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BUYING A SMALL BUSINESS

The More They Spend On R&D , The Faster They Grow
 

Sizing up R&D spending in 52 smaller companies.
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You can argue, as Stanley Mason does on page 30, that government has an important role to play in providing seed capital for innovation. But some companies fund their own research and development, and go right on innovating without any direct help from Washington.

For example, Tandon Corp., a California manufacturer of computer disk drives, saw sales increase 247% to $23 million between 1979 and 1980 after the company spent nearly 12% of sales on research and development in the two previous years. As Tandon has found, there's a direct relationship between R&D investment and sales growth.

The chart at right lists those 52 companies from the 1981 INC. 200 that show an R&D allocation on their income statement. The three companies on the list that invested between 10% and 12% of sales in R&D showed an average sales growth of 119% in 1980. But companies that invested only 3% to 5% of 1979 sales in R&D showed average 1980 sales growth of "only" 53%.

So why does government need to get involved? Because, as Stanley Mason points out, there's a clear difference between developing Chinese tallow-tree seeds as an alternative fuel and developing an advanced disk drive for the computer market. Tandon can be petty sure that its products will find a market, but who knows whether anybody will buy Mason's tallow-tree fuel? That's why it's in the nation's interest, Mason says, for the government to put some money aside for his project.

Last updated: Aug 1, 1981




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