Small Businesses in Big Government
Technological innovation is often credited to silicon valley, scrappy entrepreneurs, and venture capitalists. Rarely is government provided an honorable mention. Most common devices would be much less popular without the Defense Advanced Research Projects Agency’s (DARPA) research and engineering contribution to the Internet. Computers, smartphones, social media, streaming services, and cloud storage depend on the existence of this technology. The Small Business Innovation Research (SBIR) program continued this framework of government seed funding.
How It Works
SBIR requires government agencies with budgets over $100 million to contribute a minimum of 3.2% to research and development (R&D) for small businesses. These can be awarded as grants or contracts. The goals are to stimulate technological innovation, leverage small businesses to meet federal R&D needs, grow participation in innovation and entrepreneurship by minorities and disadvantaged individuals, and commercialize federally funded R&D projects. It poses a mutually beneficial relationship between small businesses and government agencies.
SBIR Participating Agencies:
Department of Defense (DOD)
Department of Health and Human Services (HHS)
Department of Energy (DOE)
National Science Foundation (NSF)
National Aeronautics and Space Administration (NASA)
United States Department of Agriculture (USDA)
Department of Homeland Security (DHS)
Department of Commerce (DOC)
Department of Education (ED)
Department of Transportation (DOT)
Environmental Protection Agency (EPA)
The SBIR program is divided in three phases. Each award is granted based on the project’s technical execution and commercial viability. Phase III does not provide any funding, but agencies provide support and contracts for commercialization. Agencies may buy out the product or connect the business with their network of organizations.
Phase 1
Funding: $50,000 - $250,000
Timeframe: 6 months - 1 year
Phase 2
Funding: $500,000 - $1.5 million
Timeframe: Up to 2 years
Phase 3
Funding: None
Timeframe: Varies
Small businesses have driven innovation within the government through weapons research, transportation, new tracking systems, blockchain technologies, and agencies ranging from the DOD to the National Oceanic and Atmospheric Administration are seeking partnerships in Artificial Intelligence (AI). The SBIR program has contributed billions of dollars in grants and contracts for new technologies. The small business maintains ownership over their patent and intellectual property (IP), however the government is allowed royalty free access to the new product or service and any technical data or software developed by the business.
History Break!
The SBIR program was introduced by President Reagan in 1982 as part of the Small Business Innovation Development Act. Globalization throughout the 1980s and 1990s resulted in more than 43 million jobs lost due to downsizing and outsourcing. In contrast, silicon valley increased employment by 15% between 1992 to 1996. Summoning the labor ideology of Albert Hirschman, experts employed at large firms exited when their risky and innovative ideas were passed over for status quo and short-term profits. This move toward risky start-ups and rapid experimentation shifted government focus toward small businesses as the future of innovation.
Lessons For Today
There are many good reasons to seek government grants and contracts as a small business. Knowledge and expertise is expensive and relying on researchers, scientists, and engineers at government organizations, public institutions, and universities provides opportunities for collaboration at many different levels. The contracts provide a semblance of stability for a start-up environment that is otherwise chaotic and unpredictable. SBIR programs allow businesses to also seek venture capital funding, so there are no restrictions when taking advantage of different financial avenues.
Greater visibility of SBIR opportunities can be a lever to increase diversity in the technology industry as a whole. The persistent and increasingly pervasive use of algorithms in everything from policing to socializing with friends will require people from all backgrounds to contribute to its continued development. While big tech corporations continue to engage in discriminatory hiring practices and are slapped with seemingly endless sexual harassment lawsuits, government agencies are well equipped to prop up small diverse tech startups.
B Side
But no good deal comes without its tradeoffs. These government grants and contracts can take years to receive due to high volume, slow response, and unnecessary bureaucracy. And like dealing with venture capitalists, government agencies can veer an entrepreneur into undesired territory. At the end of the day, the customer is the government. Their goal could be environmental protection, surveillance, deep sea exploration, or regulating commerce. Their definition of what role a certain technology plays in that end goal may not align with its creator.
Privately owned businesses partnering with universities and academic institutions pose real questions for academic freedom. Government agencies facilitating and funding research between a private organization and an academic institution complicates the level of autonomy researchers truly have. Their funding is based on both private and public funds to provide certain kinds of results or to support the development of a certain type of product. Public-private partnerships with larger corporations certainly produce biased results, and should also be acknowledged when collaborating with small business owners as well—especially if that is where the bulk of innovation finds its footing.
Additional Resources
Hirschman, A. O. (2004). Exit, voice, and loyalty: Responses to decline in firms, organizations, and states. Harvard University Press.
Mazzucato, M. (2011). The entrepreneurial state. Soundings, 49(49), 131–142. https://doi.org/10.3898/136266211798411183