SBA Handbook for SBIR Proposal Preparation
Chapter II - Getting Started
B. Determining Whether There Are Potential Markets
Receiving an SBIR award is a wonderful marketing opportunity for a small firm. SBIR funding provides legitimacy to both you and your company, gets your name circulating in both the public and private sectors, and can be a basis for the development of new products and processes.
1. SBIR as a Marketing Opportunity
The first step in determining your potential markets is to determine just what will result from your research downstream. This may seem like an odd problem at first; yet, it is useful to determine all the points at which you could end your participation in the project and sell or license the results you have obtained. Depending on the stage at which you end your participation, the results of your effort may be technical knowhow, patents, a prototype, production techniques, a fully produced commodity, or a joint venture or spin-off company.
One way to determine which of these types of products you should market is to write down the salient features of what you anticipate obtaining at each point. Include features people might find objectionable as well as those they might find beneficial. Examine the features to determine who would be the likely customer or "client type" for the product or service at each decision point. Would it be a manufacturer? A consumer? Or some other type? And are they domestic, foreign, or multinational?
Once you have linked your potential products with a customer type, examine the buying patterns common within that type. Among the questions you should be asking are:
Do they use products or services like yours?
Do they buy them or produce them in-house?
From whom do they buy them - firms like yours or different types of profit or non-profit entities?
What do they pay for such products or services and how much do they buy?
Are substitutes for your products or services highly standardized, highly individual, or somewhere else on the continuum?
In doing market research always remember that your technology, your staff, and your firm's ability to work as a team are what you are selling. However, technology, personnel, and organization must translate into sales in product or service markets. If you cannot demonstrate that sales are likely, no-one will provide you with either debt or equity in capital markets.
2. Identifying Phase III Investors
A major objective of SBIR programs is to assist small firms in moving new scientific and technical ideas from concept to commercialization. Federally funded work frequently helps winning companies develop the underlying generic technology for commercial innovations.
We recommend identifying potential Phase III investors as early as possible. Your marketing strategy should enable you to better target your efforts in seeking Phase III commitments.
Two tactics will greatly facilitate your effort to identify potential investors:
Start at the top, with the president of the company you are targeting.
Do not try to sell anything.
What you should seek, and what many companies are willing to provide, is information on what specific product, service, or technology traits would enhance their interest in your project if you are successful in Phases I and II.
During your initial phone contacts note that you are interested in soliciting input from potential users of the innovations you anticipate will result from your project. Point out that you are aware that commercially successful innovations are "user or market driven."
Do not ruin your contact by indicating you are primarily interested in a sale. Prior to submission of your Phase I proposal, few large companies or venture capitalists are likely to be interested in making legally binding commitments to provide Phase III funding. These companies are familiar with the fact that R&D is highly risky, and that the risk is exceptionally great prior to a demonstration of technical feasibility (which is, of course, precisely what Phase I is designed to do).
Ask if you can visit their technical people to discuss your project. There is a remarkable amount of expertise in most large firms. Their comments can help you refine your project in a manner which will increase its chances of winning a federal award as well as attracting downstream funding from their company.
While you are with their technical people, explore possible relations. Would they be interested in serving as a subcontractor on Phases I and 11? Do they think that if you hit specific performance targets in the government funded Phases I and 11, their firm would be willing to provide Phase III money? Do they think their firm would sign a commitment to provide such funding contingent upon hitting those targets? Who has to sign off on such a commitment? In short, while you are seeking advice, also explore the dimensions of the relation you can establish.
Remember that the law requires that where Phase II proposals are judged to be of approximately equal technical merit, extra consideration in the evaluation process is to be given to those proposals accompanied by a non-federal follow-on funding commitment. This happens more often than you would think. Many agencies have many more proposals recommended for award than funds available, and it is difficult to judge whether one Phase II proposal is better than another when they are in different technical areas. Of course, follow-on funding commitments from recognized sources (or those otherwise judged to be credible) will carry more weight.
