Saturday, December 24, 2011

We are the Entrepreneurs

My thoughts these days go to the core of being a Research Entrepreneur. With the Small Business Innovation Research program (SBIR) finally secure--knock wood--for another six years, there's a little time to reflect on where I came from and where I'm going. You see, four years ago, I was just an unemployed, disillusioned, interdisciplinary PhD. My terminal degree is ostensibly in Musicology with an Emphasis in Cognitive Science, followed by a two-year post-doc in Linguistics. I had never heard of SBIR.

I was unemployed because I had shirked my underemployed status as janitor Adjunct Professor of Music at Chapman University teaching 80 students a term for a gross salary just shy of $15,000/year, with no job security beyond one term at a time, no office, and no health or retirement benefits. Frankly, I may have been better treated as a janitor. That part's the disillusionment.

Despite the common view that professors are a well-paid, secure, and sheltered bunch, that's the reality. Far more end up in adjunct servitude than land tenure-track posts. There's the satisfaction for you of society's promise to those who go through college, to expect their hard work will be rewarded with a decent job, like an apprentice paying their dues to train for a lifelong vocation. This promise is fantasy.

I laugh sadly therefore at Mitt Romney's recent response to a college student at a town hall meeting in New Hampshire that "what I can promise you is this. When you get out of college if I'm president, you'll have a job. If President Obama is reelected, you will not be able to get a job." [Story embedded: skip to 1:40]

The promise is hollow whatever end of the political spectrum it comes from, unless of course someone is proposing a nationalized workforce, and guaranteeing employment. But I haven't heard that, nor would I necessarily endorse it. Indeed, politicians these days seem to be stepping back from bold and specific promises. Our own governor here in Wisconsin once spoke of creating 250,000 new jobs in four years.

Governor Walker gave a talk at last spring's National SBIR Conference in Madison, in which I was pleased to hear a specific pledge not only of new jobs but of 10,000 new businesses in the state. A worthy goal. My proposal has been that one fourth of those new jobs should come from new businesses. According to the Kauffman Foundation, new firms these days create 4.9 jobs on average (my firm's current count is 4.3 FTE). Do the math: 1/4 x 250,000 = 62,500 / 4.9 = 12,755 new firms in the state.

But the promise of jobs as a reward for schooling and hard work is not only hollow; it's misguided. Jobs are not out there like commodities for us to choose among and purchase. Rather, each of us chooses a path to follow. The path ought be defined in part by our talents and skills, and by that which drives us beyond our limitations to make a lasting contribution, regardless of schooling or credentials. Sure, some of us will get jobs that align with our interests. But others of us will follow our passion, define our life's work, and become the job givers. We are the entrepreneurs.

In my view, the greatest value of SBIR is its ability to seed those passions and facilitate entrepreneurial risk-taking, which leads to transformative innovations and technologies, and the creation of myriad jobs along the way. The statistics bear this out. If political leaders are serious about creating new jobs, it is entrepreneurs and innovators who should be getting their attentions.

Friday, December 23, 2011

SBIR reauthorization (six years!)

The old news by now is that the House has finally accepted most of the Senate's long-fought compromise language for SBIR reauthorization. Behind the scenes it was some great staffers on the Senate side, Kevin Wheeler (Sen. Landrieu) and Chris Averill (Sen. Snowe), as well as the herculean efforts especially of Sens. Landrieu and Snowe that made the difference. That along with over 1000 small business representatives who signed a letter urging the House to accept the Senate's compromise.

Multiple attempts have been made over the past several years (long-term authorization ran out in 2008), that failed to make it. SBIR has been kept alive by a series of (what is it? 14) short-term Continuing Resolutions, ranging from one-year to a mere few months at a time. Late 2009, the House & Senate Armed Services committees gave up waiting and inserted a one-year reauthorization for DoD SBIR in the Fiscal Yearl 2010 National Defense Authorization Act (NDAA).

This time round, Sens. Landrieu and Snowe were able to insert reauthorization language of SBIR for all agencies in the Senate version of the current NDAA (S.1867). The Senate passed this bill at the end of November. The House had already passed their version (H.R.1540) without any such SBIR language. As per rules, a Conference Committee was established to reconcile the bills.

With much grumbling, and a few not-so-beneficial tweaks on the House side, and the impetus driven by those 1000+ small businesses, SBIR language for a six year renewal was included, and accepted by both houses. Now, we still wait for the President's signature. But the previous veto threat from the White House (because of terrorism suspect detention language) has been recanted due to changes in that language.

The most counter-productive tweak from my viewpoint is Sec. 5106, which allows for bypass of Phase I at the discretion of "the head of the applicable agency", whoever that means, essentially permitting the government to leapfrog feasibility studies, and award a ~$1m Phase II on a project right from the start, possibly reducing the number of Phase I awards and thus consolidating the governments money in fewer bets, in effect steering SBIR more towards later stage development and away from early stage Research and R&D.

The issue is principally that SBIR remains one of the few significant sources for seed capital to support the high-risk/high-reward endeavors by America's small businesses that potentially lead to transformative technological advances. Without such seed capital, most small businesses will not be able to pursue novel and yet-unproven avenues of R/R&D. Large corporations are increasingly inclined to buy up innovative startups rather than funding high-risk R&D internally.

Without small businesses, and without significant investment in R&D by large corporations, universities remain the sole potential source for such research. But evidence suggests that small businesses are far more productive and cost-effective than large corporations (5x) or universities (20x) in transforming ideas from the lab into products in the marketplace. Why then would we shift the focus of the SBIR program, which has proven itself time and again for a quarter century, away from its role as a driver of innovation toward funding primarily later stage development of already proven ideas?

The only consolation I take from this, at the moment, is the word of Jere Glover, intrepid Executive Director of the Small Business Technology Council (SBTC) of the National Small Business Association (NSBA). SBTC serves in effect as the principal industry association for SBIR firms. Jere recently commented that the indications he's received are that despite Rep. Sam Graves insistence on including Sec. 5106 in the SBIR reauthorization language, agency program managers have no interest in bypassing Phase I.

Innovation holds inherent risks. Not every idea will make it. But if Thomas Edison had given up after his first hundred failures, or worse had avoided attempting something so risky as electric lighting, we'd all be in the dark. The metrics we should use are longer-term ones that show a notable success rate and return on investment from SBIR. But the pressure to reduce risks and focus on short-term commercialization metrics has already begun to take its toll. I don't speak merely of the inclusion of Sec. 5165 in H.R. 1540, which addresses the establishment of "minimum performance standards for small business concerns with respect to the receipt of Phase II SBIR or STTR awards". The fear I have is not that the high-standards and expectations of the SBIR program will be maintained. It is already (and appropriately) a highly competitive program in which proposals and projects are subject to a great deal of oversight and review of technical and scientific merit.

It is rather that there is a drive away from high-risk, early stage innovation, toward short-term later-stage development. At the DoD-sponsored Beyond Phase II conference that took place in September 2011, the closing keynote by Christopher Rinaldi, DoD SBIR Program Administrator, indicated that in response to such pressures from Congress, he was urging DoD topic authors to preference topics closer to commercialization over promising earlier stage efforts. In private conversation following his keynote, he said that he understood my concern, and that others share it. Although there would be guidance to focus on time to commercialization and commercialization success, a portion of topics would still be reserved for early-stage efforts.

What remains to be seen is how these incipient changes will affect the overall program, and whether they might impact its proven ability to identify intractable problems, and unleash innovative small businesses and entrepreneurs on the path to resolution. Let's hope only for the best!

Sunday, October 16, 2011

Stay Hungry, Stay Foolish

The video of Steve Jobs' commencement address at Stanford that is making the rounds on the internet includes a reference to the back cover of the final Whole Earth Catalog, encouraging its readers to "stay hungry, stay foolish." Jobs repeated the line to his audience of graduating seniors: "Stay hungry, stay foolish."

I've had two sayings for years that come close: "A hungry entrepreneur is a good entrepreneur," and often contend the best way to address uncertainty is with "cultivated naivety." In a March 2010 staff training tutorial, I described the idea this way:
Cultivated Naivety: The principle that it is better to be ignorant than to make hasty assumptions. It is the presumption that novel evidence provides the luxury of learning through experience.
As for hungry entrepreneurs, something happens when people get too comfortable. All too often, we get lazy, complacent, and risk-averse, leading us to protect more than innovate. Very few large companies can overcome this trend. And those that do, normally expend far more in resources than a lithe entrepreneurial startup competitor would, if the barriers to entry are not unnecessarily high.

Sunday, October 9, 2011

Education: Budgetary Strawman

Rep. Paul Ryan (WI-1), Chair of the House Budget Committee, has been recently quoted attacking President Obama as "a pyromaniac in a field of strawmen". Cute turn of phrase. Unfortunately, it characterizes most of our nation's political figures, including Ryan himself. There was an article in yesterday's New York Times entitled "Anti-Federalism in G.O.P. Race Aims at Education". While I might be inclined to dismiss attacks on education as a drive toward insular ignorance, as I read the article I began to think there is surely merit in rethinking our nation's approach to education, and to consider that there might be cause for reducing spending on education without compromising our nation's strengths.

As an "unschooling" dad and entrepreneur, I find that "No Child Left Behind" and "Race to the Top" both overvalue conformity and standardized testing over creativity and innovation. The Economist recently did a profile (without questioning the underlying assumption of validity) showing a global obsession with standardized tests. Perhaps Obama's recent moves to relax the federal education-related requirements on states and locales is a move in the right direction.

But I wondered if calls to reduce or abolish the Department of Education might not have some moment, in this age of austerity. This is a difficult question for me as a research entrepreneur since I have and plan to again propose R&D projects to the DoEd. Reducing their budget necessarily reduces my opportunities. But I firmly believe in supporting the greatest good for the greatest number even when that sometimes counters my own short-sighted self-interest. So I took a look at Third Way's "Your Federal Tax Receipt" to get a handle on just how big the federal education budget is, to determine how much fat might be cut. Um... talk about strawmen!

Over all expenditures for education related items amount to less than 3% of the federal budget, more than half of which is for elementary and secondary education. That still leaves a little room for trimming some of the arguably misguided federal mandates toward conformity and standardization. The push for our children to acquire skills for the workforce sounds a bit too much like the call for maleable assembly-line workers of a century ago. To this entrepreneur, it lacks the drive toward innovation that I'd prefer. Still 2.9% is not a smoking gun. Far from a bloated bureaucracy, DoEd administration accounts for a mere $0.12 per $1000 in taxes collected.

After elementary and secondary education, another 1.1% is accounted for by Pell Grants, special education, and rehabilitation services, which seem worthy enough. Expenditures for "Innovation and Improvement" at $0.29 per $1000, and the Institute of Education Sciences at $0.17 are neglibile as well. Even if Michelle Bachman or Rick Perry were able to shutter the Department of Education, the result on the deficit would be akin to you or me finding a dime on the street once in a while and sending it to the IRS. Put in perspective, the same $1000 in taxes pays for $204.39 in Social Security benefits, $130.67 in Medicare, and $47.06 on operations in Iraq and Afghanistan.

Come on America, isn't time we put aside pettiness, and work together to resolve our nation's ills? Let's make the hard choices, and set our priorities to what will create the most benefit despite our political or ideological leanings. What would be so wrong about rallying behind both Barack Obama's and Scott Walker's efforts to create high-quality jobs? Who cares who gets the credit! Ideologies don't garner results. That comes from rolling up our sleeves and getting dirty together, rather than simply slinging the dirt around.

Friday, October 7, 2011

House Small Business Committee's CLOSED Mic

The majority site for the House Small Business Committee is called "Open Mic". A better name perhaps would be "Censored Mic: tell us only what we want to hear."

On September 23 I posted a couple comments. My comment on the main page, regarding SBIR reauthorization has never been posted. When I called, a staffer explained that they get many postings, and not all are open for the public to view. Huh? I thought it was called "open mic". I guess you have a different understanding of that term. Surely, they have a right and responsibility to keep discussions on topic. But to censor views that don't support their portrayal of things is a bit beyond the pale.

The other comment I posted on the "feedback" page regarding the high cost and uneven burden of health insurance for small companies, garnered the following response:
Delivery has failed to these recipients or distribution lists:
The recipient's mailbox is full and can't accept messages now. Microsoft Exchange will not try to redeliver this message for you. Please try resending this message later, or contact the recipient directly.
Not quite what I was hoping for. So, I resubmitted the comment on their main page. Still no posting. A week later, I resubmitted a somewhat extended and specific version of my SBIR reauthorization comments on their resources page summary of H.R. 1425, which presents an incomplete and misleading depiction of the actual bill. For your edification, despite the actions of the House Small Business Committee, I append that September 29 comment and my suggestion for dealing with small business health insurance below. You can judge for yourselves whether they warrant censorship.

SBIR Reathorization
We need long-term or permanent reauthorization of SBIR. The Senate had called for 14 years, then compromised for 8. No shorter! The three year reauthorization in HR 1425 (section 101) is woefully short. It takes more than three years for a single review and award cycle for Phase I and Phase II. Small businesses and agencies need the certainty of a long term reauthorization in order to develop crucial innovations.

We need SBIR to be retained as it was intended: to spur innovation and business creation. That means, there should be no softening of the small business definition criteria and no accommodation for businesses majority owned and controlled by any entity other than individuals or another small business(sections 106/107). No large venture capital-owned businesses (no hedge funds/no private equity); no large corporation subsidiaries. This is needed to ensure cost-effective use of taxpayer dollars to support innovations, business and job creation, while cutting out the middlemen. "Financial structure" matters!

SBIR should be expanded to reflect the value of small innovative businesses, which employ 40% of American tech workers. We currently receive a mere 4% of federal contracts and grants. The percent allocations for SBIR should be increased from 2.5%. A reasonably conservative figure would be 5% of agencies' budgets for SBIR. As a minimum the Senate (S. 493) compromise of increasing SBIR from 2.5% to 3.5% over ten years should be adapted.

There should be absolutely no loopholes created for bypassing Phase I (section 105). Period. Small dollar (~$100-150k) Phase I awards are necessary to ensure that the program continues to seed the earliest stage, high value/high risk/high reward ideas, without overextending the federal government's commitments. Phase I allows risk to be mitigated, while providing capital for early stage ideas that have nowhere else to get funding!

Thousands of businesses, tens of thousands of patents, hundreds of thousands of jobs depend on the House Small Business Committee doing what's right for SBIR and the nation. We depend on you not to cave into to special interests. SBIR needs to be maintained as a merit-based driver of innovation, problem solving, and job and business creation and growth. It has succeeded in this for over a quarter century. No more compromises.

Small Business Health Insurance
Here is a simple idea to benefit small businesses and their employees, and to simplify the burden on insurance company actuaries. Here is a new regulation that would simplify things, while providing for a more fair distribution of health care costs among the population.

Require that health insurance providers establish rates by geographic region and other broad demographic measures, rather than by the size of the employee pool at a particular company. It is absurd that the premiums charged per employee are two or three times the rates that would be charged for the exact same employee if they walked across the street to work for a company with 800. If rates were determined fairly, without regard to the size of the company pool, my rates would drop substantially, allowing me to continue providing coverage, while rates per employees at large corporations would barely nudge upward. It would be a fair distribution of rates, reflecting the actual risk factors per individual, and would even the playing field, so small businesses could compete on an equal footing with large companies for the same quality employees, without having to gouge their own bottom lines.

Friday, September 23, 2011

Patents: good for innovation or stifling?

The August 20 issue of The Economist includes an article entitled "Intellectual Property: Patent Medicine" which discusses many of the problems with the American patent system, most of which were not addressed or redressed by the latest "patent reform" legislation. Here's the alarming statistic:
In recent years, however, the patent system has been stifling innovation rather than encouraging it. A study in 2008 found that American public companies’ total profits from patents (excluding pharmaceuticals) in 1999 were about $4 billion—but that the associated litigation costs were $14 billion.
At times it seems for a small innovative business that the effort and costs involved with preparing and filing patents may not be supported by the benefits that accrue. Retaining ideas as trade secrets, or protected in other ways like via SBIR data rights, may be a better means to protecting a company's intellectual property.

Wednesday, September 21, 2011

Layoffs are not job creation!

So, with the news that Bank of America is laying off thousands of workers, it's difficult to understand the press by some of today's politicians to resist any effort to close tax loopholes, and require that citizens across the spectrum of incomes bear a fair share of the burden to patch up the nation's deficit and regain a strong footing moving forward. It's hard to see these large corporations as job creators as they are so often referred to. No, entrepreneurs and small businesses (many that grow into large businesses) are job creators. Multiple studies have shown that. New business creation is the most effective means to creating sustainable, and high-quality jobs. Counting minimum wage entry level positions as job creation is ludicrous! And coddling the behemoths that hire and fire in waves is not protecting or supporting job growth in this country.

Let's put forth a plan that will work: let's forge an Entrepreneurial America!

Tax Receipt

A year ago, I posted a note on Third Way's proposal that tax payers receive a receipt for how their money was spent. Recently I noticed that they've posted a tax receipt calculator on their website. Plug in your taxes paid, and a rather thorough itemization shows up.

Friday, September 9, 2011

Amazon: right or wrong?

Amazon is undeniably an innovative company, with great potential for growth. That, however, should not be excuse to redefine the rule book. Amazon has been on the wrong side of a straight-forward commonsense issue of fairness. There is no reasonable justification for online retailers to avoid collecting the same sales tax their brick and mortar competitors must collect. Most state laws require the consumers to pay these sales taxes regardless of whether they have been collected, so any price comparisons that exclude taxes in one case but include them in another provide the consumer with a false view of pricing advantages. Why should there be an added burden for the consumer and state revenue enforcement agents to save online retailers from collecting sales tax?

As politics is the art of the possible, perhaps the deal recently brokered in California is right and proper. Compromise is good. Fairness is essential.

Thursday, September 8, 2011

No entrepreneurs, no jobs!

USA Today reports Fewer people choose to be self-employed. The article by Laura Petrecca reports that the category of "incorporated" self-employed workers in the USA has dropped by 726,000 since August 2008. In the face of a drive to create new jobs, this is an alarming statistic, since entrepreneurs who incorporate account for the overwhelming majority of soon-to-be-hiring firms.

To be plain, if we want to create jobs in this country, it is time to focus on entrepreneurship. Let's see if the powers that be in Washington, DC and in state governments across the nation step up to the plate, abandon political posturing and do what's right for the nation, our people, and our economy!

Wednesday, August 31, 2011

Corporate Welfare America

David Kocieniewski published an article in today's New York Times entitled "Where Pay for Chiefs Outstrips U.S. Taxes," reporting on a study that found many of the highest paid chief executives lead corporations with the lowest tax burden, despite bumper profits. Now, the issue here is not principally the widening income gap between rich and middle class. Putting aside whether a corporate CEO or any employee of a firm is worth $18m/year (which by the way translates to $8,653.85 per hour for a standard year of 2080... hell, let's give them the benefit of the doubt, they work hard, let's say 80 hours per week... well then, it's only $4,326.92/hour!), the notable finding is that current United States policy is "rewarding tax avoidance rather than innovation."
“We have no evidence that C.E.O.’s are fashioning, with their executive leadership, more effective and efficient enterprises,” the study concluded. “On the other hand, ample evidence suggests that C.E.O.’s and their corporations are expending considerably more energy on avoiding taxes than perhaps ever before — at a time when the federal government desperately needs more revenue to maintain basic services for the American people.”
That's something for the policy wonks in Washington to consider as they move ahead with tax reform and deficit reduction plans.

Friday, August 26, 2011

How Not to Create Jobs

If the brinksmanship of the past few months is any indication, the last thing on politicians’ minds is actually clearing the decks for innovative entrepreneurs to create new businesses, jobs and commerce. With more than 112,000 small employers in Wisconsin accounting for more than 52% of private sector jobs and a whopping 97.9% of all state employers, you’d think our voice would be louder and clearer.

Yet efforts to support small business creation and job growth are too often silenced in the din of politics. The remarkable fact is that most state and federal plans intended to create jobs are woefully misdirected—biased toward producing profits for middlemen and investors rather than efficiently creating new businesses and jobs. Let me explain: if a contract goes to a start-up or small company, the entire amount can be spent to create jobs and innovations; If the funds rather go to supplement investment in companies, investors reasonably enough expect to skim off a profit, leaving a reduced portion of funds to support jobs and innovations.

In March of this year, U.S. Senator Mary Landrieu introduced a bill (S.493), years in the making and culminating from a herculean effort to address the concerns of multiple constituencies. The bill enjoyed bipartisan support with eight co-sponsors: three Republicans and five Democrats. It was blessed by small business organizations, federal agencies, and investor outfits as an acceptable compromise. S.493 had one simple objective: to extend the SBIR and STTR programs which direct a small percentage of federal R&D spending toward small businesses and partnerships with universities.

The costs are negligible: the nonpartisan Congressional Budget Office estimates administering the program at a mere $30m/year, to award more than $2B in contracts and grants to America’s small businesses. In effect it is budget neutral: They are not separate line items, only a percentage of whatever funds are budgeted to federal agencies.

The program has been around since 1982, has founded or expanded some 28,000 businesses, many of which became major employers like Qualcomm with 17,500 employees. America’s small businesses account for nearly 40% of patents issued, but receive a mere 4% of the federal R&D funding. For every $400k of taxpayer money, small businesses produce one patent. Universities in contrast require nearly $15m of federal subsidies for every patent issued. In terms of efficient use of funds, small businesses produce results!

Unfortunately, before a full vote in the Senate, at least 150 mostly unrelated amendments were proposed to S.493. In May Senate Majority Leader Harry Reid tabled it. The leadership of the House Small Business Committee is supporting instead H.R. 1425, a bill that would radically change SBIR/STTR for the worse. The House version as it stands would in effect destroy these programs, shifting the focus from seeding innovative job-creating research into a scheme to subsidize Wall Street hedge funds, private equity, and venture capital, concentrating our bets in a few mostly mature companies that have already been identified by investors as potential cash cows. Here are a few of the changes that are proposed:
  • Current law requires a short-term, low-budget Phase I for all awardees to prove the feasibility of an innovation before a large outlay of taxpayer funds; H.R. 1425 does away with this requirement, allowing untested ideas to receive $1m or more right from the start, reducing the number of new ideas that get tested.

  • Currently, SBIR/STTR contracts and grants are reserved for American small businesses, owned and controlled by individuals, permitting 100% of the funds to go directly to the company for jobs, benefits, and research; H.R. 1425 does away with the small business requirements, transforming the programs into subsidies for hedge funds, private equity, and venture capital.

  • Companies with fewer than 500 employees employ about 40% of the nation’s scientists and engineers, but receive only 4% of federal funding; H.R. 1425 would further distort this situation, removing the opportunity for great ideas to be taken to market.
Why on earth would we dilute a program that has created hundreds of thousands of Main Street jobs to subsidize the profits of Wall Street money managers? Why would we radically alter a cost-effective, proven job creator? A vote on H.R. 1425 is expected September 12. The House leadership must support a better bill. At the very least, they should accept the compromises already achieved in S.493. A better bill means a stronger economy for us all.

Monday, March 21, 2011

Perhaps there's a better way?

I read the following in the NASVF NetNews dated 3/18/2011:

Angel Investor Tax Credit Produced 47 Jobs in 2010

The angel investor tax credit spurred $28 million in funding for 67 Minnesota companies in 2010—and those 67 companies collectively created 47 jobs last year, according to a report that the Minnesota Department of Employment and Economic Development (DEED) recently submitted to the Minnesota Legislature.

Angel investors collected just over $7 million in credits from the state in 2010. Because $11 million in angel investor credits was available in 2010, almost $4 million in remaining funding will roll over into 2011—bringing the total available to nearly $16 million this year.

Jeff Nelson, the angel tax credit’s program coordinator, anticipates that all of the funding available this year will be used up by the end of 2011 as the program picks up steam, adding that he was pleased with the 2010 results. The tax credit program was signed into law on April 1, 2010 but didn’t kick off until July.

Quick math: $7m / 47 new jobs translates to an astounding $148,936 in lost state revenues per job created!

Now, I am not about to argue that the state should not support small business growth and job creation. But somehow I find it hard to believe that this is the most efficient means to support small businesses and job creation? In today's climate of tight budgets, we should be seeking cost effective means to stimulating innovation, new businesses, and sustainable job growth. I find it difficult to fathom that nearly $150k in tax credits to investors per job created can be justified! There must be a better and cheaper way to offer incentives directly to entrepreneurs, or tie tax credits directly to jobs created and the value of those positions on the local, regional, and national economy.

Put it in another perspective, my firm is about to engage in a new joint development project with a local UW campus supported via the modest Wisconsin Small Company Advancement Program (WisCAP). It will create one full-time position on campus immediately, and likely 2-3 more at my firm within the next year. The cost to the state is a mere $65k per full-time job. That is more than twice as cost effective than the Minnesota program so highly praised in this article.

Friday, February 25, 2011

Hirono sponsors new SBIR/STTR bills

Quietly, Rep. Mazie Hirono (D-HI) introduced three bills in the House of Representatives, designated H.R. 447, 448, & 449, known as the SBIR Enhancement Act, the Small Business Innovation Enhancement Act, and the STTR Enhancement Act. Significantly, these bills would increase the SBIR percent allocation from 2.5% to 5% of agency's extramural R&D funding, and increase the STTR allocation from .3% to .6%; they would raise Phase I award levels to $200k, and Phase II to $1.5m (Recent SBA guidance suggested $150k & 1.5m); included as well is a stipulation that award levels be adjusted every five years.

Rep. Hirono sponsored all three bills independently, without co-sponsors on January 26, 2011. All three were referred the House Small Business Committee and the House Committee on Science, Space and Technology. Hirono serves on neither. There is no news on discussion or consideration by these committees, but on February 10, the bills were referred to Science & Technology's Subcommittee on Technology and Innovation.

There is nothing in these bills however that addresses reauthorization of the Small Business Act itself, so presumedly any debate or discussion on the duration of reauthorization would be handled separately, or would be amended to these bills.

Washington: Let's get on with SBIR reauthorization, to support small business innovation, job creation, and economic growth!

Tuesday, January 4, 2011

New Businesses Not Small Businesses has published a post (New Businesses Not Small Businesses) about a new study by Ying Lowrey, an economist with the Small Business Administration, who "estimates that on average, each new startup is responsible for 5.6 jobs created".

To put it in perspective, my company was founded in May 2008, as a one-man shop operated in a home office. Today, we employ 7, have an office building downtown Racine, and are projected to bring on an additional four staff members in 2011.

I recently heard a story on Wisconsin Public Radio that our new Governor Scott Walker is ready to issue a multimillion dollar tax incentive to some company to create around 300 jobs in Madison over the next few years. As I calculated at the time, the incentive translates to about $45,000 in cost to the state per job created.

What if, we offered $45,000 in grants or tax incentives to entrepreneurs for creating new businesses in the state (perhaps with a signed contract that the new business must remain in the state for say three years). Now, if Lowrey's study is accurate, each new business on average would translate to 5.6 jobs created (all of which would have to remain in the state for the period of time agreed to), meaning the cost to the state per new job created would be a mere $8,035.71.

What a bargain! Somehow it sounds more efficient to me for the state to be incentivizing new business creation than simply atracting old businesses into the state. And there's no saying the same approach couldn't be applied by other states, or even the Federal Government. Let's see, if $40 billion were used in that way, rather than used to bail out "too big to fail" firms, we'd have about 5 million new jobs in the country today. I wonder how many employees AIG or GM has?