5) Understanding Potential Products and Market Applications

The stated purpose of the SBIR and STTR programs is to fund R&D leading to the creation of new products and processes which solve national problems.  The funding agency has two goals: 1) funding innovative, high risk research and development (R&D) which may solve an identified national problem and 2) fund small businesses that are capable of commercializing the R&D.  Without both steps the SBIR process fails to deliver on the investment of tax payer dollars.  Understanding the potential products and market applications of your innovation is critical to winning SBIR support.

Understanding your companies roll in developing innovative solutions and products for the world market is even more critical.  Are you strictly an R&D company with external commercialization partners?  Are you a full service manufacturing company with an internal R&D division?  Stating a realistic commercialization path is a major part criteria for SBIR reviews.

Identifying the Competition and the Products They Make

When conducting market research, you are looking for trends in the industry, similar technologies already being sold, data on how these technologies are being received by consumers, and problems still unsolved. With a basic Internet search you will also discover your competitors. The following web sites are just a few that can help you obtain this information:

Using a keyword search, you can use one of the search engines on the web, like Google www.google.com, to conduct basic market research.

Forbes, at http://www.forbes.com/2002/05/09/bestplaces.html, is a good site to find articles and other useful business information.

Thomas Regional at http://www.trendonline.com/, is a site to identify products/services from more than 500,000 distributors, manufacturers, and service companies.

6) Develop an Elevator Speech at Clearly and Concisely Delivers an Intriguingly Innovation.

Program Managers are busy people looking for answers to problems they have been assigned.  In a few sentences you need to convey who you are, what your innovative idea is, and how this innovation will address the stated problem.  SBIR should be seem by the small business as a strategic planning tool for the development of next generation technologies that creatively solve problem for which there is a large or at least an identifiable market.

7) Proposal Development

Once you find an SBIR opportunity, be sure to download and read the entire solicitation prior to starting the proposal development process.  Each agency administers its own SBIR and STTR solicitations, therefore proposal requirements, formats, and budgeting restrictions differ from agency to agency.  A great resource for proposal preparation tips is the Articles the Greenwoods have prepared on the SBIR process.

The principal researcher is often referred to as the "P.I." or Principal Investigator.  This term is derived from federally funded research that primarily goes to universities.  Although the SBIR/STTR programs are targeted to small businesses, experience shows that having an experienced PhD researcher either on board at the small business OR as a university/research institution partner is a BIG PLUS is winning an SBIR contract.  Small businesses that have product development capabilities can often be successful without a PhD listed in the proposal.

Identification numbers that you need before you submit to certain agencies

For must agencies, you will be required to register with the federal Central Contractor Registration database (CCR) BEFORE you can submit your proposal.  In order to register with CCR, you are required to have a DUNS number.  This can be done at no cost for Federal registration, but each step does require a couple of days (at least) to complete.  DON'T WAIT until the last minute to complete these required items.

Remember, agencies see the Phase I project as a test of not only the innovation, but also of the company.  Does the proposing company know what they are doing and can they execute to a plan.  Be sure not to promise more than you can deliver within the budget and time frame of the Phase I project.  Since Phase I is a “Proof of Concept” with a high degree of potential failure, be sure to detail “contingency plans” if your initial approach does not work.  You can only be paid for what is in the Phase I proposal.  Changes in approaches or Principle Investigators must be approved in advance by the agency Program Manager.

 8) Budgets

Budget requirements differ significantly among participating agencies.  This section addresses some general issues related to creating an SBIR or STTR budget.  Specific questions should be referenced to the agency's solicitations or addressed to South Dakota SBIR Center (605-367-5757) or sent by email to gary.archamboult@usd.edu

Always, always be sure to include:

·   A Direct Labor Overhead rate for must small businesses participating in SBIR/STTR the overhead rate ranges between 40 – 75%)

·   Fee (6-7% is generally acceptable - this is also known as the profit).

Few agencies are interested in paying expensive equipment for Phase I projects, so limit or don’t include equipment budgets (equipment budgets makes the company look like they don’t have the necessary capabilities to perform the work).

How much can be requested for Phase I and Phase II SBIR projects?

Budgets for Phase I or Phase II projects are dependent upon the agency involved.  It is important that you request no more than the maximum listed in the solicitation.  Phase I is typically funded at $60K to $100K.  Phase II is usually funded for $500K to $750K. For most agencies, requests for more than the stated maximum will not be considered, with NIH being a key exception.

What items should be included in the budget?

Most agencies provide a specific budget form to be included with your proposal.  Be sure to use the form provided. In general you will include the following elements in your budget:

• Direct labor

• Direct labor overhead rate (40 - 75%)

• Equipment, materials, travel, and other direct costs (consultants / sub-contractors)

• Indirect costs [G&A (15 - 35%)]

• Profit (Fee)

Consultants and subcontractors

• SBIR Phase I, a maximum of one-third of the research and/or analytical work may be subcontracted (two-thirds must be performed by the proposing firm unless otherwise approved in writing by the contracting officer).

• SBIR Phase II, a maximum of one-half of the research and/or analytical work may be subcontracted (one-half must be performed by the proposing firm, unless otherwise approved in writing by the contracting officer).

• STTR Phase I and Phase II, 30% of the research must be subcontracted to research institute partner; 40% of the work must be completed by the small business; the remaining 30% may be completed by either the research partner or the small business.

The allowable percentage of work is usually measured by both direct and indirect costs, although proposers planning to subcontract a significant fraction of their work should verify before submitting how it will be measured by the specific agency.  (Department of Energy has a very specific formula that must be used to calculate the level of subcontractor participation.)  Improper calculations of these ratios can lead to proposals being rejected as "non-responsive."  Subcontract and consultant work must be physically performed within U.S. borders.  If you contract with someone from outside the U.S. on an SBIR, they must come to the U.S. to perform the work.

Is cost-sharing permitted or required?

Generally, cost-sharing is permitted but is not required.  The presence or absence of cost-sharing typically does not affect the evaluation of proposals (officially).  Historically, some agencies have at times instituted policies that essentially penalized firms for not having a cost-sharing source in Phase II proposals.  You need to study specific Phase II requirements and find out about Phase II funding policies as soon as you win a Phase I award so that you can prepare for the Phase II requirements.

If you have questions or need assistance preparing SBIR and STTR budgets contact:

• Dr. Gary Archamboult  -  Phone: 605.367.5757  -  Email:  gary.archamboult@usd.edu