Companies Look for Fresh Investment Dollars
Brent D. Johnson
Because venture capital has diminished in the past year, many companies are looking for fresh investment dollars that aren't tied to the performance of the stock market. Military contracts, in this respect, can be a reasonably secure and consistent source of investment that is also virtually recession-proof. Like death and taxes, war is dependable.
The problem is that, from the perspective of an outsider looking in, the instruments of military bureaucracy can appear daunting. The fact is, the military industrial complex is less monolithic and quite a bit more heterogeneous than most people would imagine.
The Small Business Innovation Research program, for example, was designed to draw upon the versatility and creativity of small businesses and to provide them with an introduction to contracting for defense programs. Funding for innovation research has gone up every year since it began in 1982, and the program now receives 18,000 proposals each year. Last year the number of petitions rose nearly 80 percent and, with the 2004 budget increase, even more are expected.
"The way it works," explained Andrew Brown of Aculight Corp. of Bothell, Wash., "is that some governmental agency has a need for a product or technology that is not currently available, so they seek proposals to develop novel technologies that ideally meet the government need and have the potential to be sold in commercial markets." The company has completed about 30 of these projects in its 10-year history.
In Phase I, you do a proof of principle. For example, a benchtop demonstration of the first laser using a new material might show the feasibility of developing a novel product based on it. The program provides $75,000 to $100,000 to execute this phase. The company then moves to Phase II, where it develops a prototype over a two-year period. The funding available for this phase can be as much as $750,000. Finally, in Phase III, funds are sought from another source to bring the product or technology to market.
Adoption of the product or technology, by either the government or private industry, is considered successful commercialization. "The key thing is that you need something that is innovative," Brown said. Small businesses can develop a competitive distinction with novel technology and being first to market.
But why rely on small companies, when bigger, more traditional military contractors could bring more resources to bear on the problem?
Jeff Bond, acting administrator of the grant program, said that big companies tend to stay with tried-and-true methods. "The smaller outfits are leaner, and they take more risks," he said. "Since this is high-risk R&D, we expect many to fail, but the ones that succeed often end up being suppliers for our prime contractors."
Carol Van Wyk of the Naval Air Systems Command finds small companies very good at addressing naval aviation requirements by using state-of-the-art technology and less bureaucracy. "In just days, they can provide a solution that is far more cost-effective. Utilizing emerging technologies, their approach is often simplistic, with an upgrade in capability and reliability avoiding the all-too-common Rube Goldberg solutions."
Ophir Corp. of Littleton, Colo., has done four or five of these projects for NASA and the US Department of Defense. The company's primary grant was for the National Science Foundation's airborne temperature radiometer. It produced a device that measures CO2 absorption in the atmosphere at 4.25 µm. The instrument has applications for high-altitude, high-speed civil transport where conventional platinum resistance thermometers are inadequate because of dynamic heating at the surface of the probe. It has since had commercial success with Northrop Grumman and the US Air Force.
Ophir's Martin O'Brien said of the experience that the grant program is being more supportive of what the marketplace needs, so that the projects that emerge from it have the kinds of applications that have dual-use potential. However, he warned that companies should find their customers before embarking on one of these projects. One of the downfalls of technical people, he said, is that they become too enamored with their technology. "Make sure there is an application and a usable product."
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