How to Turn Knowledge into Money
Dr. Geoffrey Nicholson, former research and development director at 3M, once said. “Innovation is the transformation of knowledge into money.”
Sometimes small businesses need a little outside guidance and help from friends to make that transformation. That’s where the National Science Foundation (NSF)’s Small Business Innovation Research (SBIR) program comes into play. The SBIR program stimulates technological innovation in the private sector by providing seed money for high-risk, high-reward ventures.
The program also provides a bit of prodding and encouragement as needed from Joseph Hennessey, a senior adviser in the program, along with other small business staff members. In Hennessey's 14-year tenure with the NSF, he has served as acting director for the Division of Industrial Innovation and Partnerships (IIP), program director for SBIR, program director for the Management of Technological Innovation (MOTI) program, and as acting deputy assistant director for the engineering division.
Hennessey came to the NSF in 1996 after retiring as vice president and director of innovation at Armstrong World Industries, a $3 billion global company. During his 27 years at Armstrong, Hennessey led global innovation organizations, identified and leveraged technologies into commercially successful new products and designed multi‐functional organizations consistent with global strategies. Hennessey received his Ph.D. in organic chemistry from the University of Maryland.
BusinessNewsDaily recently spoke with Hennessey about what the SBIR does and how it can help small businesses succeed in the transformation of knowledge into money.
BusinessNewsDaily: How did your career lead you to the National Science Foundation?
Joseph Hennessey: I took early retirement from Armstrong. I was looking for fields that would combine my business background with technology interests. That led me here. It’s an exciting place to work. I get the opportunity to do mentoring as well as management. Ten program officers work with me; all have extensive business and technical experience. We provide guidance on technology and around aspects of running a business. I joke that I’m in the 14th year of an original two-year appointment.
BND: What does SBIR do?
J.H.: The SBIR program is across the government at eleven different agencies with a total budget of $2.5 billion. The NSF budget is $125 million. At a mission agency like the Department of Defense, SBIR is part of their technology acquisition process. At NSF on the other hand — since we are a funding agency and won’t be a customer — we encourage commercialization in the private sector. There are two unique features of this program. The company doesn’t have to pay the money back and the company retains intellectual property rights. That gives successful companies a real competitive advantage.
We put a lot of emphasis on a business becoming a commercial success. We ask applicants to be thinking about how they will commercialize their business and well as the technology involved. Most of them will require partnerships. We encourage them to be looking for partners and potential customers. What we’re looking for are good high-risk, high-payout ideas. It’s a multiphase process. Our motto is “Innovation through Partnership.” We’re interested in translational research that will turn basic research findings into innovation.
BND: Who is eligible?
J.H.: Only firms qualifying as a small business concern are eligible. The company must be at least 51 percent owned or controlled by individuals who are citizens of, or permanent resident aliens, in the United States and have, including affiliates, no more than 500 employees.
BND: Describe the process.
J.H.: Phase I is technical feasibility. We will give them $150,000 for a six-month feasibility study to demonstrate that their idea is technically doable. We have a solicitation out that lists broad technical categories that we’re interested in such as high-temperature materials, biomedical devices or nanomanufacturing.
We get about 1,500 Phase I proposals every six months and fund about 15 percent. The proposals are submitted to an external peer review process that includes technical reviewers and commercial reviewers. The process takes about three months. The reviewers submit individual reviews and are incorporated in a single recommendation.
The community likes it because we provide them with verbatim copies of what the reviewers thought of their proposals and program submissions. Many of the applicants then take that input and revise their proposals. We try to work with them and they learn how to write a better proposal.
BND: What happens then?
J.H.: Individuals who were successful in the Phase I process can submit a Phase II proposal that provides $500,000 for two years. Eighty percent of those who were successful in Phase I come back with a Phase II proposal. In Phase II proposals, we require a separate commercialization plan . This is for further development and advanced design. Now they have to put some meat on the bones. The weakest part of most proposals is usually the commercialization plan section. Most project failures are due to commercial reasons, not technical ones.
We also have several supplemental programs like the Phase IIB Bridging Program. If they can get a third-party investor in their Phase II idea, we’ll give them 50 cents on every dollar that’s invested up to another $500,000. NSF money has to be used for additional research, but money from third-party investors can be used for anything. It’s not unusual for companies to get another $1 million in additional investment.
BND: What happens after Phase II?
J.H.: They’re on their own after Phase II. Our estimate is that 40 percent have positive revenues three to five years after the awards. The success rate for Phase IIB grantees is about 75 percent.
BND: What are the top three things that applicants need to do?
J.H.: They need to have a reasonable idea of the commercial application of their idea and how they can get financial support above and beyond the SBIR award. And they need to proactively consider who they may partner with, both technically and commercially. One of the biggest gaps we see is a failure to think through the commercial potential aspects, the “so what” question — who may buy something as a consequence of this?
BND: What’s it like to work at SBIR?
J.H.: It’s an exciting place to work. You’re working with some of the best and the brightest and it is exciting to see many of these small businesses thrive and employ new people.
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Reach BusinessNewsDaily senior writer Ned Smith at firstname.lastname@example.org. Follow him on Twitter @nedbsmith.