Nebraska SBIR April Newsletter

We regularly see Phase 1 and even Phase II proposals where the small business is proposing more technical work than they can possibly accomplish given the budget requested (which usually reflects the maximum budget allowed by the agency). This is a very dangerous practice, so we'll address it in this month's proposal writing tip.

There are probably three main reasons why companies over-propose on their SBIR/STTR projects. First, the proposer assumes that they will have a competitive advantage over other proposers because the reviewers will see what a massive project the agency will get. Second, the small business fell in love with the project at the concept stage, fell even deeper in love as they scoped out a beautiful (but huge) project, and then couldn’t bring themselves to back off to a more modest project when they realized they’d scoped an effort that is twice the size of the budget allowed. Third, quite bluntly, we see many SBIR/STTR proposals where the applicant company clearly does not understand government accounting and cost proposal concepts, and maybe isn’t too comfortable with business concepts like “profit.” Finally, we’ve heard the excuse that “we would have done the R&D anyway, so any SBIR/STTR funding we can get is helpful.”

All four causes have reasonable solutions. Let’s take them in order:

Competitive advantage: You wrote a project that can’t be done within the budget because you thought it would help get you the award. “The reviewer will see how much work they will get for the money, and decide to give us the award,” may be your internal logic. Well, you are right that the reviewers are probably clear that you are proposing to do more than you are asking for, budget-wise. But here’s where your logic fails: you think the over-proposing will lead to an advantage, whereas the typical reviewer assumes (a) you are not experienced or competent enough to know you’ve over-proposed, and that means you aren’t experienced or competent enough in which to invest SBIR/STTR funds, or (b) they’ll get blamed when your company goes belly-up trying to perform a bloated SBIR/STTR project. Therefore, your competitive advantage is really a competitive dis-advantage.

In Love with the Project: Start with the maximum dollar amount you can get from the agency. Subtract out a reasonable percentage for fee/profit (about 7%). Then subtract an estimated amount needed for non-labor direct costs like materials, travel, subcontracts. Now subtract a fraction of the remaining balance equal to your company’s indirect or F&A rate (since your indirect rate is usually expressed as a percentage of direct labor, this is the appropriate time to subtract out this amount). Now, how much money is left over? That’s approximately the amount you can afford to into the project, in terms of direct project labor. Now scope a project that you can perform for that dollar amount.

Don’t know indirect/F&A Rate: If you are going to be a government grant/contract recipient, you need to understand the rules under which you will play. Some of the most important rules are related to government procurement and accounting. No, this doesn’t mean you have to become a CPA, but you need to (a) know enough to make informed and intelligent business decisions and (b) who might be able to provide expertise to your firm in government accounting and budgets. Thinking hiring some help in this important area is too expensive? There’s a sample Phase 2 proposal on the Internet in which we count over $460k errors on a $1.2 million request—we are certain that company could have hired some outside help for less than 10% of the errors they made.

Don’t need the money: The logic behind SBIR/STTR is that you are proposing such a risky and innovative approach to a problem or opportunity that you could not possibly afford to assume that risk on your own. So, if you are now saying that you were willing to assume that risk, then you really don’t deserve SBIR/STTR funding, do you? If that’s the case, then don’t compete for SBIR/STTR funding. If it really is not the case, then start acting like a real company and propose projects that are within the budget limits of the agency and are affordable given your indirect/F&A rate.

Still not convinced that it’s a bad thing to over-propose on your SBIR/STTR project? Then consider the comments of not less than four Federal agencies that have said that “overly ambitious work plan” is one of the most common mistakes made by SBIR/STTR applicants.