School of thought: academics and small businesses clash over piece of the government pie

Entrepreneur, Dec, 1996 by Janean Chun

Perhaps it was inevitable. While other government programs assisting small business seemed doomed, the Small Business Innovation Research (SBIR) program was acclaimed as the darling of Congress and small-business advocates. The government-sponsored grants allowed thousands of small businesses to gain a foothold in the competitive technology research and development arena.

"Technology-based small businesses in the early stages are typically considered too risky by private investors and venture capitalists," says Robin Risser, board member of National Small Business United and CEO of Ann Arbor, Michigan-based Picometrix Inc., a manufacturer of fiber optics used in instrumentation and communications. The SBIR program, Risser contends, is crucial in helping "businesses move to the stage where they can attract capital."

Alas, the SBIR program is no longer spared the scrutiny. Caught in a bitter battle between the academic and small-business communities, supposed bugs in the program have caught the attention of Congress. In a recent appropriations bill, Rep. John Porter (R-IL) included a provision urging the National Institutes of Health (NIH) to review the SBIR program's application process and add new guidelines; however, according to Rob Bradner, administrative assistant and counsel to Porter, the amendment has since been removed.

At press time, the percentage of SBIR grants set aside for small business was going to increase from 2 percent of total government research spending to 2.5 percent. But the issue is far from settled. The academic community argues that the quality of research suffers due to small-business set-asides. In a recent study by the NIH, the second-largest distributor of SBIR grants, about 75 percent of university-backed research was ranked as "outstanding," compared with only 17 percent of small-business research projects. And yet "there are a lot of inequities" at play in these studies, says Risser, who thinks the NIH's methodology and motives are suspect.

Though Risser traces the current feud between academic and entrepreneurial forces back to the beginning of this summer, he believes "there has always been this under-current. Universities feel they are entitled to do all research and development, and unanimously opposed the [SBIR] programs from the start. They feel it's their money."

Unfortunately, should this struggle continue, there's more at stake than just a piece of the government pie. "A bitter fight would not be in the best interest of either side," says Pisser. "And it could hurt the nation's focus on being a technology leader."

To avoid such drastic consequences, the NIH, for one, is contemplating applying the 2.5 percent requirement to the organization overall rather than to each of its 18 separate institutes. That way, the NIH can beef up SBIR grants in areas where the small-business community is stronger and decrease grants in areas where the quality of small-business research has not been as high. "[Our] interests are solely to make sure the most promising research proposals are funded and that the quality of the research funded by the NIH is the highest possible, while at the same time not harming small businesses that participate in the program," says Bradner. "This solution accomplishes all those objectives. It's very much a win-win situation."

The NIH also plans to hold a conference to bring researchers and SBIR companies together to discuss ways of improving the quality level of research. Risser is all for a meeting, though he is still very much on guard. "There's been a lot of underhanded stuff," he says. "The [academics] have never come to us, the leaders in the small-business technology community, and opened this up in the light of day. We'd like to sit down at the table with our accusers and begin an open dialogue with the universities. We want to come up with something that's good for the country in general."