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There's Gold In Them Thar Hills

For those small companies engaged in technological innovation, the Small Business Innovation Research program can be a rich source of funding.
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Ever since World War I a combat pilot who downs at least five enemy planes has been called an ace, a testimony to the flier's skill and daring. For the same reason any entrepreneur who wins five or more grants in the federal Small Business Innovation Research (SBIR) program deserves to be known as an "R&D innovation ace."

In the first year that the program has been government-wide, 25 companies have earned that distinction. One of those smaller businesses, Spectron Development Laboratories Inc. in Costa Mesa, Calif., which specializes in measurement technology, has won a total of 16 grants over the past five years. Another, Bend Research Inc. in Bend, Ore., a high-technology research and development laboratory specializing in membrane science technology, has garnered 10.

The government's SBIR program allows companies to first compete for initial feasibility awards of up to $50,000 in order to test their ideas for six months. (For a full description of the grant process, see INC., October 1982, page 172) If they feel that their projects are feasible, they can then apply for up to $500,000 over a two-year period for development. After that period, they are urged to seek private-sector support for full commercialization.

Both Spectron and Bend Research's proposals fit the two critical requirements for SBIR funding. They are likely to further federal research and development goals, and they are potentially valuable in the commercial marketplace. One of the program's major aims is to identify those companies best able to translate basic science advances into industrial innovation.

Is it so tough to snag an SBIR grant that multiple winners deserve special accolades? In an experimental program that has existed since 1979, the National Science Foundation reviewed 3,028 grant proposals from about 1,000 companies. Of these proposals, only 475 winners were selected.

Since October 1982, when the SBIR program was opened to all federal agencies, 700 grants have been awarded from almost 9,000 proposals submitted. It may not be possible for every small company to match the outstanding performances of Bend Research and Spectron, but looking at these two businesses could help others become winners.

Like other successful applicants, Spectron and Bend Research share several characteristics. Technologically, of course, they are outstanding. But also they are run and staffed by individuals who shine not only as scientists, but as strong, entrepreneurial businesspeople as well. Both companies have done government contracting previously and know their way around the bureaucracy. And they have a certain amount of luck: The areas in which they are involved are ones in which the government is now particularly interested.

Eight-year-old Bend Research specializes in filters and their uses in industrial separation processes. One of its projects, which won a $25,000 grant, deals with treating waste water with "immobilized liquid ion exchangers," a highly technical process that may help combat the major threat to groundwater purity. Bend Research was also awarded a grant to experiment with a new way to produce oxygen from air. If the results prove economically attractive, the process will be an important source of inexpensive oxygen for the iron, steel, and chemical industries.

Spectron delivers custom systems for test and measurement applications. It received a grant for developing a highly accurate, yet conceptually simple and potentially inexpensive, "noncontact optical gauging probe." This probe would have widespread commercial application in the inspection of gears, turbine and fan blades, automotive engine components, car bodies, sheet-metal structures, and so forth.

"What's special about Spectron?" asks Orlando Amoroso, the 44-year-old vice-president of planning and business development. "We're state of the art, at the frontier, at the cutting edge of whatever we do. And we're relevant to both the government and the commercial markets. I've seen smaller companies acquired by bigger ones lose the drive to innovate, shift to the easy stuff because they didn't need to work or fight or think anymore to survive and grow. What goes first is customer responsiveness They don't even notice till they lose the customer. That won't happen here."

Spectron has proven good enough technologically to conduct a short course on holography and laser applications for other specialists. "Introducing our company and our people, all in a four-day period, gave me a renewed, exciting realization of how powerful this team really is," Jim Trolinger says of the course. "The reminder that we have a dozen well-known 'heavyweights,' with proven track records for producing results, and hardware and support to back them up, convinced me that we are one of the few organizations in the world that could put on a course like this."

Spectron's sales are approaching $4 million, and its 60-odd employees own all the stock in the company. "That's given us some aches and pains," says Busch, "[but] we simply could not have attracted the caliber of people we have without their feeling that they have a piece of the action. There's never any doubt in this place about whose butt is on the line every day -- it's every one of us."

Bend Research operates in much the same entrepreneurial spirit as does Spectron. The company's president, Harold Lonsdale, explains that his father went straight from fourth grade to work as a farmhand, and later at a local public utility. But at age 40, he quit to start his own poultry farm. When he died, he was sufficiently well off to have persuaded his son of two things: "My father taught me that you can make it with sweat even if you have no education. But in this country, the combination of both is powerful," recalls Lonsdale, who earned a PhD in Physical Chemistry from Pennsylvania State University. "He also taught me that you can't really make any money for yourself working for other people. Later on I found out myself that business is no harder and no less fun than science and needn't conflict with it."

After service in the Air Force, Lonsdale put in a stint at General Atomic Co., a San Diego, Calif.-based research company Then, he says, he "learned a little about the real world of business from Alex Zaffaroni at Alza. That's also where I got a bellyful of life on California freeways and decided to start from scratch in Bend. We're now doing between $2 million and $3 million a year and are close to an even split between private-sector and government business."

Lonsdale concedes that a small town in Oregon "isn't the ideal place for everyone. But our company attracts top-flight people who like and need space -- they're creative, freewheeling, and freethinking. We know how to work hard. We also know how to take time to smell the roses And we care one hell of a lot about what happens to this country and its industrial technology."

Proposals for submission to the SBIR program, at both Bend Research and Spectron, originate with a number of people. The suggestions are then hammered out and refined in group reviews, until the managers and the proposed principal investigator -- the person who acts as liaison between the company and the government -- feel comfortable with them. In both companies, the chief executive officers are directly involved in the grant process, but final responsibility is shared by the employees who will oversee the final projects.

There are many small companies that should be able to match Bend Research's and Spectron's successes. Three times as much money will be spent in SBIR grants in this federal fiscal year as was spent last year. And the level of funding will continue to rise for three more years. All in all, about a billion taxpayer dollars will be invested through the SBlR program over the five-year period.

Any Small Business Administration office can put your company on a mailing list for the agency solicitations most likely to be of interest to you. Or you can send specific questions to the Small Business High Technology Institute at 1825 I Street NW, Washington, DC 20006.

All aces begin with a first win; the more good small companies that know about the SBIR program the better. For those businesses fortunate enough to find that their research capabilities and ideas meet the government's needs, the SBIR program is an important source of pre-venture-capital financing More than 200 major companies and venture capital firms monitor the SBIR winner lists regularly. They are looking for the aces of tomorrow, the research innovators who may also be winners in tomorrow's economy.

Last updated: Jan 1, 1984




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