Bridging the Phase 2 --> 3 gap

Gail & Jim Greenwood, Greenwood Consulting Group, Inc.
Copyright © 2005 by Greenwood Consulting Group, Inc.

We are seeing a problem with some of the Phase II proposals that we are reviewing these days: proposers are not making it clear how they intend to get from the end of their Phase II project to the market they hope to enter in Phase III.

Charles Cleland, SBIR program manager for the US Dept of Agriculture, has a visual example of what we're talking about. Charles shows a prototype of an automatic egg injection machine as it existed at the end of a USDA Phase II project. It looks efficient — much like a personal computer. Charles then shows the Phase III product, which looks nothing like the Phase II prototype. The Phase III product is made of stainless steel, incorporates a long conveyor belt, and is probably 20 times larger than the Phase II prototype.

So how did this USDA SBIR company get from the boxy, small prototype at the end of Phase II to the sleek, large product in Phase III? Hopefully it was fully explained in that company's Phase II proposal, but in many of the Phase II proposals we read, we don't have any confidence that the proposer appreciates the effort that will be required to convert their Phase II prototype into a Phase III product.

We offer the following suggestions as you prepare your Phase II proposal:

1. Have a vision of what the Phase III product will look like, based on important factors like feedback from potential customers, ease of manufacture and maintenance, advantages and drawbacks of competing products, and production cost.
   
2. Map out what actions will be required to take the prototype or outcome of the Phase II project and convert it into the envisioned Phase III product.
   
3. Assess whether you have the capability to make this conversion or whether you need to identify outside partners with appropriate expertise.
   
4. Estimate what the Phase II to Phase III conversion will cost, and identify where the needed funding will come from. Note that, in some cases, this may come through supplemental SBIR/STTR funding or funding from another agency, while in others it will require private resources like yourself and angel investors.
   
5. Establish a timeline for these prototype-to-producttasks. Be reasonable, but note crucial dates that must be met, such as situations in which your product will become a component to a larger system that is being deployed by a certain date.
   
6. Now put all of this important information into your Phase II proposal. Much of it may go into the commercialization plan, with perhaps a summary in the future or related R&D section.

We close with two final words of advice.

First, when you are mapping out your Phase II prototype to Phase III product plan, you may conclude that the effort required far exceeds the potential benefits from selling the Phase III product. This is unfortunate but very important information and may affect your decision whether to pursue the Phase II project.

Second, you need to talk topotential customers and Phase III partners during your Phase I project so that you can develop the Phase II to Phase III vision (remember that with agencies which make their SBIR/STTR awards as contracts often will be the primary customer, whereas agencies making their awards as grants usually expect you to sell to customers outside of their agency). Too many SBIR/STTR companies wait until the second year of their Phase II project to start thinking about commercialization, which is too late. In fact, you should have a pretty good idea of the Phase II prototype to Phase III product conversion before you write the Phase I proposal. Having this vision will help you write a better Phase I proposal and can even help you decide whether you should propose on a particular Phase I topic.

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