jacob v.r. pretorius* christopher. l....

Observations on collaborative practices and relativesuccess of small technology-innovating firmssupported by the US SBIR initiative

Jacob V.R. Pretorius*Director of Product Development, Midé Technology Corporation, 200 Boston Ave, Suite 1000, Medford, MA, 02155, USAE-mail: [email protected]*Corresponding author

Christopher. L. MageeProfessor of the Practice of Mechanical Engineering and EngineeringSystems and Director of the Center for Innovation in ProductDevelopment, Massachusetts Institute of Technology, Room E60-275,77 Massachusetts Avenue, Cambridge, MA 02139, USAE-mail: [email protected]

Abstract: This paper investigates the nature of collaboration in eight smalltechnology-innovating firms who participated in the US Government sponsoredSBIR (Small Business Innovative Research) process in 1995/6. The researchwas performed in 2003 allowing sufficient time to assess the relative success ofvarious practices by the firms following differentiated SBIR processes.Following expectations, all of the firms participated in extensive collaboration.However, in contrast to earlier work studying the same firms in 1998/9, it isfound that a SBIR process initiative designed to encourage collaboration withother entities and to accelerate commercial success (‘Fast Track Process’) hadno influence on whether the firm had commercial and employment growthsuccess. It appears that much of the identified collaboration is due to the needof small firms to extend their understanding of the broader systems implicationsof the technology they are developing. The paper also describes someperceptions held by small firms about reasons not to collaborate.

Keywords: collaboration; innovation; resource allocation; small business;technology; US small business innovative research initiative.

Reference to this paper should be made as follows: Pretorius, J.V.R. and Magee, C.L. (2005) ‘Observations on collaborative practices and relative successof small technology-innovating firms supported by the US SBIR initiative’, Int. J. Entrepreneurship and Innovation Management, Vol. 5, Nos. 1/2, pp.4–19.

Biographical notes: Jaco Pretorius is currently the Director of ProductDevelopment of Midé Technology Corporation. He joined Midé in 1997 as aResearch Engineer and has been involved in numerous applications researchprojects. Since 2002 he has been in charge of Midé’s product development andproduction group. Before joining Midé, Mr. Pretorius worked at Kentron, amedium sized aerospace company in South Africa, where he was a SystemsEngineer and Analyst. Mr. Pretorius received a MS from MIT in systemsengineering and management and also holds a Bachelor’s degree in engineeringfrom the University of Stellenbosch in his native South Africa.

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4 Int. J. Entrepreneurship and Innovation Management, Vol. 5, Nos. 1/2, 2005

Copyright © 2005 Inderscience Enterprises Ltd.

IJEIM-5-Magee 2/16/05 11:14 AM Page 4

Professor Christopher L. Magee has been with the Massachusetts Institute ofTechnology (MIT) since January 2002 as a Professor of the Practice in theEngineering Systems Division and Mechanical Engineering. He also directs a multidisciplinary research centre (Center for Innovation in ProductDevelopment). Before Dr Magee joined MIT, he had more than 35 years ofexperience at Ford Motor Company progressing through a series of technicaland management positions to Executive Director of Programs and AdvancedEngineering. Professor Magee is currently engaged in research and teachingrelative to complex system design. Professor Magee is a member of the NationalAcademy of Engineering, a fellow of ASM and SAE and a participant on majorNational Research Council Studies. Dr Magee is a native of Pittsburgh, PA andreceived his BS and PhD from Carnegie-Mellon University in that city. He laterreceived an MBA from Michigan State University.

1 Introduction

Small, technology based companies are an important topic of research because of theirsignificant influence on the economy. Schumpeter highlights the individual entrepreneuras the driving force behind technological change and economic development:

“. . . the function of the entrepreneur is to reform or revolutionise the pattern ofproduction by exploiting an invention or, more generally, an untried technologicalpossibility for producing a new commodity or producing an old one in a new way,by opening up a new source of supply of materials or a new outlet for products,by reorganising an industry and so on.” (Scherer and Perlman, 1992)

Acs, Carlsson and Karlsson (1999) emphasise the importance of small businesses incomparative economic performance. They argue that some of the recent differencesbetween Europe and the USA economically are due to the emphasis placed on smallbusinesses in the USA. For instance, from 1960 to 1984, Europe and the US economiesfollowed each other closely: GNP grew at nearly identical rates during this period (3.3%EC, 3.1% US). From 1960 to 1975, the unemployment rate in US was 5% and in the ECbelow 3%. This rate increased to 10% for both in 1982, where it stayed in Europe, butdropped to 5% in the USA. To explain this divergent behaviour, these authors argue thatthe main influence was the number of businesses formed during the period: the numberof US corporations and partnerships doubled from 1960 to 1983, while it stagnated inEurope.

Other authors (Christensen, 1997; Henderson and Clark, 1990; Takayami andWatanabe, 2002; Utterback, 1994) note that most breakthrough technology developmentsare created by outsiders and by small firms. This is in part because the smaller firms can afford to take the risk and partly because larger, well-established enterprises are‘optimised’ around their existing business (Henderson and Clark, 1990; Takayami andWatanabe, 2002). Thus, one might conclude that smaller firms are more effective at cross-fertilisation (Goldberg, 2000) while larger firms may be more adept at incrementalimprovement.

Despite the social importance of the successful outcomes, invention and innovationthat involve significantly different and new technical approaches is possibly the most riskyof all development efforts. Pure scientific research accepts a very low percentage ofsuccess and is mostly performed by universities with governmental funding. Product

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Observations on collaborative practices and relative success 5


development should and most often is built on well-developed, well-understood andpredictable technologies (Ulrich and Eppinger, 2004). Technological invention has therisks attendant to each of these other areas but in combined fashion in the sense that thetechnology is often not well understood or modelled for the applications and the price offailure is often the end of a company. With this small margin for failure, the allocation ofresources in small commercial entities developing innovative technologies is aparticularly important factor determining success or failure of projects. A viewpoint heldhere is that resource allocation decisions must consider the implementation of thetechnology from a broad systems viewpoint as well as the device invention. Because ofthe limited resources available to a small enterprise, effective collaboration is needed toaddress such broader system issues. Moreover, the need for a wide scope for collaborationis related directly to the inherent nature of technological invention and innovation.Uncertainty is required in order to have an opportunity for success. However, thatuncertainty also introduces risks throughout the system and addressing those that willhave a substantial influence on the outcome of the project early in the process isimportant. However, expertise available in important parts of the system is not generallyavailable within a single small firm and thus collaboration is essential.

Few studies have been performed on the development process of small technology-driven firms partly because small firms do not easily reveal data about theirbusiness practices. We found the Small Business Innovative Research (SBIR) programmesponsored by the US Federal government an available and useful source of informationon such firms.

2 Description of the SBIR programme

In 1982, the US Congress established SBIR to strengthen the research and developmentrole of small companies in the USA.1 Ten federal agencies, including the Departments ofAgriculture, Commerce, Defense, Energy, Education, Health and Human Services,Transportation, the Environmental Protection Agency, the National Aeronautics andAerospace Agency and the National Science Foundation participate in the program andare required to set aside 2–3% of their research budget for it. The largest of these agencies,the Department of Defense, spends over US $500 million a year on the SBIR programme.

Each year the agencies publish at least one proposal solicitation in which topics thatrequire new innovative, high-risk research are identified. Small companies, defined ashaving less than 500 employees, are invited to propose new approaches to the problemsthat the agencies face. The agencies then receive on an average of 20 proposals persolicitation. The average success rate is one funded proposal per every ten written.1

Each agency has an individual process for selecting the topics for solicitation ofproposals. Most start with different engineers and scientists inside the agency proposingproblem areas in which they would like to see research performed and proceed throughprioritisation phases. As the SBIR programme is funded at the agency level, scientists andengineers in the individual laboratories have an incentive to use SBIR to fund independentwork in an area in which they are responsible for progress.

The SBIR programme has a three stage funding process. These are a Phase I feasibilitystudy, a Phase II prototype development and Phase III procurement.

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6 J.V.R. Pretorius and C.L. Magee


2.1 Phase I

The Phase I feasibility study receives funding between US $60 k and 100 k and lasts 6–9 months. The purpose is to determine the technical feasibility of the approachproposed to solve the problem. The company assesses technical feasibility by developinga model or a prototype or both. The programme structure dictates that the Phase I effortfocuses on the goal of obtaining Phase II funding. Thus, the company’s goal during PhaseI is to generate enough evidence of the feasibility of the approach as well as interest insidethe funding agency so that it will be a) invited to submit a Phase II proposal and the PhaseII proposal will receive favourable reviews.

2.2 Phase II

The Phase II funding consists of US $750 k covering 2 years of effort focused ondeveloping a working prototype. Phase II’s are funded based on the technical merit andthe potential for commercial success of the approach.1 The proposal thus concentrates ondescribing work to mitigate the technical risk and tackling all the issues surrounding thefeasibility of the approach. A desired output of Phase II is that it ends with a clear, definedcommercial plan that is capable of being implemented.

The small firm is thus encouraged to consider the commercialisation of the innovationduring the Phase II proposal. A section of the proposal is dedicated to the potentialmarkets, the benefit for both the private and government sector and the approach that thecompany will follow to ensure that the venture is a success. Nonetheless, Phase II effortscan be divided into two types of research efforts: those that focus on the commercialmarket and those that pursue fundamental science. The success of a Phase II SBIR isevaluated on either of these two metrics by the government who recognises merit in thosethat make a commercial success as well as those that deliver fundamental scientificbenefits to the sponsoring agency (Audretsch et al., 2000). In addition, the level ofexpertise of the evaluation relative to commercial success may be questionable given thelack of experience in such endeavours by many government managers, engineers andscientists.

2.3 Phase III

Phase III involves private sector or federal agency funding (outside of the SBIRprogramme) to commercialise the technology.

During this phase, the funding agency can sponsor the development of a productionfacility with the exclusive goal of producing the technology application that wasdeveloped in the previous two phases. The sponsoring agency may also proceed toprocure the product that is manufactured based on the technological development.2

While the small business entity is ultimately responsible for the commercial marketingand sale of the technology or product developed under SBIR, the government encouragescommercialisation efforts. In this role, the government agency is responsible for makingall reasonable effort to ensure that any government follow up actions to research, developor produce technology developed under SBIR are accomplished. This is often throughsole-source contracts with the same small business that originally worked on developingthe technology.3

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To particularly encourage research into approaches with commercial potential, the USDepartment of Defense (DOD) founded the Fast Track programme that is described inmore detail in the following section.

2.3.1 Phase II Fast-Track

In 1996, the DoD instituted the Fast-Track approach to SBIR under which proposals withfunds matching the Phase II funding are given a significantly larger probability to obtainPhase II funding. The matching funds can be obtained from any outside investor meetingspecific criteria.1 A proposal for a programme that obtains outside investments willreceive:

� interim funding of up to $50,000 between phases I and II

� evaluation under a separate, expedited process

� a phase II contract, subject to certain technical criteria.

A reasonable assumption behind the Fast-Track process is that third party investors serveas an important filter to assess whether programmes have significant commercialpotential. The research reported here explores whether this Fast-Track programme helpscreate more effective collaboration networks. The research starts from a previous studyof the efficacy of the Fast-Track programme.

3 Research design

A 1996 study conducted by the National Research Counsel entitled ‘An assessment of theDepartment of Defense Fast Track Initiative’ (Wessner, 2000) examines the effects of theFast-Track programme. A part of this study was a deeper examination of the performanceof 14 companies in New England (Scott, 2000). In the research reported here, eight of theoriginal companies studied by Scott were contacted and each completed a follow-upquestionnaire and interview into the strategies, processes and ultimate success of theproject and company. During this work, the emphasis was on the processes that thecompanies followed to identify challenges and problems, how they evaluate thesedifferent problems and particularly how they utilised collaboration in approaching suchproblems. The aim was to identify differences in this process between companies andestablish reasons for why these differences exist. One issue explored was whether Fast-Track and Non-Fast-Track companies could be differentiated by their differences in collaboration networks, which might ‘explain’ the higher success of Fast-Trackcompanies indicated previously (Audretsch et al., 2000; Scott, 2000; Wessner, 2000).Since fast track companies had to collaborate with at least one third party during Phase I of their project in order to secure external funding, more substantial collaborativenetworks of fast track companies might be expected. Further research was aimed atdetermining similarities among the company strategies and quantification of success.

Four Fast-Track (FT) and four Non-Fast-Track (NFT) companies that were subjectsof the previous research agreed to participate. Table 1 shows selected size data of thecompanies when the project studied was performed as well as the notation used forcompanies that received Fast-Track sponsorship (FT) and for companies that receivedtheir funding through the normal process (NFT).

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As the nature of the project and company are relevant to understanding the results, a shortdescription is given here.of each company/project is given in Appendix I.

4 Research approach

The research was conducted in two phases: a written questionnaire and an interview. Moredetails on the questionnaire as well as more extensive coverage of the results from thequestionnaire and interviews is given elsewhere (Pretorius, 2003). In both phases, theissues addressed were:

� the benefits of the SBIR project to the company

� the points of resistance or hurdles that the company experienced during the project

� the collaboration of the company with other entities

� the final outcome of the SBIR effort.

The initial written questionnaire was sent to each of the companies. The researchprogrammes that were at the centre of the questionnaire were completed in 1997 and the research was performed in 2003. It was therefore necessary to allow the responders to recall broad and general issues first and this was largely accomplished by thequestionnaire. In addition, half of the companies no longer employed the originalPrincipal Investigator (PI). In these cases the questionnaire was completed by either the president of the company or by a senior member of the original research team.

After the respondents had recalled the specifics of the research programmes underassessment, an interview was conducted. The interview was aimed at revealing the detailsof the companies’ methodology for identifying and evaluating obstacles, allocatingresources and utilising collaboration. These questions were open ended and allowed therespondents to go beyond the specifics of the particular Phase II SBIR’s of interest. Thus,the collaboration observations reported here represent broader experience than the eightprojects first identified.

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Table 1 Classification of companies by type of Phase II funding

Company Award 1995 # employees 2002 sales in US $M Year established

A FT 20 35 1982

B FT 7 1.75 1997

C FT 8 1.75 1994

D FT 155 15 1940

E NFT 18 1.75 1982

F NFT 260 400 1956

G NFT 3 0.75 1989

H NFT 8 35 1991


The respondents were encouraged to discuss the details of the technology andprogramme selection process, the funds application process and the application researchprocess. Follow up questions dealt with the obstacles that were apparent in programmesand how the firms deal with them and how they view and use collaboration.

5 Results

5.1 Firm growth and success since receiving SBIR

Figure 1 shows the employment of all eight companies relative to 1995 employment withtime up to 2003. It is seen that most of the companies maintained their relative size afterreceiving the Phase I SBIR under study. The only exceptions to this were companies B(FT) and H (NFT). Company B’s growth was due to commercialisation of another projectthat was significantly different and disconnected from the Phase II SBIR under study.Company H was successful in commercialising another, earlier funded SBIR. This led totheir rapid growth in 2001–2002. The downsizing of the economy had a significantinfluence on their market and the company was forced to reduce size in 2003. Comparingthe top and bottom of Figure 1 shows no other important differences in employmentgrowth between FT and NFT companies through 2003.

Table 2 shows for each of the companies the time projected for commercialisation,the actual time and the eventual outcome of the Phase II’s. Company E (NFT) is the onlyfirm that achieved commercial revenue by 2003 from the technologies developed in theprojects studied here. In 2003, company F (NFT) was in the process of selling the rightsto the manufacturing of the technology, although no contract had been signed. Half of theremaining companies were able to use the technologies developed for the SBIRelsewhere.

Of interest is the time it took for the companies to receive commercial success. In the study by Scott (2000), all the FT companies projected commercialisation in lessthan 3 years with four several estimating 1 year to commercial sales. The NFT companiesall projected that it would take less than 5 years to commercialise their technologies, with six predicting only 2 years. Differences in projections of this kind were a key elementof the prior conclusion (Audretsch et al., 2000; Scott, 2000; Wessner, 2000) about the effectiveness of Fast-Track. In our follow-up, we were able to determine that the first (and thus far only) commercial sales were attained 8 years after the initial SBIR.Most of the companies are currently still in the process of attempting to commercialisetheir original technologies in one way or another. Moreover, this research shows that FT firms show no superiority in time to commercialisation (indeed in this sampling did measurably worse). This finding and that on employment growth comparisonsbetween FT and NFT companies were unanticipated due to strong previous conclusions(Audretsch et al., 2000; Scott, 2000; Wessner, 2000) about the superior success of FTfirms.

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Figure 1 Number of employees per year relative to 1995, the year that the companies firstapplied for the phase I SBIR. Fast track recipients are depicted on top and non-fasttrack at the bottom


5.2 Company strategic differences

A second indicator of strategic difference among the companies is noticeable in thedescriptions given in Section 6. This was whether the company was a core technologydeveloper or an application developer.

The core firms have a technology that is the basic product of the company and sellthis to any entity that will use it in an application. The company’s main IntellectualProperty rests with this technology and they are also the manufacturers of the technology.They do, however, also independently develop applications to their technologies and insuch applications are less concerned with secrecy and patents and thus are more open toextensive collaboration. As noted in Section 6, companies A, B. C, D and E are coretechnology developers whereas F, G and H are application developers. The results inTable 2 indicate first success by a core technology developer (Company E) but that thesecond potential success is an application developer.

5.3 Observations on collaboration

The questionnaire and interview results indicate that the collaborative networks of alleight firms can be modelled as three interacting collaborative networks: those withpartners, universities and customers. Specific observations on collaboration practices wereobtained during the interviews and provide tangible evidence concerning innovativenetworks of small and medium enterprises. Some selected quotations are shown inAppendix II that elucidates the motivation and nature of collaboration in these smalltechnology-driven firms. Each quotation is identified with the firm giving the response andis organised by the three major collaboration partners identified: partners, universities andcustomers.

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Table 2 Actual and projected results from the eight different SBIRs

Company Award Time (years) to commercialisation Outcome of SBIR phase IIof particular SBIR

Projection Actual(Scott, 2000)

A FT <3 None No product

B FT <3 None Used technologies elsewhere.

C FT <3 None No product

D FT <3 None Learned and applied lessons to another successful programme

E NFT <5 8 Commercial sales and added external funding

F NFT <5 >9 In process of selling rights to manufacturing

G NFT <5 None No product

H NFT <5 None Used technologies elsewhere


A summary of the nature of collaboration within these networks is shown in Table 3. Inregard to collaboration with Universities, the findings suggest that such firms viewuniversities as sources of talent but not necessarily as ongoing collaborative knowledgedevelopers. Table 3 and Appendix II indicate a much richer set of collaborative interactionswith partners and six of the specific statements give detailed reasons for collaboration. Thesereasons generally support our ingoing belief that collaboration is valuable in arriving atbroader system assessments of a technological development. However, the collaborativepractices in Companies C and E suggest some perceived reasons for limiting collaborativenetworks. Perhaps most interestingly, Company E strives to achieve collaboration onlyamong ‘more equal’ smaller firms.

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Table 3 Summary of collaboration activities of the firms studied as categorised by associate.firms

Firm Fast Track Sponsor, Universities Partners CustomersType, Nature/ Nature of Nature of Nature ofContribution collaboration collaboration collaboration

A Client No collaboration Conferences for Market definition andFT Passive directions and products monitoringCore Implemented technology Supply Negotiate licensing

Idea and technology multi-functional team agreementsgeneration for breakthroughs

B Angel investor No collaboration Partner supplied Identified and contactedFT Broad spectrum sophisticated potential investorCore of Attributes testing equipment

C Active investor No collaboration Managed partners so Large firm helped solveFT Market definition that they did not problems Core become developers Financial staff of

customer declinedto purchase product

D Client Hire from Preventative research Client actively involvedFT Market definition university, sponsor is goal of interaction in market definition andCore next generation from large corp., not segmentation

research at labs interested

E Partner Supplies latest Exclusively with other Feedback preventsNFT Market definition techniques and US small firms. Risky development ofCore cutting edge collaboration with large technologies with no need

technologies entities / foreign Large companies havePublishing creates companies. Serves as partner programs foran IP problem info gathering, market later stage technologies

insurance for them

F No external Limited Partner was able to Demo’s to find customerNFT Sponsor collaboration make technology needs and tolerance levelApp No contribution faster and cheaper

G Partner Limited Extra resources: Obtained customer needsNFT Limited collaboration System definition, while collaboratingApp Contribution Manufacturing

and Marketing

H Client Limited Defined system Feedback ensures relevantNFT Market definition collaboration interfaces and researchApp architectural changes Education wrto novel

technologies


The most extensive collaborative network is clearly that associated with customers as shown by Table 3 and Appendix 2. This result demonstrates the clear importance of interaction (collaboration) with customers, which has been recognised for some time (von Hippel, 1982, 1988). Customers are the prime source of ‘downstream’ knowledgeabout the effects of the innovation. Thus, our ingoing framework which proposes thatsuccessful innovators must attempt to reduce overall innovation system uncertainties isstrongly supported by the finding that small innovating companies have their mostsubstantial collaboration with customers. Nonetheless, Companies E and H both perceivereasons for limiting collaboration even with customers. The collaborative practice resultfor Company H (quote # 25 in Appendix II) gives direct support to ideas (Christensen,1997; Takayami and Watanabe, 2002) concerning the limitations of customer interactionrelative to innovative technology.

Every firm, and to a lesser extentexcept company F , had significant collaboration andexchange of information with other entities.4 Moreover, the nature of the collaboratorsand collaboration was similar across all other firms. The differing SBIR processes had noinfluence as an example, it was found that some of the NFT companies answered that theydid have interaction with a ‘Sponsor’ while only two of the FT companies had clients assponsors. It is important to note that three of the NFT companies had interactions withclients and partners. Thus, qualitatively and semi-quantitatively, there are no differencesbetween the collaborative networks of FT and NFT firms. We believe this to be the keyreason why there is such little difference between the success indicators of the FT andNFT firms in this study. There is also no apparent difference between core and applicationdeveloper companies. Thus the nature of the collaborative networks is independent ofsmall firm differentiators.

6 Concluding remarks

This paper has summarised research on small companies drawn from SBIR funded firmsthat have been studied after first receiving Phase I and II funding to developtechnologically new applications. This work extended earlier efforts and thus providessome evidence covering approximately a 10-year period after the initial SBIR funding. Thecompanies have been equally drawn from Fast-Track and Non-Fast-Track companies toascertain the importance of this variable. The focus has been on exploring collaboration asa mechanism for appropriately dealing with uncertainty in these kinds of projects. Thecollaboration by these small innovating companies has been found to first emphasiseinteraction with customers followed by partner collaborations and with apparentlyunimportant university interaction.

The major finding potentially mitigated by the small number of observations, is that the Fast-Track process was not a differentiator for success of the technology development, employment growth or commercialisation. Since this finding challengesearlier conclusions on the same firms that have been made from previously studies, theresearch suggests strongly that measuring commercial success of small technology-drivenfirms must be undertaken over a significantly longer time span than the few years involvedwith SBIR funding. This arises because the actual development and implementation of atruly new and innovative technology takes considerably more time than a 2–3-year periodas has been shown over many years (Mansfield, 1960). Since Fast-Track tries to

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accelerate a process that is already on a mismatched and too fast cycle time, the indicatedlack of effectiveness is understandable.

The nature of the collaboration is the same across all 8 companies studied and thusthe nature of the SBIR process was not a differentiator for the level of collaboration withother entities, even though some collaboration is required to obtain third party funding.This finding is additional support for the lack of effectiveness for the Fast Track Processas success is enhanced by effective collaboration. The collaboration found in both typesof firms showed many clear and important benefits of collaboration. The most extensiveand beneficial collaboration is with potential customers supporting our idea thatcollaboration is the most effective mechanism for small firms to handle the broadersystem implications of technology development. Despite this clear value of collaboration,the results – in retrospect not surprisingly – also indicate that a thoughtful approach toany collaboration is the best approach for improving the chances of successful innovation.For instance, Company E is the only company of these 8 that had succeeded to the pointof direct financial gain 7 years after the SBIR project under study. Company E alsoshowed the strongest evidence of having ‘rules for limiting collaboration’ and paidattention to assuring that they benefited and did not simply give away Intellectual Propertywhile collaborating. Collaboration involves multiple stakeholders and thus a negotiationprocess is implied by collaboration particularly when one considers the need for firms tocapture their part of the value of the innovation. Studies of collaborative networks mustdeal with this reality if true understanding of the networks and their dynamics is to beachieved.

References

Acs, Z.A., Carlsson, B. and Karlsson, C. (Eds) (1999) Entrepreneurship, Small- and Medium-SizedEnterprises, and The Macroeconomy, Cambridge, UK: New York, Cambridge UniversityPress.

Audretsch, D.B., Link, A.N. and Scott, J.T. (2000) ‘Statistical analysis of the national academy ofsciences survey of small business innovation research awardees: analyzing the influence of thefast track program’, in C.W. Wessner (Ed) The Small Business Innovation Research Program:An Assessment of The Department Of Defense Fast Track Initiative, Washington, DC: NationalResearch Council, National Academy Press.

Christensen, C. (1997) The Innovators Dilemma, Boston MA: Harvard Business School Press.

Goldberg, D.E. (2000) ‘The design of innovation: lessons from genetic algorithms, lessons for thereal world’, Technological Forecasting and Social Change, Vol. 64, No. 1, pp.7–13.

Henderson, R.M. and Clark, K.B. (1990) ‘Architectural innovation: the reconfiguration of existingproduct technologies and the failure of existing firms’, Administrative Science Quarterly, Vol. 35, No. 1, Special Issue: Technology, Organizations, and Innovation, March, pp.9–30.

Mansfield, E. (1960) ‘Technical change and the rate of imitation’, Econometrica, Vol. 29, No. 4,pp.741–766.

Pretorius, J.V.R. (2003) ‘Resource allocation in applications research: challenges and strategies ofsmall technology developing companies’, Masters Thesis, MIT.

Scherer, F.M. and Perlman, M. (Eds) (1992) Entrepreneurship, Technological Innovation andEconomic Growth: Studies in The Schumpeterian Tradition, Ann Arbor: University ofMichigan Press.

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Scott, J.T. (2000) ‘An assessment of the small business innovation research program in newengland: fast track compared with non-fast track projects’, in C.W. Wessner (Ed) The SmallBusiness Innovation Research Program: An Assessment of The Department Of Defense FastTrack Initiative, Washington, DC: National Research Council, National Academy Press.

Takayami, M. and Watanabe, C. (2002) ‘Myth of market needs and technology seeds as a sourceof product innovation’,Technovation, Vol. 22, pp353–362.

Ulrich, K. and Eppinger, S. (2004) Product Design and Development, Boston: McGraw-Hill/Irwin.

Utterback, J. (1994) Mastering the Dynamics of Innovation, Boston MA: Harvard Business SchoolPress.

von Hippel, E. (1982) ‘Appropriability of innovation benefits as a predictor of the source ofinnovation’, Research Policy, Vol. 2, No. 2, pp.95–116.

von Hippel, E. (1988) The Sources of Innovation, Oxford University Press.

Wessner, C.W. (Ed.) (2000) The Small Business Innovation Research Program: An Assessment ofThe Department Of Defense Fast Track Initiative, Washington DC: National ResearchCouncil, National Academy Press.

Notes

1 DoD’s SBIR and STTR Programs Office of the Under Secretary of Defense for ACQWeb(website, accessed September 23, 2004). Available at:http://www.acq.osd.mil/sadbu/sbir/overview/index.htm.

2 SBIR Contracting & Payment Desk Reference Department of Defense Small BusinessInnovation Research (website, accessed September 23, 2004). Available at:http://www.dodsbir.net/deskreference/12_phas.asp.

3 Contracting Programs for Small Business’ Department of the Navy Fleet and Industrial SupplyCenter (website, accessed September 23, 2004). Available at:http://www.jax.fisc.navy.mil/Services/SmBusiness/SB101/PartI/SBIR.HTM.

4 The reduced relative collaboration for company F is possibly due to their larger size allowingthem to rely more on in-house expertise.

Appendix 1: Company and project information

A1.1 Company A: Fast Track

Company A is a leader in the development and commercialisation of small-scalemanufactured materials. The company is the developer of a core technology. Its SBIR wasin the application of this core technology to electronic equipment and the manufacturingthereof. Its Phase II Fast Track sponsor was interested in using the technology in themobile communications industry where it is a leader.

A1.2 Company B: Fast Track

Company B is a materials and systems corporation that specialises in a number ofpatented technologies concentrated in the marking, sensing, tracking and authenticationfields. Products of the company are found in the document process and security, themarking and tracking in challenging environments and industrial sensing industries.

The SBIR combined three of the company’s core technologies. The goal was todevelop an application of these baseline technologies to mass marketed products. The

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promise of the application was better performance and lower overall cost. Its Fast Tracksponsor was an individual (‘Angel’) investor.

A1.3 Company C: Fast Track

Company C developed a revolutionary approach to a very basic and widely usedmechanical device and is in the business of improving the performance and manufacturingof this core technology.

The Phase II SBIR was for the application of the technology to guidance systems.Longer life, less maintenance and lower installation costs are some of the benefits. ItsPhase II Fast Track sponsor was a Venture Capitalist that supplied market definition.

A1.4 Company D: Fast Track

Company D recently spun off the group that developed the technology under the Phase IIeffort and the research reported was performed with this now independent firm. Thecompany recently signed contracts to be the supplier of its technologies to two large Navyprogrammes.

The Phase II effort focused on driving down the cost of manufacturing of its coretechnology. A lower cost with comparable performance would open new markets. ThePhase II Fast Track sponsor was a client that anticipated using the technology in itsproducts once it was cost–effective to do so.

A1.5 Company E: Non-Fast Track

This company focuses on the development of new polymers. The manufacturing andcomposition control of the materials are the core business of the company.

Phase II of the company was in the application of materials in a reconfigured mannerto supply superior qualities to the electronics industry. This was both a development ofan application of the core technology as well as refinement of the technology itself.

A1.6 Company F: Non-Fast Track

Company F specialises in developing SBIR’s into commercial products. The company iswhat is referred to as a ‘medium small’ firm since it maintains a staff of just under themaximum of 500 required to be eligible for an SBIR. The company’s strategy is to spin-off commercially viable products into separate entities so that the core of thecompany remains small enough. This strategy has proved to be successful and they havespun-off over six companies.

The company organises itself into groups and each group is responsible to bring intheir own research money. One of these research group’s Non Fast Track programmeswas studied. This was an application that combined off-the-shelf technologies. Thecompany is not the developer and manufacturer of the core technologies.

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A1.7 Company G: Non-Fast Track

Company G specialises in energy storage devices for the aerospace industry. Thecompany uses established science and applies it in novel ways to produce new products.It is an applications developer.

The Phase II under study promised to deliver a new storage device that would havebetter performance under severe environmental conditions. The applications for thesedevices are in the aircraft as well as space industries.

A1.8 Company H: Non-Fast Track

Company H combines proven technologies in one field with applications in another. Theyconcentrate on the telecommunications sector and specifically in manufacturing theapplications of the technologies that they combine.

The Phase II project was aimed at improving performance of communication devicesby utilising techniques developed for the directed energy market.

Appendix 2: Collaboration practice specifics

A2.1 Partners

1. ‘The whole industry that works in our field comes together at a conference once a year.Here we get the opportunity to make contacts and do marketing. We can get a verygood handle on what the community thinks of our products and what they are willingto pay’. (A, FT, Core)

2. ‘Our partners are essential in creating new opportunities. We combine expertise todeliver breakthrough products’. (A, FT, Core)

3. ‘No small company has the broad range of resources needed to successfully bring anew product to market. Thus without some form of collaboration, the SBIR project willbe commercially unsuccessful. Our US small business partner contributed 1) adefinition of system attributes and interface definitions for power systems useful in theoil patch 2) manufacturing expertise and 3) marketing contacts.’ (G, NFT, App)

4. ‘We identified potential investors during Phase I’. (B, FT, Core)5. ‘Our partner supplied sophisticated testing equipment that they were the sole source

of’. (B, FT, Core)6. ‘When defining interfaces, we have a two way relationship. If the functionality benefit

is great enough, our customer will be willing to change their architecture. If not, wetend to design first with their system constraints’. (H, NFT, App)

7. ‘We never entertained venture capitalists. In three years they want five times their moneyback and all the trimmings that go with that. They are in the driver seat then because youdo not own your company anymore and they force you to sell. They will write clausesinto their agreements that, if you are not careful, will take it all. (C, FT, Core)

8. ‘While it is needed, most forms of collaboration are extremely dangerous to the healthof a small company. For this reason, few small companies survive collaboration. Weonly work with smaller US firms and do not propose ideas for SBIR review withoutfirst establishing intellectual property rights. This seems to work but it does requireanticipating the SBIR topic areas before they are announced.’ (E, NFT, Core)

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A2.2 Universities

9. ‘We have a very close relationship with the university that the company stated outfrom. We hire employees and interns form there’. (D, FT, Core)

10. ‘Universities tend to chase atoms and not dollars. You can expect great research forthe next generation.’ (D, FT, Core)

11. ‘It is dangerous to work with universities as they need to publish. This will reveal toyour competition what are the latest techniques and will reduce your competitiveedge’. (E, NFT, Core)

A2.3 Customers

12. ‘We closely worked with a potential customer with whom we already had a licensingagreement with and who could benefit tremendously from the work.’ (A, FT, Core)

13. ‘We have very close ties with our Phase II fast track sponsor. Their application wasdifferent from the one that we were developing for the SBIR, but they used thetechnology’. (A, FT, Core)

14. ‘We have inquiries from time to time from our Phase II customer to see if we havenovel ideas and or technologies for problems that they have’. (A, FT, Core)

15. ‘We carefully consider the sponsoring agency and make sure that we do a very goodjob for them. This leads to later funding opportunities’. (D, FT, Core)

16. ‘The government agency that we were doing the SBIR for introduced us to potentialcustomers’. (G, NFT, App)

17. ‘Some larger companies have active partnering programs for later stage technologies’.(E, NFT, Core)

18. ‘To collaborate with potential customers you need to have a number of things in place.Firstly, they need to be fairly wealthy so that you can pursue a lot of options andthereby mitigate the risk. For instance if the government is your potential customer(SBIR), they can afford to look at lot of alternatives’. (E, NFT, App)

19. ‘You can get a good idea what the customer wants when you collaborate with them’.(NFT)

20. ‘Constant feedback from customers is the only way to make sure that your researchis relevant’ (H, NFT, App)

21. ‘Once our customers are interested in our technology, they will write letters of supportfor us’. (H, NFT, App)

22. ‘You need to get a feel for what the customer wants and what they are prepared totolerate’. (F, NFT, App)

23. ‘You must be able to show the value if there is to an increase in cost’. (F, NFT, App)24. ‘You have to be very careful when collaborating with foreign trading companies, they

tend to gather information about your technology without giving you any reward forthe information’. (E, NFT, Core)

25. ‘We found that the customer does not know what they need when it comes torevolutionary products. They need to be educated with regards to the benefits’. (H, NFT, App)

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jacob v.r. pretorius* christopher. l....

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