/STTR website. This is a means to attract attention from Phase III commercialization and transition interests.

Phase II Commercialization StrategyDone properly, the Phase I Commercialization Strategy provides a useful starting point for the Phase II proposal. However, it must not be copied verbatim and used again. For one reason, it should have been advanced by knowledge gained in Phase I. Furthermore, the solicitation guidelines require additional information.

As recommended for Phase I, the section will need to open with an explanation of the first anticipated product and the business model. Without that information, the rest of the strategy will be in trouble. That section can be followed with information about the first anticipated point of market entry, a discussion of customers and end users, and the estimated market size. The company should distinguish between the military demand and commercial markets.

Future FundingThe Phase II guidelines ask how much money will be needed to bring the technology to market and how that money will be raised. This request relates to what will be required after Phase II is successfully completed. Most technologies are not market-ready at the end of Phase II, and a frank assessment is important to yielding a meaningful plan.

The first critical factor is to identify the level of development expected to be achieved under the SBIR/STTR funding. It can be useful to apply the TRL and MRL ranking systems referenced earlier. The next step is to determine the closest point of market entry. This access is where the earliest sales revenue might be achievable. For example, that might be the sale of components to a prime contractor who was involved in the SBIR project, or a first stable software version that will eventually be enhanced with added features.

You have to take a large view and always look for

revenue.Advice from top performer

39

Knowing the two end points for yielding sellable product and entering a first market, a company can break down the milestones in between – demonstration prototypes, field testing, regulatory hurdles, manufacturing, adding company personnel, and more. The milestones will enable building a timeline and estimation of costs to sustain the development effort and company operations.

The milestones may seem unattainable to a small startup business. However, without early planning and identification of the barriers, there is little chance of achieving market goals. With these insights into the timeline and costs, it will prompt a realistic assessment of the funding needed to sustain efforts. The financial planning can be expected to include a variety of options as discussed in the earlier section of this report, “Financing the Commercial Strategy.” The funding discussion becomes more real when a company takes steps to secure letters of support or contingent commitment, documenting the anticipated financial resources.

Marketing ExpertiseAnother Phase II Commercialization Strategy question relates to whether the company has marketing expertise. If key project personnel have commercial and marketing expertise, it can be valuable to bring those details out in the Key Personnel section of the proposal. However, if the company founder is the project PI and lead scientist, it stands to reason that they may not be an effective lead in the marketing effort that should start during Phase II. A company seeking business-to-business collaborations will need a business development manager. Companies planning to manufacture are likely to need a technical sales and marketing person on staff. A licensing company will need an experienced IP and licensing professional to market and negotiate deals. By planning ahead, the costs of in-house expertise and business consultants can be projected in the contracted indirect cost rate, and hired as the technology nears readiness for marketing.

CompetitionCompeting technologies are likely to be discussed at some level in the Phase II proposal Identification and Significance section, or in Related Work. These are technologies presently in use or emerging to solve the same problem being addressed by the applicant’s SBIR technology. This added section of the Commercialization Strategy can reference that earlier discussion, but still should recap the most probable competitors to demonstrate applicant awareness of the state-of-the-art.

The competition may need to be more generally grouped by technology types, or it can be addressed individually. Given page limits, a table can be the best way to make side-by-side comparisons. The SBIR/STTR technology price and quality advantages over the competition will be a reassertion of the company’s value proposition. If citing a price advantage or cost savings, the small business must identify cogent cost, price, and/or life cycle cost information. If asserting performance and specification advantages, those attributes will need to be properly explained in the technical proposal. These value assertions are only compelling when well-supported.

Evidence of Commercial PotentialThe Phase II Commercialization Strategy instructions also request evidence of commercial potential. This section can be used to emphasize early sales anticipated

40

during Phase II, strong commercial partnering, Phase III opportunities that can be contracted during Phase I, and letters of interest in the technology. This section can be supplemented by referral to the Company Commercialization Report (CCR) which does not count against the Phase II 50-page limit. The online CCR should be brought current on earlier commercialization of SBIR/STTR research, and the ability to attract funding commitments.

Military ApplicationsAir Force Phase II guidelines feature a section entitled “Military Applications” that is not included in the DoD guidelines. This section should be consistent with the Commercialization Strategy, and will require knowledge of the “existing/potential military requirement” for the SBIR/STTR results. An understanding of the military customer must be initiated during Phase I conversations with the program personnel, and through earlier searches and networking. To write the Phase II proposal, background information should be further developed to include specific agency points of contact and telephone numbers.

If the military program is still poorly understood, a sense of direction might be possible from searches on relevant past DoD SBIR/STTR topics. Those topics may include contact information for a topic author, and indication of the military systems the technology will serve. There will be reference to the sponsoring DoD Component organization, permitting the SBIR company to search online resources and learn more about that organization and its mission.

Technical keyword searches also can be used to better understand military applications. These can be performed by restricting the search to the “.mil” domain, honing in on military sites (e.g., search entry: “technology key words” site:mil). Searches can also be performed at the Defense Technical Information Center website (www.dtic.mil). Companies can use this site to review DoD budget lines and justifications, to engage assistance on understanding the Defense marketplace, to find DoD technical reports, and more.

As useful as this background information will be, companies ultimately must network and build relationships with military personnel. Program Managers are important contacts because of their extensive connectivity with organizations and peers in their technical field. Companies also can contact the laboratories revealed in the background research. Their websites will have a link for “Working with the Government” or to access the Technology Transfer Office or Small Business Office. Military customer and prime contractor relationships can be further developed by attending DoD trade shows and meetings, many sponsored by Defense industry associations, such as the National Defense Industry Association, www.ndia.org. The major DoD prime contractors all have Small Business Liaison Officers listed online with contact information. Their role is to determine how to do business together and to help small businesses locate suitable technical groups in-house.

Follow-through on the searches and networking will enable the SBIR/STTR applicant to complete this challenging section of the Phase II proposal and demonstrate their ability to connect with the enormous military market potential.

41

Contracting and Data RightsSBIR/STTR companies are expected to have gained government accounting and contracting sophistication during the Phase I, and to act knowledgeably in managing a far more substantial Phase II budget. Phase II contracts will often issue as “cost plus fixed fee” awards, meaning that the company will be paid the documented costs of the Phase II work as performed. To contract a Phase II award, a company will be audited by the Defense Contract Audit Agency (DCAA). The DCAA will determine if the small business has an approved accounting system that can differentiate between direct costs, indirect costs, and unallowable costs for each company project. The DCAA also will assess the company’s financial stability for completing the project being contracted.

To gain insight into this assessment process, companies can review the DCAA’s “Information for Contractors” (www.dcaa.mil/DCAAM_7641.90.pdf ). Though not directed specifically at the SBIR community, the guide includes an explanation of pre-award accounting system requirements. Further supporting information and tools can be found at the DCAA website. Being well prepared for interaction with the DCAA can expedite Phase II award contracting.

Respondents to this study provided input about ways to be strategic with Phase II spending. Those with confidence in their technology commercialization pathway, saw Phase II as a time to invest their own funds alongside Phase II funding. Others worked proactively to solicit partner funds toward mutual commercialization end goals.

Respondents felt that it was not enough to focus only on developing the technology, and encouraged companies to invest in business infrastructure and marketing to customers. The Phase II funds require careful stewardship and top performers advised companies to be vigilant about the contract end date, and proactive about cultivating a next income stream.

SBIR/STTR Phase III

The path of transition from Phase II to commercialization can prove challenging for small businesses. Phase III contracts represent pivotal opportunities to pursue production readiness, sales of product or services, further R&D, or any combination of these efforts. Best practices reaffirm that companies need to begin working with Phase III partners early in their projects, as it takes time to increase outside receptivity to novel technologies. The Phase IIIs can be contracted at any time during or after Phase I or Phase II.

Following the 2014 SBIR/STTR reauthorization, there has been increasing attention on how government can gain better transition and taxpayer benefits from the program. The DoD Better Buying Power (BPP) Initiative 2.0 focuses on achieving affordable programs through specifically targeted actions. It includes guidance to “increase small business roles and opportunities.” DoD Component Acquisition Executives are required to apply incentives in contracts over $100 million to address transition goals for SBIR/STTR technology, and to ensure that SBIR/STTR clauses

42

are correctly inserted in contracts. These requirements highlight the growing interest in Phase III contracts and SBIR technology transition.

A Phase III opportunity can be transacted as a contract or a subcontract with any federal interest, prime contractor, or commercial collaborator. Phase III awards rely on non-SBIR funding from private or government sources, and are typically oriented toward commercialization of the SBIR technology. The Phase III work plan must directly derive from, extend, or complete an effort made under previous SBIR funding agreements. There are no limits on the number of Phase IIIs, the dollar value, the duration of the funding agreement, or the type of funding agreement. If a government organization commits to a Phase III, financial support can come from any type of agency funds except an SBIR/STTR set-aside. Phase III contracts can even be funded from procurement, operations and maintenance, and construction budgets. Under the 2014 SBIR Program Policy Directive, federal contracts for new work on SBIR technology must permit SBIR Phase III status and data rights.

This part of the SBIR/STTR program is universally unknown or misunderstood in government and industry. Consequently, SBIR companies must take the lead when seeking Phase III opportunities. Best practice suggestions include learning about the congressional intent of the SBIR program and Phase III, and using this knowledge to educate and prompt outside interest. This process can be significantly enabled by the Air Force Phase III Desk Reference (2016 V1.0), “Equipping the Warfighter with Small Business Ingenuity,” available online at the Air Force SBIR/STTR website. The guide is primarily intended for Air Force acquisition personnel. However, it is of distinct benefit to the company to gain familiarity with the program and the process of technology transition from a military sponsor’s perspective.

The first action items are to identify a Phase III opportunity and the potential funding source, and to establish that SBIR technology will be applied. The searching and networking suggestions provided in the Military Applications section of this report will be of help in developing government and prime contractor contacts. Other networking can be directed at the federal supply chain vendors and within industry circles, including conferences and trade shows.

SBIR technology is often developed under multiple R&D contracts and funding sources, making it difficult to show that a Phase III will directly derive from, extend, or complete an SBIR/STTR effort. Therefore, a best practice is to maintain a company “technology tree” that shows the funding lineage and ownership/use rights for each company technology or resulting product. This diagram or chart will allow a Contracting Officer to more quickly establish the relationship of the Phase III to a previous SBIR funding agreement.

When a Phase III opportunity and funding are identified, there are two primary actions that occur in contracting. The Phase III contract or subcontract must acknowledge the company’s SBIR data rights by rolling forward the “7018” technical data rights clause. Secondly, the Phase III must be reported to the SBA and the Contracting Officer for the originating SBIR/STTR project(s).

43

Phase III BenefitsThe lack of Phase III understanding has led to this part of the SBIR/STTR program being underutilized by both DoD and industry. When the Phase III program is exercised optimally, there are benefits to the military, the SBIR companies, and industry interests.

• Military: Phase III contracts offer a means to achieve affordability and performance criteria while building improved channels for technology insertion into military applications. Requirements of the “Competition in Contracting Act” are fully satisfied by the company having already competed for the related Phase I and/or Phase II awards. This enables contracting for the SBIR/STTR technology to be handled as a sole source award, accelerating commercialization and the delivery of needed solutions for military applications.

• SBIR companies: Phase III funding can be a tremendous boost toward achieving full market readiness, helping to sustain the company in the interim. The small business gains skills in how to do business with the government and its contracting partners. The result can lead to further funding opportunities, and improved maturation of the company and its technology. The Phase III contract also allows the small business to extend its SBIR/STTR technical data rights for another five years, perpetuating the trade secrets that give them a competitive edge. Further Phase III awards will continue to enable roll-over of those rights, protecting the SBIR data indefinitely. Proper protection and retention of SBIR data rights creates valuable assets in technology commercialization for sale or licensing of the business or technology line.

• Industry: Prime contractors do well to partner with agile, innovative SBIR businesses. The Phase III contracts give them an opportunity to investigate state-of-the-art technology and perform diligence on the company efforts. They can purchase the SBIR-related materials and components on a sole source basis for integration into their military-contracted technology. Or, they can outright acquire the small business or its technology, and continue to pursue Phase IIIs themselves, as the company size standards no longer apply. That acquisition also will include the SBIR/STTR data rights and associated sole source rights, so long as those have been properly protected and conveyed. Furthermore, the Phase III relationships can help prime contractors to meet their small business set-aside goals in federal contracting.

44

Additional Considerations

The most elemental requirements for SBIR/STTR success are for a qualifying company to propose innovative solutions and a solid work plan. Beyond those elements, discussions with top performing companies yielded distinct patterns in best practice recommendations, with many companies weighing in on multiple strategies. Following are two tables summarizing the best practice recommendations in response to two open-ended questions:

• What strategies enabled your company to be successful at winning SBIR awards?

• What strategies enabled your company to be successful at commercialization?

Not surprisingly for both questions, knowing the customer and communicating with them were top considerations. In achieving an award, the customer is the SBIR/STTR sponsor; in achieving commercial success, the customer is where revenue is generated. Within these responses can be found a meaningful perspective on how to yield success within the SBIR/STTR programs.

45

What strategies enabled your company to be successful at winning SBIR awards?

0

20

40

60

80

Know th

e cus

tomer

Commun

icate

with cu

stomers

Propos

al dev

elopmen

t

Know th

e nich

e/foc

us

Commerc

ializa

tion s

trateg

y

Partne

ring/r

elatio

nship

s

Deliver

on th

e plan

Hiring p

ractic

es

Operatio

nal st

rateg

y

SBIR know

ledge

Compan

y res

ource

s

Lette

rs of

support

Flexib

ility

46

What strategies enabled your company to be successful at commercialization?

0

10

20

30

40

50

Know th

e cus

tomer

Commun

icate

with cu

stomers

Produc

t dev

elopmen

t

Know th

e nich

e/foc

us

Commerc

ializa

tion s

trateg

y

Partne

ring/r

elatio

nship

s

Deliver

on th

e plan

Hiring p

ractic

es

Marketi

ng st

rateg

y

SBIR know

ledge

Lette

rs of

support

Advice from Top-Performer InterviewsFollowing are unattributed insights extracted from the company interviews, as reminders of valuable best practices cited by top-performing SBIR/STTR companies. Many thanks to the study participants who were willing to take time to share their knowledge.

Know the Customers• Always know your customers; be able

to name the person who will buy your product when you submit a proposal. Sell it every day. You have to get out and sell; there is no easy way in the beginning. Meet people, call people, talk to people.

• As a partnering and licensing firm, we spent a lot of time reading, going to conferences, and learning resources. One overlooked source of information is patent literature. Patent literature, reading academic papers and attending academic and industry conferences shows you where companies are putting money. It lets you know who the players are. Once potential partners are identified, we start with an introductory call or e-mail. We use WebEx to share needed background information and the reason for collaboration. Sometimes people don’t respond but overall, we have been able to build a solid base of partners. This process continues today – we’re always seeking where technology is being used and which businesses are using it.

Communicate with Customers• Before moving forward with submission, we talk to the prime contractors.

One time, the proposal topic called out the need for being able to differentiate between two types of targets. But the primes weren’t interested in an end-product that differentiates between two types - they were interested in three types. We proposed this and won.

• Never submit proposals blindly - we always talked to the customer first. That was partly to fully understand the problem they were solving and partly, to estimate whether the PM had intentions of seeing long term application of this technology, or whether they were just trying to spend money. If we sensed a lack of commitment to long term commercialization, we did not submit proposals.

Partnering/Relationships• We always had at least one commercial partner with specific interest in the

technology as part of our Phase I proposal. The partners would be involved in the technical development, often receiving early prototypes and providing valuable feedback. We sought out these partners through our own networking, attending and presenting at conferences, presenting lunchtime technical talks, our website and technical literature, and referrals from past customers.

47

We try to stay focused on what is in our

product line already, and we utilize our

marketing team to find new markets.Advice from top performer

• Typically, when we were first starting, the only people interested in talking to us were the young engineers who were trying to solve problems and build their career. We would help them be successful and in turn, these engineers moved up quickly into decision-making positions. These relationships have lasted years. Now we don’t have to reach out; customers come to us.

Commercialization Strategy• You have to take a large view and always look for

revenue. Our first SBIR was funded with no plan for commercialization so we thought “well, that was easy” and didn’t consider other options. But then, we didn’t get Phase II, nor our next two Phase Is. Lesson learned.

• Our commercialization plan sometimes goes in a different direction than the written plan as the project develops and we see different opportunities that were not obvious earlier. We try to stay focused on what is in our product line already, and we utilize our marketing team to find new markets. We periodically have considered opening a services side to our business, but have not done so yet. When we’re working on getting to a commercially viable product, we find an early adopter partner to try it out and provide feedback. With our developed products, we work with customer feedback to improve the product and add features.

Proposal Development• Make contact with the person who wrote the original requirement and ask good

clarifying questions. Oftentimes, we asked questions that made the TPOC think we were only interested in winning the award and not wanting to really dig into the problem. Show enthusiasm for the project you will propose, and make sure that comes across in the proposal.

• The first contracts we won were a result of “shotgunning” as many proposals as possible, followed by meticulously reviewing the debriefings, and incorporating the feedback into the next round of submissions. We made sure to contact the topic authors during the open solicitation period for valuable feedback and to get a sense of how competitive our proposal would be. We made a point to include actual hardware testing in our Phase I projects - not just paper studies or simulations - which significantly improved the credibility of our technical claims. Very importantly, we always had at least one commercial partner with specific interest (in some cases, with actual co-investment) in the technology as part of our Phase I proposal.

Product Development• Build a prototype for customers to see. They will be more likely buy or invest if

they see a product.

You need to really understand who you will be

working with and marketing to, which

comes down to relationships and

industry knowledge.Advice from top performer

48

• We have a fundamental practice of rapid prototype approach. We spend less time than traditional companies in the design phase, and quickly design/build/test hardware in an iterative approach. With this process, all products are built with commercialization in mind from the beginning.

Know the Niche/Focus• We stayed focused on specific technology and particular areas of expertise. Then,

we partnered with an operations person who knew exactly what was needed so that development intersected with the needs.

• We only pick topics that will build toward our 10-12 core competencies and if possible, build toward something we have already done, without becoming stagnant. In the beginning, we thought Phase II was the end-point, but have learned to look to Phase III.

Marketing Strategy• Scientists tend to use facts and have trouble understanding the marketing game.

We did use some secondary market research such as Dawnbreaker and TechOps Consulting, but those folks don’t get deeply into the specifics. You have to really know your market and customers.

• We have used traditional market research which provides big picture information, but “the devil is in the details.” While the gross data is helpful, you need to really understand who you will be working with and marketing to, which comes down to relationships and industry knowledge.

Deliver on the Plan• For our first Phase II contract, we partnered with Pratt Whitney where they

were able to test our system on real production parts. This helped us collect valuable data and become well connected into industry. We did whatever it took to safeguard our reputation with the customers. There is no room for failure in Phase II – you must be certain you can deliver for them.

Company Resources• I was a graduate student at the time. My adviser and I wanted to found a

company based on technology we were working on at the university, using bootstrap funding methods. We found the SBIR program when others at the university were spinning out technologies and starting companies this way. We were successful in our method and are now a publicly traded company.

• Investments came from within. We tried VC type funding and possible acquisition but in the end, we preferred to follow the route of spinning [out]companies and using internal funds to achieve this.

Operational Strategy• A key factor was to keep our overhead expenses low. We typically worked out of

our homes and the partners visited customers who were closest to home base. This allowed us to offer a highly competitive product at a low cost. Another key factor was to maintain our strong links to government labs and engineering organizations at NASA and at the Air Force bases. We worked closely with

49

researchers at those sites and were able to gain access to advanced modeling techniques. These led to numerous conference papers that helped improve our technical reputation.

• Find someone who knows government contracting and learn the ropes from them. Government contracting is a complex, non-intuitive activity, not to be attempted by someone with a weakness in attention to detail.

• We were using other company’s equipment for our projects. We decided to buy our own equipment to build and grow our own technology. We had to leverage my house to do this, and took on a huge amount of debt. But it paid off. We started receiving a lot more Phase II awards. I think that the contract managers took us seriously because we were now able to manufacture in-house – which we included in our proposals.

SBIR Knowledge• We fought hard for our sole source data rights. We were first awarded an Air

Force contract and later a Navy contract. Under the Navy contract, we developed a technology and submitted our drawings to them electronically with “Sole Source Data Rights” on the drawings. This label was later removed and shared with the Air Force. We learned of this when we saw a competitive bid for building this technology using our drawings. It took 4-5 months and our Senator to get these rights included, and we were then awarded a sole source contract. We advocated hard for ourselves and were rewarded. Protect your data rights; no one else will. Do not assume government folks know and understand them.

• To be successful at winning a Phase I, you need to have novel ideas and include technical details in your proposal. To be successful at winning Phase II, you need to make a successful solution that actually works and can be demonstrated.

• We always had fully functional prototypes of what we promised to build in the proposals.

Letters of Support• We look for larger company partners and ask them to be subs to begin developing

these relationships for future work. We look at the Programs of Record we would like to be a part of, and the primes already working on the Programs. We then collect letters of support from these primes. We also built relationships with Air Force Base folks. We visit with them and ask for their feedback every step of the way and through this work, we have learned to frame things in their language.

• Have your commercial partner write a letter of support that explains how to fund the ‘valley of death,’ about the market opportunity, and investment potential they see.

Hiring Practices• We feel like our hiring practices attribute to our commercial success. We are

approximately 60 employees – half are atomic physicists who can come up with new products and solutions to technical problems, and half are engineers successful at transitioning products to the commercial space.

50

• Most of the folks at our company are not business savvy along with their technical expertise. We have hired a marketing person to help create markets where there are none, as our technology is often leading edge without a market as yet.

Flexibility• Our original goal was to establish manufacturing

capacity within the U.S. by leveraging manufacturing technologies that already existed and expanding them in size over time. In the end, this became untenable. As a startup, we were inadequately resourced (even after raising VC funding) to address the myriad of problems and issues surrounding bringing such a fundamental technology beyond the proof-of-concept stage, much less all the way to commercialization. Thus, we began to reach out to established overseas manufacturers for potential collaboration. In the end, we were acquired by one of our strategic investors who had the resources to invest in a real and robust commercialization effort.

• We got into SBIR to help us develop technology we were already working on but might not have had the funding to complete on our own. Small businesses must always be adaptable and willing to change.

51

U.S. Air Force 1st Lt. Andrew Hart, C-17 Globemaster III pilot, 816th Expeditionary Airlift Squadron checks navigation equipment in blackout conditions. (Gregory Brook / U.S. Air Force)

SECTION III: AIR FORCE SBIR/STTR SUCCESSES

Applied Optoelectonics Inc. (Sugar Land, TX) “We always wanted to grow a big company, and SBIR funding permitted us to bootstrap long enough to build operations experience and find our technology strengths,” explained Dr. Stefan Murray, who has been with Applied Optoelectronics Inc. (AOI) since it was founded in 1997.

His winning attitude was shared by founder, Dr. Thompson Lin. The partners took the company from its university beginnings to a public offering on NASDAQ in 2013.

Today, they continue in chief executive management roles and have grown the company to 2,300 employees and over $200 million in annual revenue.

AOI has emerged as a leading provider of fiber-optic networking products, achieving the design, manufacture, and integration of their analog and digital lasers, using a proprietary fabrication process unique in the industry.

Early on, Drs. Lin and Murray developed a strong commitment to their customers. Rather than being overprotective of their intellectual property, they collaborated, taking some risks to share lessons learned. As example, AOI helped one company to devise a solution to their problems using lasers at high temperatures. This in turn delivered direct benefit to AOI’s military customer. “You can’t learn if you don’t share,” said Dr. Murray.

53

Dr. Stefan Murray

(Courtesy Applied Optoelectronics)

Connecting with the customer and industry at this level allowed AOI to mature a strong understanding of federal needs and problems. “We actively reached out to different agencies to really understand what they wanted and used similar techniques to find collaborators and technical solutions. We performed copious research that included reviewing published papers, patents, and attending conferences to find the right people,” said Dr. Murray. These efforts allowed the company to identify other SBIR opportunities and grow important relationships that have lasted over the years.

In 1999, AOI had a small product line, limited revenue, and the business operational experience that allowed it to secure angel funding critical to growth. Today, the company has a state-of-the-art semiconductor component lab at its U.S. headquarters near Houston, Texas, and production lines in China and Taiwan. Each division has assembled a world-class pool of talent, and AOI continues to deliver customer-focused products and performance from the same founding principles originated under the SBIR program.

54

SBIR funding permitted us to bootstrap

long enough to build operations experience and

find our technology strengths

Dr. Stefan Murray, Applied Optoelectronics co-founder

Pikewerks Corporation (Madison, AL)A continual challenge to growing technology under the SBIR/STTR programs is created by the inevitable funding gaps between projects.

Pikewerks Corporation founder, Ms. Sandy Ring, advises companies to develop a survival strategy early on, to bridge between project and commercial revenue streams.

This Alabama-based, woman-owned company developed computer security software under SBIR and other research and development initiatives. Pikewerks met those funding gaps head on by tailoring contracts to provide enhancements and features to government contractors and agencies that wanted to use their products.

The custom contract work led to a first revenue-producing product and Pikewerks was able to get software inserted into a few major systems.

Desirous of achieving a larger scale industry presence, Pikewerks made a strategic decision to work from their strengths in custom contracting with an eventual exit plan through licensing or sales of their intellectual property.

Two products became the focus of their future earnings, Electronic Armor and Second Look Forensics. This Pikewerks’ software continues to be applied today for insider threat protection, software executable protection, and forensics to detect changes in the operating environment.

Defense and aerospace systems vendor, Raytheon, acquired nine smaller companies, including Pikewerks in 2011, to grow its cyber-security portfolio. With the acquisition of Pikewerks, Raytheon gained access to top-level engineering talent on the Linux Operating Systems and added capabilities to defend against sophisticated threats facing Raytheon customers.

55

Pikewerks’ software continues to be applied today for insider threat protection, software executable protection, and forensics to detect changes in the operating environment. (Stock photo)

Company principals stayed on and Raytheon Pikewerks Corporation continues to operate. One of the key factors in Pikewerks’ acquisition and the company’s ability to successfully pursue contracts for custom services, according to Ms. Ring, was protection of their SBIR data rights. With 32 SBIR contracts from various agencies, that was important.

Perhaps the greatest factor, though, was the relationship the company developed with one involved and passionate government program manager. Ms. Ring substantially attributes their commercialization success to Dr. David Kapp, of the Air Force Research Laboratory. “When we submitted technical whitepapers, he actually read them and provided feedback.”

This interaction enabled the company to grow deep roots into the intelligence community, leading to continual improvements and many proprietary software products.

To be successful at commercializing, Ms. Ring said, “You need to put your product in the hands of early adopters far before your Phase II is over, to ensure you are building something that is realistic for actual field use.” Ms. Ring’s company achieved commercial results for all of its Phase II efforts after the first year of development.

When Inc. Magazine announced its 2010 Inc. 500 ranking of the fastest growing private companies in the country, Pikewerks Corporation ranked an admirable number 282 on the list.

56

Develop a survival strategy early on

to bridge between project and

commercial revenue streams

Ms. Sandy Ring, Pikewerks founder

Quasonix (West Chester, OH)Quasonix, a small Ohio company, dominates the telemetry data transmitter and receiver market in part because of its success in winning SBIR contracts.

Today, Quasonix’s products are used by every major aircraft manufacturer and in nearly every military aircraft and guided munition program.

“We had $26 million in sales last year and I’d say at least $15 million were to DoD,” said Terry Hill, Quasonix’ president and chief scientist.

During the 1990s, his first company achieved an 80 percent success rate with SBIR applications, and many were converted to Phase II. But it took Hill time to learn how the program could do more than keep the lights on.

“I called it a work for food company. We had a building full of really smart people where we would deliver a clever thing or a design, but then the Air Force or the Navy would take ownership of that design and that was it,” he said.

In 2002, Hill left his first company to found Quasonix, and he adopted a new priority for selecting SBIR projects.

“I said I’m no longer interested in selling brains by the hour. If this SBIR does not result in a product I can put in my catalog and sell to everybody, I have no interest in it,” said Hill.

The company now has 50 employees who produce every transmitter that visits the International Space Station, and counts SpaceX and Orbital Sciences among its clients.

57

The well-lit metropolitan area of New York City, viewed from the International Space Station. Quasonix produces every transmitter that visits the ISS. (NASA image transmitted from the ISS)

Quasonix continues using SBIR contracts to grow its product line. Hill said his forward-thinking customers want to prepare for the eventual acquisition of more telemetry frequency bands by mobile phone providers.

“We have one right now at Missile Defense Agency down in Huntsville. We have a Phase II SBIR still in process that is focused on taking our existing S-band transmitters, which is the traditional spectrum that the missile test community uses and migrate all that to C-band.”

“I was going to do it anyway and MDA was going to put up $750,000 to do it,” he said. “I’ll take it. MDA’s requirement is met sooner, and we can offer the same item to other customers.”

And that’s the cornerstone lesson. Hill no longer views the SBIR as a contract, but rather as bringing on the government as an investor for his larger research and development budget.

“When you say ‘my company is going to put money to go alongside the SBIR award,’ you’ve made the commitment to turning this into a product,” Hill said. “If you’re going to put in your own money you must be deadly serious. And that’s the fundamental thing that most companies bidding SBIRs don’t get; they just see it as a paycheck and it’s short-sighted.”

58

[The SBIR contract needs to] result in a

product I can put in my catalog and sell to everybody

Terry Hill, Quasonix president & chief scientist

Advanced Technology Materials Inc. (Danbury, CT)Dr. George Brandes describes Advanced Technology Materials, Inc. (ATMI) as a comprehensive user of the SBIR program in its early years.

The company grew out of a small team of scientists who would come together to review proposal topics, brainstorm on solutions, and identify prospective outside partners.

Working from this core group and the catalyst of SBIR funding, ATMI was founded in 1986 and went on to develop six core technologies and operations. This Connecticut company ultimately achieved a total of 182 SBIR contracts, and went public in 1993 when its annual revenues reached $7 million.

Dr. Brandes took the lead in the ATMI business sub-group to develop gallium nitride (GaN) materials. The ATMI GaN business line was branded as the source of semiconductor process efficiency, with a mission to help customers improve wafer yields and reduce operating costs.

State-of-the-art research had already demonstrated GaN to be the optimal material for solid-state light generation. However, large area GaN wafers were not commercially available due to the difficulty of producing bulk GaN crystals. ATMI achieved patented processes that allowed the manufacture of high purity GaN wafers that met requirements for larger dimensions.

Under the ATMI venture wing, the GaN business group initiated manufacturing capacity to become one of two industry-ranked supply sources with established sales

59

A latent print examiner assigned to Forensic Exploitation Laboratory of U.S. Army Central Command applies a blue laser to a compact disc to acquire finger prints. ATMI produces blue laser diodes. (Marcus Gresham / U.S. Army)

of GaN wafers suitable in size and quality for volume manufacturing of blue laser diodes.

Dr. Brandes developed strong awareness of a first industry niche for ATMI GaN operations. “The forecasted markets for blue laser diodes and related devices are valued at several billion dollars. Blue laser diodes could not only nearly quadruple data storage on such media as DVDs, but also provide the means by which higher resolution printing and crisp, full color projection displays could be achieved,” he said.

While Dr. Brandes advocates businesses staying open to many possibilities for product lines in their fields of interest, he emphasizes the critical need to seek strong technical partners and to interact with the prospective customers.

Finding valuable partners required a multi-faceted approach. Many of ATMI’s leading personnel had colleagues from graduate school or past work places. They would interact with the DoD points of contact when the SBIR topics first published, before the communications black out. Those discussions were used to clarify the military needs and to develop leads to companies and professionals who could assist with a project and commercialization.

ATMI also attended trade shows to find customers and get military and industry interests engaged in discussions about products and applications. This yielded unexpected insights, such as a company purchasing blue LED (light-emitting diodes) expressing interest in white LED. With none available at the time, ATMI set out to determine if they could deliver on the technical challenge and drive product quickly to market.

In 2004, Cree, Inc. purchased the ATMI GaN business operations and patents, representing the first disposition of ATMI’s business groups grown from SBIR-funded beginnings.

Dr. Brandes emphasizes that companies need to find others who have succeeded in the many aspects of growing and launching a technology, and act on those best practices to drive improvements.

“Talk to everybody and anybody. This is how ATMI achieved its performance-driven successes.”

60

Talk to everybody and anybody.

This is how ATMI achieved its

performance-driven successes.Dr. George Brandes, ATMI business

group lead

Diamond Visionics (Vestal, NY)The image generation technology that powers the visuals in simulators for the F-22 and a broad range of other military and commercial aircraft has its roots in, of all places, the human gall bladder.

Diamond Visionics got its start with a contract to develop imaging technology for a simulator that would train surgeons to perform a cholecystectomy, which is the surgical removal of the gallbladder, without nicking the liver or causing other internal damage.

The company’s technology displays the soft body tissue that is cut, burned, and pulled away by surgeons in training.

The image rendering was later repurposed to display dynamic terrain—an approach that won the attention of the U.S. Army, which encouraged the company to bid on a training program for tank operators.

“If we can deform the liver, we can deform dirt,” says David Gdovin, president and co-founder of Diamond Visionics.

That began a long series of SBIR grants from the Army, Navy, and Air Force that focused on image generation. As it developed its Genesis imagery manipulation software, Diamond Visionics took a different approach to creating visualizations of the ground, trees, and buildings found in simulators and other software.

“All of the things that went into that visual scene had to be hand modeled and stitched together using expensive third party software tools—an extremely long, expensive, frustrating, and manpower-intensive process,” Gdovin said.

61

A U.S. Air Force pilot taxis an F-22 Raptor for takeoff during a training session. Diamond Visionics developed imaging technology for a simulator that can be used for flight training for the F-22 and other programs. (Kristen A. Heller / U.S. Air Force)

Diamond Visionics’ line of Genesis software has driven visualizations supporting a host of Army, Navy, and Air Force programs, including the Apache, P3-C, F-15C, F-16, F-22, F-35, C-130, Typhoon and Euro-Fighter.

Genesis also won attention from The Boeing Corporation, which saved approximately $10 million over three years by adopting the software over its traditional database-building approach, according to Gdovin. It has also been used in military applications in Canada, Germany, UK, South Korea, Middle East, and elsewhere worldwide.

Over the life of the Genesis software products, Diamond Visionics has generated nearly $30 million in revenue. Gdovin says SBIR grants helped sustain the company as it explored an approach to creating visualizations that, at the time, was considered a dramatic departure from the status quo.

The key to their success in both military and commercial sales, the company said, was developing a deliberate, strategic process for selecting SBIR proposal topics that aligned with their technology and goals.

62

Strategic topic selection

helped Diamond Visionics

to develop products for

civilian & military customers

FlexSys (Ann Arbor, MI)FlexSys has been developing advanced aircraft wing technologies with the Air Force Research Laboratories for more than a dozen years. Its use of all three phases of the SBIR program has resulted in repeated success, including major contracts with Boeing and a joint partnership to bring the technology to the marketplace.

In 1994, Sridhar Kota, then an associate professor of mechanical engineering at the University of Michigan, took an idea for a flexible aircraft wing to a group of engineers at Wright-Patterson Air Force Base.

Kota’s idea for a morphing wing combined the natural elasticity of existing aerospace-grade materials with a jointless skeleton to achieve flexibility without sacrificing strength.

“I thought they would say, ‘Okay, thank you, good-bye,’” recalls Kota. “But they said, ‘Wow. This could work.’ It was one of the best meetings of my life.”

Kota received an Air Force Phase I SBIR to pursue the design in 1998, and recruited some help to convert his garage into a lab and fabrication workshop. About a year later, he took his wind-tunnel-tested prototype back to Wright-Patterson, where engineers were equal parts surprised and excited by the progress he had made. Kota secured a Phase II SBIR in 2000 and founded FlexSys, Inc., headquartered in Ann Arbor, Michigan.

Pete Flick, a senior aerospace engineer at the Air Force Research Lab (AFRL), joined as the project manager soon after.

“The Air Force aligned our Phase II work with specific mission-related goals,” says Kota. “They asked us to focus on the trailing edge, and consider how it might be

63

FlexSys wing readied for testing on a Gulfstream GIII. (Courtesy FlexSys)

integrated into different types of aircraft.” Responsiveness to the Air Force’s goals helped FlexSys to develop strong proposals.

Each time FlexSys nailed a challenge, the Air Force set and funded the next one. By the end of Phase II in 2008, FlexSys and AFRL had successfully matured the adaptive compliant trailing edge (ACTE) technology with wind tunnel and structural tests, and a flight test in which a prototype wing section was attached to the underside of a White Knight aircraft.

NASA joined the team in 2009 under a Phase III collaboration to advance the flight testing stage. Recognizing the significant “green” potential of the technology, NASA incorporated the ACTE into its Environmentally Responsible Aviation (ERA) initiative, which was created to explore aircraft designs that reduce noise, emissions, and fuel consumption.

Under an agreement between FlexSys and the Boeing Company, the ACTE technology is now being fitted onto a KC-135 Stratotanker for testing. This is a promising step—integrating the ACTE into the entire KC-135 fleet could potentially save tens of millions of dollars in fuel costs every year.

In nominating the company for its winning 2015 Tibbetts Award, Flick wrote, “A single Phase I and Phase II SBIR contract will soon be credited with revolutionizing the aircraft design industry.”

In 2016, FlexSys and its new partner, winglet specialist Aviation Partners, began working to retrofit an aircraft with the first commercial morphing wing.

64

The Air Force aligned our

Phase II work with specific

mission-related goals

Dr. Sridhar Kota, FlexSys founder

Frontier Technology, Inc. (Dayton, OH) Frontier Technology Inc. (FTI) CEO Ronald Shroder told a Congressional panel that the Small Business Innovation Research program was “probably the best small business program ever in the history of the country.”

FTI is headquartered in Ohio, but now has employees in over 15 states providing software and technical services to Department of Defense and civilian customers. For FTI, the SBIR program’s return on investment has been remarkable.

“For every SBIR dollar the government has invested in FTI, the company has been awarded or is in final negotiations for an additional $6.15 in revenue through non SBIR / commercial funding,” Shroder said after consulting with his contracts and finance staff.

Shroder left a larger company to join FTI in late 1994. At that time FTI was nearly 10 years old with a staff of a little more than 10 employees. Over the next several months FTI proposed for a Phase I SBIR that resulted in a technology that is a foundation of FTI’s current product suite. Today FTI employs more than 140 staff members.

FTI’s technology has been the basis for the company’s winning multiple contracts above $100 million. These contracts utilize FTI’s suite of readiness assessment and lifecycle decision support software that allows military leaders to understand and compare their options for weapons and equipment maintenance and upgrades.

65

SBIR contracts helped Frontier Technology develop its suite of readiness assessment and lifecycle decision support software for weapons and equipment maintenance and upgrades. (Andrew D. Sarver / U.S. Air Force)

“The best advice I can give is you have to be very, very selective in what you go after. The SBIR topic a company decides to propose to should be associated with the company’s business plan. The business plan is the direction a company is committed to working toward whether or not a SBIR is ever awarded. I would recommend being very selective on what you propose to and make sure it fits with what you want the company to become,” he said.

Success for FTI meant using their skill set as a head start. “The only way for you to have a head start against serious SBIR competition is to already be pursuing with passion a technology that coincidentally happens to be in a solicitation.”

Shroder views the SBIR funding as an investment to speed growth, not start it, and advises other businesses to reflect on the Congressional intent in creating the program.

“Working on SBIR technology that isn’t a part of your business plan is a distraction and can weaken the company,” he said.

Shroder credits much of FTI’s success to talented employees and DoD SBIR customers.

“Before we decide to submit a proposal, the government’s willingness to communicate with us has been very important to us,” he said. “They would clarify their requirements and compare them to some of our existing technologies.

“They helped us filter, and not waste resources. If we received an award, many of the customers would be very creative offering ideas that would provide significant improvements to our technologies.

“The customers also have provided additional resources to help mature the technology after the initial Phase II. In addition, they would also help explain the SBIR Phase III laws to potential new customers. That was very important since Phase III contracting rules are not broadly understood within the government.

“It turned what could have been lost opportunities into contracts for us,” Schroder said.

66

I would recommend being very

selective on what you propose to and make

sure it fits with what you want the company to

becomeRonald Schroder, Frontier

Technology CEO

Idaho Technology/BioFire (Salt Lake City, UT)Kirk Ririe co-founded Idaho Technology in 1990 with Dr. Carl Wittwer. It was a company with simple beginnings, but with a product vision.

They were two friends at the University of Utah; a chemistry student with access to his family’s small potato farming equipment factory in Idaho, and a doctor of biochemistry at the cutting-edge of molecular biology diagnostics – the art of reading DNA and RNA to identify pathogens.

Before they formed the company, Ririe was a private in the Army, assigned to a nuclear, chemical, and biological weapons decontamination unit.

“I knew the state of the art and it was pretty bad… I had learned quite a bit about the field and when we started working on assays, some of the very first customers for our products were all the branches of the military,” he said. “They immediately started applying our ideas to bio threat applications and I started working with an Air Force officer named Todd Ritter.”

In 1999, Ritter left the Air Force to join Idaho Technology, and in 2002 they applied to an Air Force SBIR solicitation. The research problem that led to the company’s success was simple. The military wanted a shelf-stable test for biological weapons like anthrax, and Idaho Technology delivered.

Technology from that 2002 SBIR was foundational. The most recent diagnostic product can test for dozens of pathogens, allowing civilian and military physicians to quickly find the cause of common symptoms.

67

Air Force SBIR funding helped Idaho Technology to develop a shelf-stable test for biological weapons like anthrax. (Courtesy Idaho Technology/BioFire)

Kirk Ririe

“The bio-threat [military] applications are cool and we’re ready to play a role in future conflict, but meanwhile there is a routine, daily, life-saving application for the same core technology in hospital labs,” Ririe said.

The Air Force assisted Idaho Technology by testing their products. “We could no more test with live anthrax as Idaho Technology as we could fly to the moon,” he said. “As soon as we had working tests they were taking them into labs to test products with live agents. We were working hand in hand with all the branches from the beginning.”

The technology represents a global advancement for human medicine, and in 2014, Idaho Technology/BioFire was acquired by the French company BioMérieux for $450 million.

Want to be successful like them? Be proactive and responsive, and don’t go after SBIR solicitations that your company isn’t 100 percent responsive to, Ririe said.

“We never write pie-in-the-sky proposals,” he said.

The SBIR program was valuable in that it provided Idaho Technology with three things, he said, some money, but more importantly an independent, and expert evaluation of their research and applications, and a required plan to get to a product.

“That product plan turns out to be the most important aspect of the whole experience. It’s got way more value in the long term than the money you get in on the grant,” Ririe said.

Don’t view the SBIR program as simply a source of money, he stressed.

“My advice is no amount of research grants will make up for a lack of product vision. If you get the product vision right, then grants, contracts, investment capital, will figure out a way to get the product,” Ririe said. “SBIRs, you can’t develop a new iPhone with SBIRs, you can’t solve fusion with a SBIR. There’s a class of products you can use SBIRs to take significant steps towards, but SBIRs are not an end unto themselves.”

68

No amount of research grants will make up for a lack of product

visionKirk Ririe, Idaho Technology

co-founder

T/J Technologies, Inc. (Ann Arbor, MI)In 1991, Levi and Maria Thompson and Mike Wixom founded T/J Technologies to specialize in the development of advanced materials for ultracapacitors, lithium-ion batteries, and fuel cells.

Fifteen years later, the Ann Arbor-based company was acquired by a lithium-ion battery company that used T/J’s core technology to expand, and then to build a manufacturing facility in Michigan, creating hundreds of new jobs.

T/J Technologies’ first SBIR contract came from the Air Force. Following that were SBIR and STTR contracts from DOD, DOE, NASA, and NSF, all of which helped to fund advancement of the battery technology that put their business on the path to success.

Early in the company’s history, Thompson helped form a group of other technology business leaders who would meet for lunch three or four times a year to trade notes and experiences. It was informal, but they would take turns discussing problems, talk about process, and pool their knowledge.

“We talked about things like how to negotiate a contract after you win an SBIR, how to set up your rate structure, and what types of expenses were acceptable,” Thompson said.

Her advice to others seeking their first SBIR? Don’t get discouraged, due to intense competition, even good proposals can get rejected.

“When we got rejected, we would always read the reviewer comments, so we could

69

T/J Technologies developed advanced materials for lithium-ion batteries with Air Force SBIR funding. (Stock photo)

improve the proposal for the next time,” Thompson said.

Over time, T/J Technologies won more than 30 awards, and had good success in converting Phase I to Phase II.

“It really helps to stay in touch with your program manager because priorities can change between phase I and phase II,” she said. “Also, if funding is tight, your phase II award may depend on the selling ability of your program manager to get your proposal funded over another program manager’s favorite proposal.”

She advised taking advantage of the SBIR Solicitation communications window, and suggested sending questions to the program manager before writing the proposal. This will help ensure that your proposal meets the interests of the program manager.

Thompson was also strategic about who wrote each section of the application and focused on how to win follow-on funding early in the process.

“We always had the business people write the business plan, and the technical people write the technical plan. I think some SBIR companies fail when they have people without business experience try to write the commercialization plan.”

Thompson found attending the seminars on SBIR to be helpful to T/J Technologies’ success. It was through an SBIR conference that they met a Lockheed Martin executive who sponsored T/J Technologies’ participation in a DOD mentor-protégé program.

“Working with Lockheed Martin helped us win bigger contracts outside of SBIR,” she said.

She also stressed the importance of keeping clean, up-to-date records. “You will be audited, so make sure that you keep and organize all pertinent documents.”

Most importantly, she said, was the attitude towards the work.

“We were really grateful to get the SBIR funding because it helped us create technologies that made the country better and led to U.S.-based jobs,” Thompson said.

“By creating advanced battery technologies that helped make America less dependent on fossil fuels we were doing something that was good for the environment, and important to our customers.”

70

You will be audited, so make sure

that you keep and organize all pertinent

documentsMaria Thompson, T/J Technologies

co-founder

Technology Assessment and Transfer (Annapolis, MD)Technology Assessment and Transfer is a small Maryland company that specializes in cutting-edge ceramics applications.

The SBIR-savvy company has had major success in licensing its inventions and in follow-on contracts, including projects with industry leaders on non-stick cooking pan coatings and jet engine turbine blades.

“Our initial effort was an Army Phase I SBIR which enabled us to solve the brittleness problem associated with magnetron sputtering targets. This led to Air Force SBIR to further develop low friction, wear resistant quasicrystalline coatings for aerospace applications,” said Larry Fehrenbacher, the company’s president.

Asked what other companies should do to mimic their success with the SBIR program, Fehrenbacher said “research” and “relationships.”

In 1977, Fehrenbacher left the Air Force Materials Research Laboratory after 15 years to serve as the assistant to the chief scientist, Air Force Systems Command, Andrews AFB, Washington, DC. On retirement from active duty in 1981, he and his wife Sharon founded TA&T primarily as a technical consulting business. With the new SBIR program now available, they won their first SBIR proposal and subsequent contract in 1986.

In the 1990s and early 2000s, TA&T used its SBIR funding to conduct extensive research and development on the emerging field of quasicrystalline materials.

71

U.S. Air Force Staff Sgt. Daniel Spear performs a post-flight inspection. Technology Assessment and Transfer developed a coating for aerospace applications such as jet engine turbine blades, through the Air Force SBIR program. (Patrick Evenson / U.S. Air National Guard)

“We researched the worldwide literature on quasicrystalline metallic coatings, which due to their unique 5- and 10-fold crystal structure, exhibited properties similar to ceramics; i.e., brittle, thermal insulating, low surface energy and fairly low friction,” said Fehrenbacher.

Their work on the coatings was advanced by a DARPA program that funded a team of researchers at the University of Michigan, Northwestern, Carnegie Mellon, and the Air Force Materials Laboratory to test TA&T’s technique for sputtered coatings.

“The sputtered coatings proved to be superior. The original SBIR that led to our patented breakthrough on the non-brittle sputtering enabled us to deposit good, dense coatings with good properties,” Fehrenbacher said.

Additional SBIR funding from NASA, AF, Army, Navy, NSF, and DOE helped TA&T to advance the state-of-the-art and build capability for ceramic 3D printing technology.

One of TA&T’s first customers for ceramic 3D printing was the NASA Goddard Spaceflight Center.

The sample analysis instrument suite for the Mars rover Curiosity required small heaters that could withstand repeated, rapid heating to over 1800o F. Conventional manufacturing routes were not capable of fabricating the challenging shape, and NASA turned to TA&T. The company 3D printed the heaters and they were used by the rover to vaporize Martian soil samples for chemical analysis.

More recently, TA&T partnered with Honeywell Aerospace to 3D print ceramic cores for turbine blades. The blades qualified for production blades and the team is now focused on demonstrating the technology for advanced turbine blade designs that will significantly improve aircraft engine fuel efficiency.

“The fast turnaround of 3D printed ceramic cores is a major time and cost advantage for optimizing new engine designs,” Fehrenbacher said. “It’s also a major advantage for producing cores for military legacy engines and legacy auxiliary power unit turbines. If successful, this will be a disruptive technology and a major breakthrough.”

72

Research and relationships are TA&T’s keys to success in the SBIR program

73

Hyper Tech Research (Columbus, OH)Many companies have found success through the SBIR program over a number of years, allowing a primitive technology to develop into commercial profitability while assisting projects for multiple federal agencies.

Such was the experience of Hyper Tech Research, an Ohio company founded in 2001, the same year that the superconductivity of magnesium diboride was discovered.

The company was awarded an Air Force SBIR contract in 2003, with a proposal focusing on the use of magnesium diboride superconductor wire for magnetic hydrodynamic aircraft.

While Hyper Tech’s research has largely pivoted to medical applications like magnetic resonance imaging (MRI), the SBIR program helped demonstrate proof-of-principle with regard to the wire-making process and winding the wire into magnetic coils.

While still in the testing phase, Hyper Tech is on the road to demonstrating that magnets made from its magnesium diboride wire exceed the performance and efficiency of the more commonly used superconducting materials and is less costly.

“Hyper Tech has aggressively pursued substituting magnesium diboride for niobium-titanium, which is the current workhorse of the MRI industry,” said David Doll, technical manager at Hyper Tech Research. “It operates at a higher temperature than niobium-titanium with a broader range, and it’s more forgiving — you can operate

Hyper Tech Research is at the forefront of the hunt for a better superconducting MRI magnet. (Stock photo)

using strictly conduction cooling with a cryocooler and without any liquid helium bath cooling.”

Niobium-titanium must be kept at a chilly 9 K (-263.15 degrees C) or below for superconductivity, which is why helium in liquid form with its temperature of 4 K (-269 degrees C) is ideal for supercooling. This dependence on helium quickly becomes expensive. For example, to cool down and sustain the low temperature for an MRI requires as much as 3,000 liters of liquid helium at a cost of $10 per liter and rising.

“The most common superconductor today is niobium-titanium, and it’s used in almost all MRI machines around the world,” said Hyper Tech founder and President Michael Tomsic. “Because there is a predicted shortage of liquid helium, MRI manufacturers would like to have a higher operating temperature superconductor so they could eliminate the liquid helium cooling and use conduction cooling.”

Tomsic began experimenting with magnesium diboride after its discovery. The advantage of using the compound is that it has the highest known critical temperature for an intermetallic superconductor, 39 K (−234 degrees C). However, it is more brittle and harder to handle than niobium-titanium for fabricating into magnets.

To address the handling problems, Hyper Tech invented a continuous tube forming and filling (CTFF) process for fabricating magnesium diboride wires, and became the first U.S. manufacturer to produce viable long-length magnesium diboride wire.

The invention of CTFF took about 2 to 3 years to perfect, according to Tomsic, and another 2 years were needed to demonstrate a superconducting magnet from the wire.

Hyper Tech has created standard and custom magnesium diboride superconductors for national laboratories including those of the Air Force, Navy, NASA, and National Institutes of Health. Hyper Tech is also working on full-sized demonstration MRI magnets for medical imaging technology with major interest coming from the three largest MRI corporations: Siemens, Philips, and General Electric.

74

For Hyper Tech Research,

SBIR–funded aircraft

research led to follow-on contracts

in medical technology

GATR (Huntsville, AL)A few days after Hurricane Katrina cut its deadly swath through the South, Paul Gierow had his fingers crossed as he scrambled down to a Red Cross shelter in an elementary school near Biloxi, Mississippi. His bizarre inflatable satellite antenna worked in his backyard, but this would be a high-stakes test.

When he arrived at the shelter, Gierow unpacked his prototype GATR (Ground Antenna Transmit and Receive) system onto the ground: some electronics, an air pump, and a giant deflated beach ball. Within an hour he inflated the ball, attached a small transceiver to the top, and established the only high-speed internet link in the county.

A woman who had been dug from the rubble of her demolished house sent word to a friend in Iraq that she was safe. A recent transplant patient contacted a pharmacist who drove four hours to deliver replacement anti-rejection medication. Over the next several days, the inflatable antenna enabled more than 250 families to connect with relatives, get medical help, find housing, and begin to rebuild their lives.

Gierow had been in early-stage development of the antenna when Katrina hit, working on the project with funding from the Air Force Small Business Innovation Research program. GATR’s original purpose was to provide a communications lifeline to Air Force special operations troops.

75

GATR on top of the world. (Courtesy GATR)

After creating the working prototype, follow-on SBIR contracts allowed Gierow and his co-inventor, William Clayton, to perfect the materials, fine-tune the system, and scale-up production.

“Without a doubt, the GATR antenna would not exist without the Air Force SBIR,” Gierow says. “It allowed us to develop something sort of kooky into a valuable tool.”

In addition to help from the SBIR program, Gierow notes that a number of individuals and agencies made important contributions to the technology’s evolution. Working with a special ops team at Wright-Patterson Air Force Base was especially important to the ultimate success of GATR, he adds. “If you have R&D funds without a user, you’re just sort of doing it for fun, or for technology’s sake. But when someone says, ‘I’m going to Djibouti in three months,’ it changes how you do things.”

From Gierow’s one-man operation, the company now employs around 70 people, with projections of a 180-person work force in a couple of years.

Since that “trial by hurricane” in 2005, the GATR technology has transitioned from SBIR project to a standard item approved for military purchase. To date, more than 400 GATR systems have been delivered to units of all of the U.S. military services, other federal agencies, several allied nation militaries, and disaster relief organizations, including FEMA, which now owns 16 GATR antennas. In addition, more than 85 of the smaller 1.2-meter systems—which can fit in a backpack—are being used by U.S. special forces.

GATR is the most portable antenna ever developed, and represents the first new approach to satellite communications in over a quarter century—a genuinely disruptive technology, and definitely one of a kind.

Strong government sales and the continued pursuit of contracts using the Phase III SBIR rules created an outstanding balance sheet. In 2016, the Cubic Corporation bought GATR Technologies for $232.5 million.

76

Follow-on contracts and

government sales through Phase III rules led to SBIR startup GATR’s

success, growth, and acquisition

CleveMed (Cleveland, OH)Home-based medical tests weren’t on American consumers’ radar in the 1990s, when inventor Robert Schmidt could be found walking around trade shows with electrodes on his head. He had the right hair cut for it, he says (he’s bald), and he was determined to spread the word about his new technology—the very first wireless, digital electroencephalogram (EEG) device.

“We were the only ones in the world who could do that at the time,” says Schmidt, founder of Cleveland Medical Devices, now CleveMed.

Early on Schmidt recognized the importance of combining technical capabilities with good business skills to set the company above competitors. It allowed his company to grow and create several other successful companies.

In the beginning, EEG equipment for evaluating the brain’s electrical activity was the size of two file cabinets, and incorporated a sensitive amplifier that couldn’t be closely paired with a radio because of electromagnetic interference. With such cumbersome and finicky equipment, the idea of patients administering their own complex medical tests in the comfort of home seemed far-fetched. But Schmidt found a way to use digital technology to create a tightly integrated, compact wireless device that could

77

CleveMed’s compact wireless device, originally named the BioRadio, collects and transmits information about human physiology. (Courtesy CleveMed)

collect and transmit information about human physiology. He called the device BioRadio, which was at the heart of his portable EEG.

Not long after Schmidt introduced BioRadio, he learned that the Air Force was looking for a system to relay data from airplanes for test flight monitoring. Bombs or missiles strapped to wings or underneath planes were being blown off to assure control of release, and the Air Force needed a way to understand what was happening in the process—to transmit data from strain gauges, accelerometers, and gyroscopes to a transceiver on the ground. Around 1999, with support from the Air Force Small Business Innovation Research program, CleveMed began work on an improved version of BioRadio that became MicroRadio, a small, low-cost flight-test-data acquisition system that could withstand severe environmental conditions and deliver data between a plane and a ground receiver through two radio bands at ranges up to 50 miles.

“The Air Force SBIR allowed us to improve our BioRadio to a much more stable next-generation device,” Schmidt says. “It could take shock and high vibration, and work in all kinds of environments.”

Testing in sleep labs presents problems to patients and physicians alike, with cost a major factor. Schmidt estimates that conducting a sleep test at home cuts 80 to 90 percent of the cost. The small size and light weight of CleveMed’s sleep technology allows it to be sent across the U.S. with minimal shipping costs.

CleveMed has become a leader in the field, and has spun off three companies that offer additional product lines with roots in the SBIR-supported technology. Those companies are Great Lakes Neuro Technologies, NeuroWave Systems Inc., and Flocel Inc.

“The Air Force contract was very important for us to be able to stay alive and have clients and be able to grow our technology and our staff,” says Schmidt. “It was a huge deal.”

It’s been a steady climb from Robert Schmidt’s early trade show days, and now CleveMed is now on the forefront of 21st century home-based tests and telemedicine—with technological advances made possible by the Air Force SBIR at the core of the company’s success nearly two decades later.

78

For CleveMed, combining technical

capabilities with good business skills

were the keys to their SBIR success

79

Windmill International / AQYR (Nashua, NH)Rapid access to information via satellite feed is a key tactical advantage for the warfighter, but it’s especially important for Special Operations Forces.

In the early 2000s, military operators wanting to receive communications via the military’s standard Global Broadcast Service (GBS) needed a 300-pound, three-foot satellite dish that ran on a generator. At the time, GBS was primarily used to transmit troop health and welfare information—along with Super Bowl games and NASCAR events—to military installations.

Today, thanks to advances made with support from the Air Force Small Business Innovation Research program, forward units can receive critical data via a 20-pound portable receive satellite terminal that runs on solar-rechargeable batteries. That, says Mark Wheeler of AQYR Technologies, is what you call a paradigm shift.

In 2001, New Hampshire-based Windmill International, Inc., AQYR’s parent company, saw that the Air Force was looking for a lightweight, portable, rugged—and disposable—satellite antenna system. The company won an SBIR contract to explore the possibilities, but after initial design work, determined that a disposable system wasn’t feasible because of the cost of materials. Undeterred, they pressed forward to develop a portable unit that would fulfill mission needs.

“We used more of a commercial product development strategy in the SBIR contracts as opposed to a spec-driven product development strategy,” says Wheeler, AQYR’s director of business development. “That allowed us to address the needs of the user.”

Windmill International developed rapid access to information via satellite feed with Air Force SBIR funding. (Courtesy Windmill)

Windmill fielded its first prototype in 2006. “We took it out and socialized it with 80 different military units,” Wheeler says. “We would show this to them—explain our thinking, based on our collective background in the military.” Wheeler served in the U.S. Army, and two others on the team served in the U.S. Air Force and Marines, both training as military SATCOM technicians.

“We had what we call an empathic–design philosophy, which means we understood what it meant to actually carry this stuff and use it,” Wheeler says.

Windmill refined the prototypes into state-of-the-art individual satellite receive units, and by 2008, had introduced the KA-10 Suitcase Portable Receive Suite (PRS) and the Rucksack PRS, both of which allow reception of full-motion video for intelligence gathering, surveillance, and reconnaissance through the GBS broadcast to any location on the globe.

AQYR developed additional satellite terminals for the commercial market. “These units can be used by a soldier, a nurse, a firefighter. They’re designed to effectively get someone communicating as fast as possible with the least amount of training,” Wheeler says. “One of the biggest keys to our success is the fact that any terminal we make will fit into a single airline checkable case.”

In 2011, AQYR received the Small Business Administration’s Tibbetts Award for the innovation and economic growth resulting from development of its KA-10 Suitcase PRS. One thing all of AQYR’s products have in common, Wheeler says, is that they are 100 percent dependent on the innovations Windmill and AQYR achieved while working under their SBIR contracts.

80

We used more of a commercial product

development strategy in the SBIR contracts

as opposed to a spec-driven product

development strategyMark Wheeler, AQYR director of business

development

SECTION IV

Abbreviations

AFRL Air Force Research LaboratoryBAA Broad agency announcementCAI Commercialization achievement indexCDRL Contract data requirements listCRP Commercialization Readiness ProgramDoD Department of DefenseDFARS Defense federal acquisition regulation supplementFAR Federal acquisition regulationsIP Intellectual propertyITAR International Traffic in Arms RegulationsMRL Manufacturing readiness levelOEM Original equipment manufacturerPTAC Procurement Technology Assistance CenterR&D Research and developmentSAM System for award management SBA Small Business AdministrationSITIS SBIR interactive topic information systemSBIR/STTR Small Business Innovation Research/Small Business Technology TransferTPOC Technical point of contactTRL Technology readiness level

81

References

DoD 2017.1 SBIR Announcement

DoD 2017.A STTR Announcement http://www.acq.osd.mil/osbp/sbir/solicitations/index.shtml

Air Force 17.1 SBIR Phase I Proposal Submission Instructions

DoD Instructions: 2017.1 SBIR http://www.acq.osd.mil/osbp/sbir/solicitations/sbir20171/index.shtml

Air Force SBIR Phase II Proposal Instructions http://www.wpafb.af.mil/Portals/60/documents/afrl/sbir/SBIR-Ph-II-FFP-Instructions-161215.pdf?ver=2016-12-15-073717-467

National Contract Management Association (NCMA) article in the January 2017 Edition of Contract Management magazine on “SBIR Contracting: A Guide to Efficient and Effective Execution” by Christopher E. Harris.

Small Business Innovation Research (SBIR) Program Policy Directive, Small Business Administration Office of Investment and Innovation, February 24, 2014.

“Technology Readiness Assessment (TRA) Guidance” (PDF). United States Department of Defense. April 2011.

“Implementation Directive for Better Buying Power 2.0,” United States Department of Defense Acquisition, Technology & Logistics memo. April 24, 2013.

82

A pilot breaks away from flying in tight formation. (James R. Crow / U.S. Air Force)

PARTNER WITH US TODAY

AFSBIRSTTR.COM

SMALL BUSINESS INNOVATION RESEARCH | SMALL BUSINESS TECHNOLOGY TRANSFER