Saturday, June 27, 2009

Fed prizes for innovation

The Office of Science and Technology Policy (OSTP) blog posted a challenge today to propose ideas for government sponsored competitions, á la the X Prize Foundation. Among their reasons for considering this approach was that it might allow the government to: "Attract new entrants such as small entrepreneurial firms."

Um... doesn't SBIR do that? Don't get me wrong: it's an interesting proposal, and certainly worth consideration as part of the arsenal the government uses to stimulate innovation. But... I'm not sure I see how this would attract "small entrepreneurial firms," at least those without another significant source of funding.

Science and R&D take time, and effort, and creativity, and persistence, and a willingness to endure lots and lots of failure before arriving at a novel solution to a long-standing problem. Thing is, small entrepreneurial firms still need to make payroll. At present, there are two ways to be an innovative entrepreneur:
  1. Be independently wealthy, and therefore afford the leisure to pursue your passions.
  2. Obtain funding from an outside source to cover the essentials (mortgage and utilities and food) long enough to make a breakthrough that's self-sustaining.
At present, what outside sources of funding are available to sustain the majority of us who fall into category 2? Well, let's see, there's Angel Investors and Venture Capital. The latter of these is constitutionally allergic to early-stage pre-prototype research, preferring a significant ROI in general by about the fifth year; the former of these is marginally more open to it, seeking an exit at around 7 years, but represents a vanishingly small pot of funds, and therefore is accessible to only a very few firms.

Then, there's SBIR! Now, just why would we think that shifting the focus of SBIR away from early-stage seed funding would be good for innovation?

And just why is OSTP Director John Holdren writing to the Chair of the Senate Small Business Committee to argue against increasing the allocation percentage for SBIR by contending President Obama "is committed to increasing federal investment in R&D ... which will increase the total funding available to the SBIR/STTR programs" and that the current pathetically low allocation of 2.5% of extramural R&D funding from qualifying agencies to small businesses (which incidentally account for the overwhelming majority of new jobs created in this country) therefore provides "a sufficient floor for agencies to invest in innovation from small businesses”?

Is that where the Administration thinks innovative entrepreneurs belong: on the floor?

Supply + Demand + Invisible Hand

At the risk of perverting Adam Smith's metaphor, the Invisible Hand seems quite an apt image for that force of economics that distorts the surface of things.

If only Supply vs. Demand were a complete picture! This is how one might view the world: Merchant Abe has a supply of 100 units of Quagmire Oil, a very useful substance for releasing oneself from quagmires. One unit suffices for a single use. There are 200 residents in Abe's village of Borbor, who are prone to getting enmired, thus a market is born.

The first week, Abe charges 2 Boreals per unit. He sells out in a day to 100 patrons. He gets a fresh supply the following week, and raises his rates to 3 Boreals. Of the initial 100 units, 50 remain, so eager buyers have diminished to 150. Still he sells out in a day.

The next week, he brings 200 units to market, but only sells 75. The following week, he has competition, and a total of 400 units are for sale. Suddenly, the price drops to 1 Boreal per unit, and supplies stock up. Voilá, an economic theory.

But, see this:
ECONOMISTS tend to think that an industry divided between hundreds of players, each with a tiny market share, should be fiercely competitive, with prices cut to the bone. But economic theory struggles to explain the bizarre world of fund management, where the market is fragmented but fees stay stubbornly high.
-- "Competitive failure," The Economist, June 18, 2009

The only surprise here is that this sort of social and economic complexity would surprise anyone. Perhaps economists would benefit from talking to psychologists and sociologists. Perhaps the world would become a clearer place, or at least a less perplexing one if we encouraged the cross-fertilization of ideas across multiple disciplines, calling on a wealth of methodologies, backgrounds, and approaches. Therein lies true innovation.

Truth is, there are pernicious pockets of irrational pricing that pervade the market, which have seemingly less to do with any supply vs. demand calculations, and more to do with established expectations. One would be inclined to suspect that cost is relative to worth, and that worth is easily calculated by supply vs. demand. How much is it worth? is a question we often ask, wishing to buy and sell at a fair market price.

The greater the supply or lower the demand, the lower the worth; the lower the supply or greater the demand, the higher worth. But, we've seen how that tack was not sufficient to determine appropriate pricing of housing markets across the world (or for that matter appropriate pricing of company shares). Why? Because we all began to expect the value to be justified by the prices others were willing to pay. It became less what do I need? What's it worth to me? and more:
Alright, so I need a house... and this one's sufficient, but that family bought a bigger house, sold it in two years for a handsome profit, and moved to an even bigger one. Gosh, I'd sure like to do that.
And so... a market is born. Only, it was never sustainable. When I was living in Santa Barbara, looking at house prices with multiples of 12, 15, or even more of average household income, I scratched my head, and decided to sit out the market for a while. The old rule of thumb I learned was a house should cost on average 2-3 x a household's annual gross income. Our current house in Wisconsin is 1-2 times current earnings. And we're happy. Sure the weather is nicer year round in SB than here. But now I can afford to visit when the weather gets rough.

More importantly, in Santa Barbara, renting was cheaper, MUCH cheaper. The cost to buy a comparable property carried a premium of at least 40-60%. The calculation is a rather simple one, but so few people did it. But it's not just house prices.

How do we explain that two professors at the same university, with the same experience, teaching the same load of classes, to the same number of students, who each pay the same tuition, can receive widely divergent salaries based on nothing more than their discipline? The argument is that an economist or engineer or lawyer for instance can make far more "in industry" than, say a sociologist or historian, and thus their wages must be higher to compete for talent. But why? They're not working in industry now are they?

Here's a bid for the free market. If people are simply unwilling to pay the higher prices for goods, or houses, or in wages, the market will revert. The article cited above continues:
If enough investors focus on cost, not performance, the fund-management industry will have to give them a better deal.
I've made a similar argument about wages. When I taught adjunct at Chapman University in Orange, California--a private university where tuition is around $30,000 a year--I was appalled that they could offer a PhD a mere $15,000 gross a year to teach 80 students per term, call it part-time employment, and refuse to offer any benefits whatsoever (including an office to fulfill their requirement of office hours). Even more appalling was that, a week after I resigned, being willing to endure those conditions for only one term, two instructors were hired to fill my shoes, one for each of my two classes.

The point is, so long as people are willing to accept the expectations they've been given, the more those expectations are reinforced. If they cue up (providing supply) to receive low wages, low wages will continue. If they cue up to buy overpriced goods, or services, or houses, the prices will continue to rise. That is... until they can no longer. That's the free market. It will correct itself, if we permit it to.

Don't buy when the prices are too dear: whether it's a house, or an accountant or attorney. And don't take less than you or your company is worth. Simple lessons, but they all come down to one enormously powerful ability we all possess: the power to say no! Use it, but use it wisely.

Friday, June 26, 2009

SBIR Patent expenses

I had been under the impression that patent expenses were disallowed under SBIR. The spreadsheet my new accountant has asked me to populate for calculating my overhead rate however included a line item for commercial patent expenses. I was curious, so I did a search for "SBIR patent costs". It turned up the following:

As recommended by the DoD SBIR Process Action Team and approved by the Under Secretary of Defense (Acquisition and Technology), patent searches and applications may be included in the statements of work for Phase II contracts. (Patent searches and applications may be included in the proposed statement of work or as part of indirect cost.) It should be noted that obtaining a patent will probably take a number of years. In the case where a cost reimbursable contract has been awarded for the effort, the contract may need to remain open until the patent is granted in order for the associated cost be recovered. If the statement of work does not contain authorization for the direct charging of patent effort, the Contracting Officer may want to add a clause that the patent cost is an allowable indirect cost. The Government obtains rights to the patent in accordance with 52.227-11, Patent Rights--Retention by the Contractor (Short Form). This clause will assure that the contractor will at least receive partial compensation for the incurred patent cost.

That's a good thing to know. I'll be sure to follow up on it, and ask to include the relevant clause in my contract.

Wednesday, June 24, 2009

The railroad runs on time

Today, members of the House Science & Technology Committee met (briefly) to markup H.R. 2965, the SBIR Reauthorization consolidation bill of H.R. 2767, H.R. 2772, H.R. 2769, and H.R. 2747. Apparently, nothing useful came of the meeting. Rather, it seems to have been a mere station stop as the railroad of the House SBIR Reauthorization picks up steam.

There is a willful disregard for the interests of constituents, small businesses, and the needs of society for innovation and job creation, as representatives fall over each other to fawn on the narrow interests of risk mitigation for the NVCA and BIO. Money talks, when reason can't.

One suggestion has it that the motivation behind a short fuse for SBIR Reauthorization may have something to do with the desire to extract every last cent of contributions for re-election campaigns. In the words of Rick Shindell's June 14th SBIR Insider:
As for only a two year extension, try this: BIO and NVCA have spent tons of $$$ in lobbying this issue and supporting election campaigns, in no small part for the SBIR VC change. Money will be needed in the 2010 "off year" elections as well as 2012 and the House knows it can depend on NVCA and BIO to do their share if the House will again support the VC issue for the next SBIR reauthorization. If you have a better explanation of why the SBC wants only a two year reauthorization, let me know.
The efforts on the House side are distasteful coming from committees whose purview and interests are ostensibly supporting Small Businesses and Science, Technology, and Innovation. Why do they repeatedly shut out the voice of small innovative businesses? Or, when they do permit them, why do they insist on drowning them out with NVCA and BIO representation? Perhaps the committees should be renamed The House Committee on Shafting Small Businesses and The House Committee for Remanding Science and Technology to the Sole Discretion of Universities and Profit-Takers.

Evaluation Without Representation!

Tuesday, June 23, 2009

Academia ≠ Innovation

I have just become aware of a little tidbit of academic freedom that to my mind serves as a remarkably salient reminder of why academia is not the most conducive environment for innovation.

The principle on which I rest this pronouncement is a belief that innovation most often arises from an admixture of ideas from various fields, cross-fertilizing to result in some new knowledge. When chemists began to think about biological systems, and biologists wondered at organic chemistry, voilá Biochemistry arose!

But academia is quite often structured in such a way that scholars are herded and confined like calves for veal, or blindered like racehorses, their freedom of movement allowed only within pre-established lanes. Think not outside the box!

Apparently some recent court cases have called into question academics' freedom of speech "outside of your field of scholarship." Members of the Faculty Senate at the University of California-Davis for instance were recently notified:

...university policies on academic freedom ... only protect speech and behavior in your area of demonstrated academic scholarship.

Are they serious? Absolutely astonishing!

And yet... arising from this same culture of veal-calf confinement is the whining complaint that the Senate's version of the SBIR reauthorization bill (S.1233) threatens the great strength of academic-led innovation because it allows for a microscopic increase (at .1%/year for 10 years!) of the allocation of federal R&D funding from 2.5% to 3.5%! The basis of their complaint is that raising the allocation for small business innovation necessarily reduces the pot of funds available elsewhere.

This letter by the "Ad Hoc Group for Medical Research" currently circulating bemoans:

...a mandatory increase in the SBIR allocation across agencies will necessarily result in funding cuts for the peer-reviewed research conducted by other organizations.

They go on to argue disingenously:
Rather than increasing support for one type of research at the expense of all others, we urge Congress to work with the Obama Administration to increase funding for all research, thereby increasing the total investment in SBIR.
Why golly, 96.5% isn't enough for you? Funny, it seems that 97.5% hasn't been enough either. You see, the very same group that pretends to support increased funding across the board for all research, lauded the $10.4 billion allocation to NIH in the American Recovery and Reinvestment Act (ARRA), calling for an additional $2.1 billion in FY 2010, yet remained provocatively and conspicuously silent on the underhanded and counterproductive exclusion of SBIR and STTR from those expenditures. How can you argue with a straight-face that increasing funding across the board benefits all parties, yet remain silent when there is increased support for one type of research at the expense of another?

More importantly benefit should be measured in terms of the potential of results to solve realworld problems and to succeed in the marketplace, where they might actually reach their intended recipients. Else the benefit is merely hypothetical, locked in a petri dish on a shelf, or in a paper published and presented then forgotten. Research, even basic research, should have a more lofty goal than perpetuo sui. Federal expenditures should be directed at practical applications with commercial viability, not merely at propelling the careers of academics and funding their students and postdocs (many of whom at the end of the day will find the opportunities lacking and the playing field all but level for those without connections or money).

If those academic institutions provided sufficient opportunities for all the worthy and innovative researchers, there'd be little need or incentive for the rest of us to launch our own ventures. But as they do not, and as they provide no evidence of moving in that direction, SBIR remains one of the very few resources available to foster and support an open marketplace of ideas, based not on paper credentials and affiliations, but on the strength of the proposed research and its potential viability in the commercial domain.

SBIR allows but a tiny fraction as a percentage of federal R&D already on the books to be set-aside for open competition among the most innovative small businesses in the land. The requirements for SBIR firms are more stringent than for academic institutions (expecting commercial potential as well as technical merit) for far fewer dollars. SBIR firms enter Phase I on probation, allowed a mere six months funding to prove the feasibility of their proposed efforts before being invited to compete for further funding.

In many cases, these proposals are evaluated not by our peers, but under the biased gaze of those very academics who would rather retain all available funds for fellow academics. To coin a phrase, this isn't peer-review but Evaluation Without Representation! What I'd like to hear are the justifications that academic institutions (and large corporations and government labs) have any right to such uncontested access to taxpayers' money! And where others are permitted to compete, that they should retain the right and authority to decide where those funds should go. Why do they fear an open and fair competition of ideas?

What are we protecting here? What do we value as a nation and a people? What is the best means for expending federal R&D dollars? I would propose it is through programs like SBIR, focused on ensuring that innovative researchers are allowed to compete for the means to support their efforts to remedy existing failures, with an eye toward the commericial viability of their results. This is transparency; this is the path to job creation, to innovation, to economic well-being. What is the alternative?

Sunday, June 21, 2009

No dividends? What worth?

1999 saw my first entry into the stock market. It's the first time we had funds sufficient to invest in anything more than a couple CDs. I was married in 1997. My wife had been employed as an engineer for a couple years. I was teaching as an adjunct professor at a community college, performing, and running my own voice studio. Come 1999 we had some disposable income, and enough things that we were able and eager to set some of it aside.

That was the height of the dot.com bubble. We didn't lose our shirts, but we did have some surprises. I remember buying some B2B stock that I had read about, having not the slightest idea what they did. I can't even remember the name of the company (though last I looked them up the stock was selling for pennies). At the time however, the roulette wheel landed on red: what we bought for about $100/share, sold for twice that. I was foolish but lucky. I walked away, and have so far avoided roulette again.

We also had luck buying Ben & Jerry's several months before Unilever bought them. Another double. But I remember selling Janus Worldwide about 40% off my average purchase price, probably 75% off its top. That's common enough this recession, but it was my entrée into the world of stock investing. In hindsight it was just too broad a market to be handled by even the smartest of fund managers. They were lucky (for a time), but it didn't last. I made the decision then to avoid overly wide investment strategies.

And I made the choice to buy only companies I had some knowledge of, mostly ones whose products or services I used or had used in the past and valued. I've added some because I believed the product or service was worthwhile, met a real need, and had a good shot at success, like for example Intuitive Surgical (ISRG) which I first bought June 2006, after having read about them and watched them for months.

Intuitive Surgical is a good example. Their surgical robotics tools are innovative, they've had great success in the market, they offer something uncommon well, they've identified a need, and created a niche. But... I've been on a rollercoaster. I bought the shares just under $100. Just over a year later, I sold half of what I had at a 50% profit. I thought that was remarkably steep, but I still had confidence in the company. A week after I sold, in July 2007, the shares had gone up another 50%! But why? What could justify such exuberance? Virtually nothing about the market or the product or the company had changed. Some good news perhaps: big deal!

AT $320 and $330 a share I sold some more, but still hold about 1/3 of my investment. It went down from those lofty heights below where I bought it, and back up to where I first sold it two years ago. The big issue for me is not whether the company has lasting power. I believe it does. But what am I investing for? What am I investing in?

The odd thing about the stock market the past decade or so, is that the value of a share has increasingly become removed from any real value, in ways akin to the Credit Default Swaps and Mortgage-backed Securities that we have heard so much about. What do I mean? Look: ISRG is trading at about 35 times it's annual earnings per share (P/E). That means, every share of stock costs about $35 for every $1 that the company will earn this year. If 100% of the company's earnings were doled out in dividends to investors, it would take 35 years for my investment today to be repaid in full.

Put that in perspective: let's say I put $100 into a CD, in hopes that my money will grow. I have them pay out the interest in cash, so my principal remains the same. That'd mean, every month I'd receive about 24 cents in interest for 35 years, then I'd have doubled my money: the principal of $100, plus $100 in earned interest. Wow!

Ah... but we don't purchase shares like we buy CDs now do we? Here's a quote from the article "Slash and burn" from the March 7th issue of The Economist:

A share's value must be the present value of all future dividends--otherwise stockmarkets would be a giant Ponzi scheme.

I'd like to believe that they are not... but I don't. When I buy a stock, if it's not priced at "the present value of all future dividends" then it's priced on the basis of my assumption that someone at some later date will pay me a higher price than I paid the last owner to purchase my shares. On what basis? If I argue it's the present value of all future dividends, the assumption is that the company does now, or sometime will, pay dividends. (ISRG at present does not.) But the assumption as well is likely that those dividends will be much higher than today's value.

Why would I buy a CD that takes 35 years to double my principal? I would do so only if I believe that next year the rates will go up, and the year after that, so much that I might double my principal in say 5 years or less. If so, that P/E ratio needs to come down, way down. (Even in the deepest trough of late, P/E ratios remained at or above historic averages.) If values are not determined on the basis of the current value of future dividends... in the words of our columnist it's just "a giant Ponzi scheme". And, sadly, I believe for the most part, it is.

The conclusion I come to, as an entrepreneur, is that the best company to invest in, is my own! As much as I can take non-retirement money out of stocks, and invest them directly in my company, I will. This might not be the safest bet, or the wisest move for everyone, but my dreams are worth investing in!

Saturday, June 20, 2009

No accounting for...

Here I find myself preparing for a DoD Phase II SBIR, the first for my nascent company. We were founded just over a year ago, submitted our first Phase I proposal a month later, and received the award two months later. I was thrilled. Now before I get too self-congratulatory, I realize in full that it was great luck that a topic directly to the heart of our core research was published just at that moment. In fact, there were two topics, but we could only manage to prepare one proposal to deadline.

I have heard and believe that one key to success with SBIR (frankly in general for a small, innovative business) is sticking to your core. Don't waste time preparing proposals for work that takes you away from what your business is all about.

Of course, sticking to your core means being willing to delegate non-core tasks along the way, of which for an entrepreneur and a start-up there are many. There's the rub, however. As an entrepreneur, I bristle at the thought of hiring someone else to do what I can do better or just as well. Knowing when it's appropriate, and when my self-confidence is unwarranted, is the key to wisdom, which admittedly I've yet to master.

Years ago, I used to change the oil in my car, until I realized that paying someone else $30 to do it might save me a couple hours of trouble, what between buying a new filter and oil, crawling under the vehicle, waiting for it to drain, being sure I've the right wrench, and that the bolt is properly tightened, then responsibly discarding the used oil at a recycling center. So, what's my time worth? Clearly more than $15/hr. Decision made. I drive it to the lube joint, bring an Economist for the half hour wait, and smile as I hand over my credit card.

But, what to do when a service provider wishes to charge me $100, $150, or even $400 an hour?

I rejected the $100/hr grant writer. I did just fine without him. The quote I had gotten a year ago was a fixed $7000 to help me with the two proposals, ostensibly for 70 hours of his time. But, how much time would it really save me, since it's my technology that needed describing, which he had no knowledge or understanding of? $7000 for even an experienced and talented editor wasn't something I was willing to justify.

Fortunately, I had the invaluable support of my wife and a couple dedicated advisors from the Wisconsin Entrepreneurs Network as readers, so I was willing to take a chance. I had a bunch to learn about the submittal process, but I managed alright. I focused on one proposal, and won the award. Would that $7000 spent have garnered me two awards? No telling.

$400 is the ballpark for a patent attorney's rate. But if they're not experienced or knowledgable in my domain (which NONE of the locals are), will I get my money's worth? I'm still going to be doing all the hard work of writing up the description, and being sure I've cited, compared, or dismissed a sufficient quantity of prior art (though I hear the USPTO patent agents will always find something you missed).

The patent however is really only as good as the claims. And that is something I'm not sure I'm qualified for. Jury's out on this one. I just may fork over the dough, if I can become convinced that whomever I hire can really deliver. It's a tough call.

Then... $150/hr is the rate I pay my local CPA (his staffers are cheaper, but the point's the same). Problem is, he's not really versed in the arcana of DCAA regulations. I'm not that interested in paying someone that kind of wage to learn what I'm paying him to know. I have been looking for alternatives. I got one recommendation for a firm out of state that ostensibly specializes in SBIR firms. Great! I gave them a call.

Nice guy, knowledgeable, not the best listener though. That's always a red flag. Don't tell me what your business can do. Don't tell me how qualified you are at your job. Listen to my needs, and address them. Otherwise, you've just lost a customer.

But, I listened. I gave him the benefit of the doubt... well, until he explained their pricing schedule. It'd be about $2000 (A MONTH!) for them to do a QUARTERLY review of my books, and a full $30,000 if I want them to handle everything. Um... what? Here's where the listening part comes in.

What he failed to hear was this:
Hi, I'm a small startup research firm. Well, essentially so far it's just me, with some occasional consulting, and currently a part-time summer intern. I'm looking to hire three or four post-docs and an IT & Administrative Specialist come the fall, to gear up for hard-core R&D. I need to set up a system now that meets regulatory guidelines, and lets me prepare and execute a proper budget for a two-year $750,000 effort. There're other projects pending, so we're hoping to grow, but nothing certain.
Now, listening to that honestly and openly, can you imagine an entrepreneur--a bootstrap, meaning it's all my own money on the line, not a dime from investors--agreeing to commit 6.4%-8% of future (and at this point still not guaranteed) revenues to pay an accountant to do, what? I mean, how complicated a job could this be?

To put it in perspective: at $150/hr, we're talking 160-300 hours, or 13-25 hours per month to oversee the finances for a staff of 4 or 5! I think I'll find a CPA who knows what needs to be known (or is willing to pay their own way to learn), and who is willing to grow with my business. Otherwise, it's back to being President/CEO/Receptionist AND Accountant. For $150/hr or $2000/month, there's a lot of learning I'm capable of doing!

Friday, June 19, 2009

Worthy of Note (19 Jun 2009)

The following letter to the editor in the June 13 edition of The Economist:

Financial terms

SIR – I must be a Luddite. I wince when I hear the word “innovation” used in finance, as if bankers are on a par with those who found cures for diseases, invented the internet or decoded the human genome (Special report on international banking, May 16th). They are not. Much of what passed as financial innovation in recent years and which helped trigger the near-collapse of the financial industry, such as collateralised-debt obligations, was little more than an ingenious sleight of hand. A global economy needs the efficient movement of money. Bankers can help provide this, but let’s not indulge their hubris.

James Schofield
The Hague

Jeff Nolan's retort to a quote out of context in the Wall Street Journal article "The Daily Start-Up: It’s Time To Mark Up The SBIR Bill":

11:10 am June 18, 2009
Jeff Nolan wrote:

I may have “tossed up my hands” about the survey itself, but went on to describe in detail major policy issues that are obstructing innovation in the U.S. Personally, I would hope that we would stop being a “survey nation” where random people are asked about complex topics. Imagine the absurdity of asking 3,000 people by phone whether or not angioplasty is an effective countermeasure for atherosclerosis… the underlying issues that drive or obstruct innovation are no less complex.

Text sidebar feature

I started fiddling briefly last night with Lotus Symphony. I thought I'd comment on one feature, and suggest an improvement. Recall my troubles reported yesterday regarding page numbering? So I started my test drive with page numbering.

The Symphony page numbering feature is intuitive and efficient: Create>Page Numbering. That opens a concise dialogue box, with three dropdown menus for: Position; Alignment; Page Styles. You select, say "Footer" for position; then "Center" for Alignment; and "All Current Page Styles" (those are the defaults). Then, voilá, you have a centered page number in the footer. Nice.

But I thought... hmmm, what if I wanted to put the page number somewhere else. It's unlikely that I would randomly put a page number in the middle of the text, but quite possible that I'd want to create a text box (Symphony calls this a "frame"). The page numbering feature seems to be limited to header and footer. If you want it in a Frame, you'd have to add it manually: a pain.

I thought, hmmm... what if I want page numbers on the side of a page, or say I wanted to add an index tab, or additional text or graphics not in a header or footer, but in a text sidebar?

Here's a suggestion for the IBM Lotus Symphony developers, or any other provider of such products. Why not add a "text sidebar" or "sider" or "tab bar" feature that behaved like headers and footers. Like headers and footers, it could be set to reside inside the margin area if desired. One additional aspect however would be the easy ability to turn text vertical, say for an index tab, or leave it horizontal, say for side page numbering.

Thursday, June 18, 2009

Office suite software

From the moment I filed my dissertation in the spring of 2005, I made the switch to OpenOffice. For the most part, I've been pleased. There have been a couple times in the past few years when I needed some mundane feature of Microsoft Office. Often it was something as simple as being able to search for pilcrows. Initially, it had been that I preferred the transitions available in PowerPoint to what was available in Impress, but that's improved over the years (and I admit, since I left academia, I have used slide show presentations less often).

In preparing one of my recent SBIR applications however, I ran into some of the random frustrations that had gotten me to abandon Office in 2005. For instance, I had page numbers centered in a footer throughout. One page (with a Gantt chart) was set to landscape, forcing me to create a separate footer style for landscape. So far so good. I cut and pasted a biosketch from another document to be edited in the new file. Suddenly, the new page and the subsequent one had no page number in the footer. Odd, so I added one. Then I noticed page numbers were duplicated in all the previous pages (save the landscape one) The code was somewhere, but the numbers just didn't appear on those two pages.

Hmmm... Aaargh! I forced a work around, creating new page styles (left page; right page) for the final two pages. But it was silly and more importantly a waste of time.

But time is what office software is supposed to save us. Don't they call it "productivity software"? I long for the days of WordPerfect 5.1 and the marvels of 6.0, with the Reveal Code feature. (Of course, nostalgia can let us forget that in those days it took 10 minutes or more to open up and scroll to the bottom of a document of 30 pages on a PC XT. I know, it was my Master's thesis in progress.

Today I discovered that IBM has launched a new free office suite called Lotus Symphony. Last week, I joined the Microsoft Partners program, and gained access to a whole slew of their software at a discount for internal use. (Well, almost. There's a bug in their website that prevents me from gaining access to the license keys, so I can download software, just not use any of it yet. Not exactly the big confidence booster!)

In any case, I'll be trying out IBM Lotus Symphony, and giving Microsoft another shot to convince me to come back. I haven't given up yet on OpenOffice, but with Sun Microsystems being bought out by Oracle, after IBM backed out... especially with IBM launching their own competition (it even uses the same open document formats), it makes you wonder whether OpenOffice will retain the support it has so far enjoyed, or whether it will fade away.

It's looking to be a whole new world out there in terms of software licensing and pricing. What's the value proposition? What's the commodity? Is it hardware? Is it storage and hosting? Is it advertising? Anybody's guess how this will play out.

I'll let you know what comes of my test drives. Any relevant comments are welcome.

Tuesday, June 16, 2009

Paul Kedrosky on Venture Capital

Paul Kedrosky's report "Right-Sizing the U.S. Venture Capital Industry," dated June 10, 2009, has been published to the Ewing Marion Kauffman Foundation's website. Read a press release or download the full PDF of the report.

Kedrosky contends that the Venture Capital industry is perhaps twice its ideal size, suggesting that current downsizing is appropriate. What then are the ramifications for the proposed alterations to the SBIR program?

If Venture Capital is shrinking, and should be shrinking, is it really appropriate to be propping it up with public funds that are ostensibly intended for, what is it, SMALL BUSINESSES? Sounds kind of like propping up banks who STILL WON'T LEND to small businesses, because, what is it, we wish to unfreeze credit?

Perhaps Representatives Sam Graves and Nydia Velazquez (ranking member and chair respectively of the House Small Business Committee) would prefer a VCSP (Venture Capital Subsidy Program). I wonder how that would sell on Main Street?

What'll it take?

Yesterday, I had the pleasure to engage in a bit of extended parlay with Cory Mason, my WI State Representative, in the grocery store. I issued a "hello" and we talked for about a half hour about the state budget and related issues.

One thing that came of it was my suggestion that we should create a "brain draw" for the state, to attract more innovative researchers, to draw in more federal research dollars, create more jobs, and eventually lead to commercializing a new sort of economy for the state and beyond.
What sort of incentives could we offer? What's the State piece in this?, he asked.
Problem is, of course, the state has little money, cutting even K-12 education (though by a smaller percentage than other programs). I thought of my experience after filing my dissertation.

150 faculty job applications later, the best I had been offered was an adjunct position, at a private university that charged students $30k/year in tuition. I taught 80 students in two classes for a laughable $7700 per semester. After one term, I resigned. Or rather, I invited them to split my classes into two sections each and to hire me full-time, with benefits. They declined. So I walked away.

Now, less than two years later, I sit on top of a bootstrapped startup, with about $900,000 in federal R&D either received or expected over the next two years, doing what I love, working to solve real-world problems that have the potential to save money and save lives. More's the pity for the university's that undervalued my worth. But I can't be alone.

There must be thousands like me, thousands out there with PhDs, or simply with the innovative ideas but not the credential, who ought to be encouraged and supported in leading the charge to develop new technologies, new industries, new approaches.

To my mind, these individuals need only a few things:
  • Dignity & Respect: the worst thing about being an innovator is as Tachi Yamada is credited with saying "Innovation has no peers--by definition." For an outside thinker, being taken seriously is an invaluable contribution to their success.
  • Resources: An innovator, like the rest of us, needs a place to live and to work.
  • Income to sustain them along the way: Considering that so many highly-innovative, highly-motivated, highly-educated PhDs across this country work as adjunct professors for a pittance, or work outside of academia and research, shelving books or pumping coffee, my suspicion is that the income they require is not so much, as long as the first two of these are met.
So, the question is: What'll it take? I wonder if there aren't the resources available to rehab and open up some of the many vacant, foreclosed, or abandoned properties across the state as subsidized housing and office space to retain our homegrown talent, and draw in out-of-staters with ideas. And surely, this approach could be replicated in other states.

Why don't we create an open competition for ideas (a sort of State-run SBIR) that might garner support from federal or private sources? Why don't we invite the winners of that competition to live and work in space we provide or subsidize (subject to a contract that they remain in Wisconsin and start a business for a minimum of two or three years)? If they breach the contract, they must pay the state back at market rates. And why don't we create a small pool of capital (perhaps a private-public partnership, jointly funded by businesses and government), enough to offer these researchers modest stipends, say $20,000-24,000 for the first year only, then they're on their own with whatever investment, and R&D contracts or grants they can muster.

Monday, June 15, 2009

DCAA Guidance

I'm preparing my first DoD SBIR Phase II proposal. Word I get is that the big hangup in getting Cost Plus Fixed Fee (CPFF) contracts approved is getting the DCAA (Defense Contract Audit Agency) to sign off on the firm's accounting methods. My original contract stipulates:
Phase I contractors are cautioned that if they intend to submit a proposal for Phase II work on a cost reimbursement basis, they must begin implementing a Government-approved accounting system if they do not already have an approved accounting system.
Ah, yes... but just what constitutes a "Government-approved accounting system"? I engaged a local accounting firm when I first received word that my Phase I had been selected. The guidance I got was essentially common sense: document everything; keep receipts. I added my own caveat: be honest. Other than that, I was pretty much on my own.

As luck would have it, I didn't start my business in an area with a critical mass of government contractors to produce an ample supply of CPAs with sufficient knowledge of these arcana. Last week, I had another consultation, this time with one of the firm's partners, to prepare for my Phase II cost proposal. He was duly impressed with the level of detail I put into my spreadsheet. He offered a few suggestions and corrections (SS + Medicare = 7.65% not 7.5%), but for the most part, I'm still wondering if I'm doing things right.

Today, in polishing off the final touches on a new DoD Phase I proposal, I came across the following line in the proposal guidelines:
For more information about cost proposals and accounting standards, see the DCAA publication called “Information for Contractors” available at http://www.dcaa.mil/.
And, what do you know? On the DCAA website is a concise guide "to assist contractors in understanding applicable requirements and to help ease the contract audit process". At 136 pages, the foreword still calls it a pamphlet. Regardless: if it were 800 pages I'd be delighted with the find. At $150/hour for a CPA, I can do a some more of the homework myself.

SBIR Reauthorization bills HR 2767 & HR 2772

Bills have already been introduced in the House, with some provisions that would effectively kill the ability of SBIR to seed early-stage high-impact ventures, replacing it with a crudely wrought corporate welfare scheme to support Venture Capital firms, at the expense of small businesses, job growth, and the nation's economy.

In particular:
  • Sam Graves' H. R. 2767 would effectively redefine "natural person" to somehow include "venture capital operating companies." I kid you not! Read the language in the bill (link above). As written, there is absolutely nothing that would prevent this loophole from being utterly abused with abandon. How difficult would it be for members of one venture capital firm to split off and create a second shell VC firm and invest beyond the 50% stipulated? And who owns those VC firms? It could be China or Libya.
  • Aaron Schock's H. R. 2772 includes some worthwhile provisions, but the caps introduced in Sec. 12 are perhaps twice what they ought to be. Further, without more oversight or clarification, the open-ended "fast-track" authority proposed in Sec. 11 would effectively permit by-pass of Phase I (despite the explicit though weak requirement for Phase I stipulated in Sec. 14), meaning once again that funding would be shifted to later stages of technological and business development, killing many innovative ideas before they've had a chance to develop, and benefiting only VC investors, not innovation and not the small businesses who create it.
  • The provision introduced in Sec. 13 authorizing perpetual Phase II funding without regard to commercial potential or private investment is an invitation for unending corporate welfare (which most assuredly would be taken up by those VC-owned firms which H.R. 2767 would welcome in).
  • The proposal to raise award caps, without any proposal to increase allocations for SBIR as a percentage of the money already being spent (not as any additional expenditure) would dramatically reduce the number of ideas being funded, stifling innovation rather than encouraging it.
I implore you to act now, and to get the strength of your elected officials behind this issue before it's too late. We need the public behind this issue, for the sake of innovation, for the sake of job growth, for the sake of the economy! Let's get the word out to the media as well:
  • Keep SBIR for Small Businesses!
  • Keep award sizes reasonable to support small-scale early-stage R&D that have great potential for societal benefit and commercialization beyond government funding.
  • Ensure that there be no reduction in the total number of Phase I awards, in order to seed the greatest number of promising ideas.
  • We should put a check on the handful of SBIR mills with obscene numbers of multiple awards, and no commercialization or private funding, but not at the expense of the thousands of truly small businesses which have been started or sustained through SBIR's ability and willingness to seed early-stage, high-risk, high-impact research.
  • VCs simply will not fund such research. SBIR will (unless "modernization" takes the form of removing SBIR's greatest strength).
Without this support, only the wealthy will have the wherewithal to innovate. The rest of us will be forced to leave our ideas and potential fallow, as we build up personal resources in hopes one day to return to our research, return to innovation, return to create jobs and wealth for our nation. What a waste of talent!

Sunday, June 14, 2009

Tatyana & José: An allegory of innovation

Tatyana was born in the Ukraine, the daughter of a former school teacher and a shopkeeper. They emigrated to America when Tatyana was four. She excelled at school, learning English with amazing speed, surpassing her classmates in reading by the end of her first year. She was accelerated to third gade after completing first, because of her achievement. She completed high school in three years, taking all the AP courses available. With the exception of one B+ in sixth grade, she received all A's.

José's parents were from Columbia. His mother was 6 months pregnant when they arrived in America. José attended the same schools as Tatyana, but two years ahead when she started. They graduated high school the same year. She was valedictorian. He came in a close third. He was a good student, but always dreaming up new ideas rather than fully applying himself to classwork. He always sought practical applications, and had little patience for rote learning and tests that offered only one correct answer.

Tatyana's father, the former school teacher was an excellent cook. So was José's mother. They instilled in their children a great appreciation for food. They lived in a multicultural area, heavily influenced by Eastern Europe, Central and South America, as well as a small enclave of Pacific Islanders and Caribbeans.

After high school, rather than going straight to college as everyone expected, they took jobs together at Markman's Grill, a longstanding establishment, founded on burgers and fries, but changing over the years to include more of the varied fare expected from its diverse customers. Markman's owner Marcus, known as M&M, had run the grill for more than 20 years. He was ready to retire.

Tatyana and José dreamed of owning their own restaurant. But it'd be different. They might take some college classes at night, but only ones that served their purposes. They had little interest in pursuing a degree that would fill them with someone else's ideas of what knowledge they required. They'd take some classes in accounting, business management, and entrepreneurship. They'd take classes in horticulture and nutrition and biochemistry.

M&M was looking for buyers. The two teenagers had no means. An investor showed up at the grill one day, Victor Charles, or VC as he had been called since birth. VC was a Texan with big hands, a broad smile, and an even broader hat. He exuded confidence. He had an idea.

He'd buy up Markman's and quickly transform it. The diverse clientele longed for a mixture of offerings he knew. They reflected the changes in the makeup of American society. He'd be ahead of the curve. Makman's melting pot was about to become America's Melting Pot (AMP), franchised and distributed across the nation. He'd get in and out in five years, selling the chain to McDonald's or Pepsi!

He asked the kids to run the first store. Only... they had different ideas. They wanted to open a raw foods bar: Healthy, Nutritious, Delicious.
  • “Open a smoothie bar” they were told. Nope, not our idea. We want to serve food.
  • “Open a vegetarian restaurant” they were told. Nope, not our idea. We're not vegetarians. We just think meats should be in small quantities, you can serve it on salads like an antipasto.
They sought advice from Markman. He knew all about running a grill: what sort of ovens and stoves were needed, how to negotiate good rates for gas, what suppliers to use for fish and chicken, fruits and vegetables. But they wanted to grow their own, run a greenhouse that supplied them most of the food they used. They'd pickle their own cabbage and cucumbers, dry their own sausages and salamis to top salads. They'd squeeze their own apples and apricots.

“How you gonna make money doing that?” VC derided. “I can't make a franchise from that model.”

VC represented a particular worldview, where the object of running a business was to make a big profit fast. Markman was a good businessman, but had traditional ideas from his experience running a traditional sort of business. Tatyana and José were innovators. They wanted to create something different, something untried, untested, and unproven.

The question is: What's best for America? It would seem there is a place for all three: M&M, VC, and the team of Tatyana & José. Only, what possibility is there for those last two to get off the ground, to test their mettle, to hone their ideas? VC won't fund them. Banks won't lend to them. Markman can't advise them. They don't need much. But they need something.

Shouldn't there be a mechanism in America for encouraging the passions and energies of our brightest regardless of their present means, supporting innovation at every step? There is such a mechanism at present: let's not kill the Small Business Innovation Research program! When it comes to seeding early-stage, high-risk, high-reward innovation, it's the only game in town!

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