SBIR Proposal Writing Basics

SBIR Proposal Writing Basics: A Need is Not a Market

Gail & Jim Greenwood, Greenwood Consulting Group, Inc.

If someone wants to buy the results of your SBIR or STTR project in Phase III, does that mean there is a market for your innovation? Maybe, but maybe not. There is a significant difference between someone wanting to buy and someone wanting to buy enough to make it profitable to sell it to them.

The world is full of unmet needs. Sometimes a need goes unmet because no one can figure out how to make money in return for meeting that need.

This "financial viability" of an SBIR/STTR topic can be based on a number of factors. First, it may be based on how many units of the service/product would be purchased. It may be possible to make money only when a substantial number of units are bought to help you recover fixed costs like gearing up for production, building a service call organization, etc. Second, financial viability often depends on whether there is more than one customer—greater security comes in having multiple customers so you are not reliant on just one and their success and preferences (by the way the government also likes you to have multiple customers under the theory that this drives down your price). Third, financial viability depends on whether the price that customers are willing to pay exceeds your cost to produce, distribute, and support the product or service. That’s where the silly axiom "we lose money on every unit but make up for it on volume" comes in.

A fourth component to financial viability is the cost of overcoming what are called "barriers to entry" to the market. These barriers are things that make it more difficult for newcomers (that's you) to enter an existing market. For example, if you develop the perfect car (safe, economical, attractive, roomy, washes itself, can be parked in a closet), you still face the formidable task of going toe-to-toe with the major auto makers in the world. They don’t have your technical superiority but do have established names reputations, dealers and repair shops located throughout the world, and the financial resources to survive a price war or recession during which your small business may go belly up.

The cold hard truth is that many of the topics found in the SBIR and STTR solicitations do not represent clear market opportunities in Phase III that are financially viable for you to pursue. Even in those solicitations that tell you what Phase III or commercialization opportunity exists by selling back to requesting agency, there is no promise that it makes financial sense to do so. Therefore, it is up to you to do enough homework before you write your proposal to convince yourself whether a market really exists.

"So what," you say, "if no Phase III opportunity exists? I can still get $100k for Phase I and $750k for Phase II and that’s better than nothing." Yes, it is better than nothing. But it is not as good as proposing on a topic for which there is a Phase III opportunity that may dwarf the $850k you get from the SBIR program. If you are going to all the effort of working on Phase I and II, wouldn’t you want to focus on a project that offers an opportunity to make even more money, and to continue to make money over time? Besides, you typical get only a7% profit rate on an SBIR award, so you need to get into Phase III if you plan to make any money off your innovation.