Defense Innovation — Why it Starts with SBIR
SBIR = Small Business Innovation and Research — A program funded by the SBA (Small Business Administration)
If you have a better way for a small business that doesn’t qualify for some of the more attractive disadvantaged categories to enter the shark tank of defense contracting, I am all ears.
We started our SBIR journey as we traditionally do, in non-traditional ways. The US Air Force with AFWERX, a technology directorate — now a part of AFRL (Air Force Research Laboratory), just happened to be testing their strategies on how to leverage the capability at the same time. Let me start by saying I’m not totally on board with the government generating a big-R Requirement to be able to experiment or try something different or new. I also am a firm believer in creating better paths for military personnel to contribute and grow as innovators within the ranks.
The SBIR program is not totally novel to the Department of Defense, there are regular postings, mostly in traditional formats of big-R Requirements. I need this materials science magic to be developed, or AI seems like something I should invest in, so here’s a use case people can apply to address. At the scale of investment from across the DoD ($50,000 — $150,000 for a Phase I, $750,000 for a Phase II — both prior to program dollar investment) there is some ability to rubber stamp multiple approaches to the same problem. I do like this concept.
Even better, AFWERX periodically would list something called an ‘open topic’, where rather than having the government dictate the need, small businesses would be able to propose a solution to a myriad of either needs published by AFWERX or an untapped need coupled with a non-binding memorandum of understanding. The Phase I award for this topic eventually settled in at $50,000. Think of this as a gambling strategy at a craps table. You may not have a big win every time, but your likelihood of coming out on top is improving with the spread of risk (also, notable, I’m not a mathematician or statistician, so just trust me). These open topics are VERY popular now; it’s harder and harder to succeed and the process of reviewing all of the proposals sufficiently is approaching laughability. In typically three releases a year with thousands of proposals, it’s just not a realistic ask. Maybe someone can propose a solution with AI.
A Simple(ish) Process
There is an industry focused on helping companies get SBIR awards. Relatively speaking to other contracting efforts with the government, it is a simple process. You still have to go to 3–4 unconnected sites, figure out how to register, go through some validation process to confirm you are who you say you are and then submit a proposal. Compared to a MAS (Multiple Award Schedule — see this link for a description for these interagency agreements), like GSA’s Schedule 70, some of the baseline is comparable, but the application and closure process is miles less complex and time consuming. It’s still painful at times, but a lot of smart leaders are trying to keep it as simple as possible. And while there is a 45 page document on how to submit a 10 page proposal, that’s actually pretty darn good considering the investment of effort in alternatives. Finding your first advocate may be the hardest part, but some programs invest in helping small businesses find a match through a advocate-driven process of guiding the novice to needs that match their capabilities.
Once you have a Phase I, you can get lost again if you don’t have a good guide. To be clear, the goal of a Phase I is to prove enough of the feasibility of a solution for the warfighter that you can be blessed on a Phase II. Phase IIs can be coupled with investment and program dollars, but the real benefit to the end user is a continuation of experimentation with minimal or no direct cost to their program. Now you can carry forward the theory that a solution to some problem currently worked in Access or Excel is possible. You can make a stronger case for modernizing at least a component of some legacy tool. You can get your hands on some materials or features that otherwise would languish in design. There is motivation both within the small business and program to get something done, motivation that often wains in the traditional negotiations and waterfall delivery path of something more major.
Underlying “There, There”
The special sauce about working with a small business on a SBIR is there is a ton of drive to succeed. The company gains non-dilutive investment in return for taking a risk on the government. The government gains an environment to experiment and prove or sometimes even prove the antithesis of origin.
Beyond that value, there is an opportunity for the government to enable identification of problems that:
- Traditional acquisition tends to create a barrier to achieving.
- Would not be otherwise identified in the standard big-R requirements process.
In our experience working with talent at AFWERX and other innovation organizations within the government (that’s right, government organizations) like Space CAMP, Platform 1, and smaller pockets with less branding like Space Launch Delta 45’s Cool Runnings or the Supra Coders program, there are innovators right within the government STARVING for support. They have often reached a point of frustration or even sometimes a point of hopelessness with bureaucracy or scope and cost arguments with more traditional resources available to them. If you asked most small businesses to find opportunities, let alone figure out a contract vehicle (and what that means) and an acquisition strategy (and what that means) and meet compliance requirements (and what those mean) and get clearance (and how to do that) they would similarly find their path to hopelessness. Through some pretty solid leadership on the government side, a lot of those barriers have been reduced or managed for the small business. It takes a lot of leadership and a lot of management to make an engagement with the government attractive and affordable.
Now, if a company can get through the SBIR Phases from I to III (Nirvana), they have gone on a journey of over a year of investment in supporting the government in experimentation, in innovation, and they will have satisfied both the SBA and a program office along the way. Phase III comes with a sole source justification (which is another mystery to the lay person). Once you figure out what that actually is and how it can work, you will be very thankful. Along the way, hopefully you learned a lot about how the government contracts work and you did not fall totally asleep trying to read through all of the Federal Acquisition Regulations (FAR) that apply to you whether or not you like it.
Challenges
From my vantage point (not trying to make assumptions that are too large), there is a common concern about software being bought through SBIR that gets caught up in a ‘data rights’ conversation in a pessimistic light. First: data rights are something that come with the program, and are intended to protect a small business that built something for the government from having their value totally poached while being a small fish in a sea full of sharks and big money. The intent is good. There is even a desire for all SBIR companies to de-risk their products through a commercialization effort. Meaning: companies eligible for these programs need to take the government investment and further progress through private industry investment. That too, can present different challenges. Let’s talk about each separately.
Data Rights
What is intended to be protection for a small business can be interpreted by their customer as either vendor lock or a barrier to effective integration or reuse by government. Let’s start with the underlying assumption. I think it’s a consistent mistake for not only government customers but for even private customers to think that once a software product is bought and delivered, it is done. Further, I believe the distinction between development and sustainment dollars complicates this process.
Budgets are real, costs are real. It is a tough job being a government person running a program. My counterargument to the position that data rights causes an issue, is taking issue with the alternative. Are there alternatives where you pay for a software product once, and then do not have fees for improvements, betterments, or even keeping the lights on? Would you buy a house and expect the last owner to just improve it for you for the next 5–10 years for free? Sounds like one hell of a buyer’s market. Assuming software is ‘done’ and ‘delivered’ is a fools folly. Yes, you may have a project manager trying to manage a fixed bid contract and trying to close a project, but if you do not keep investing in your house, the irrigation system will burst and you will have a larger problem.
Additionally, this is relatively a moot point in my opinion. If you have a problem that software helps solve (note I didn’t say that software solves the problem, it’s an enabler — humans solve problems), you will have to make prioritization decisions about which problems are priorities with a fixed or shrinking budget. You will have to accept the lower priorities are … well lower. Your program may have a really responsive contractor, typically a big, stable, knows the bureaucracy better than you contractor. Great! Pull away $750K from their budget and you will also experience a loss of capability. They won’t easily give up their IP either, not much different from what a SBIR company is trying to protect. I would argue the innovation has greater motivation and greater potential for the dollars with a hungrier team involved. I believe the consequence of reducing investment in any solution is going to be pain. Sometimes it’s worth it. If your team is no longer delivering and building a solution to meet the warfighter’s priority, it may be time to shift those resources and make a tough decision. I do not envy the political stress that causes, but encourage you to enable innovation at the cost of the risk of losing support for a legacy solution that seems impossible to recreate (it’s not), or someone tells you will be prohibitively expensive (protect thy status quo).
Commercialization
To be frank (I’m Mike, not Frank) not every problem experienced by the warfighter can be easily commercialized. And while I understand the intent of the program to de-risk a company and make sure small business investment is not a pure dependency — in some cases it might be worth using the program to invest in a swing at problems that are government specific. It should still be encouraged to be creative about the application, but still if the government benefits greatly from an innovation, it’s a win, right?
Commercialization is expensive, though the margins can be significantly better on commercial work and the customer base can be more diverse. Still if you build a government solution, you might have encountered the common bloat in costs to build and that could impact your product in private industry.
Discomfort
Providing a product to the government should be a little uncomfortable. In some theories there are savings by creating predictability for companies. You know what else comes with predictability? A cozy couch you can lay on and collect your big paycheck.
Our journey on SBIR has been uncomfortable from day one. We do not have the resources to cover every detail. There are barriers that require finesse and politicking that we have to learn on the fly. We may never have predictability. However, we do have the environment where innovation can breed. We have processes that enable us to follow Einstein’s mantra:
“If I had an hour to work on a problem, I’d take 55 minutes to think about the problem and 5 to think about solutions.”
We have incentive to kick ass, and we are doing our best through every failure, wrong turn, and success to keep that focus on serving our warfighters.
It actually surprised me the first time I told other people about the SBIR program at a small business start-up event. There were a hundred people there networking and having a beer. I had the floor and I had access to the right people to help others get non-dilutive investment by working with the government. In my most compelling way, I made a case for joining forces and building momentum in Denver to rival that of Colorado Springs. Never before have I met fewer people.
There is an inherent reluctance to work with the government. We have made it and continue to reinforce making it too hard to engage meaningfully with small businesses. Other branches also do not yet have the leadership to embrace the open topic. We still have work to do, but there is hope and it all starts with the SBIR program. It gives the small business the benefit of choosing its own destiny at some level as they act as prime on their own contract. That itself could be another discussion, contracting is hard…
If you have a better program out there to engage small business innovators, I would love to hear it.
