How to Navigate DoD SBIR Programs

with Tyler Sweatt
June 9, 2022

In this video, Tyler Sweatt, Chief Revenue Officer of Second Front Systems™, offers guidance on navigating the Department of Defense's Small Business Innovation Research (SBIR) program from earning a Phase I award to transitioning into a viable and mature DoD, commercial, or dual use solution in Phase III and beyond.

Read the full transcript below.

“One of the most commonly talked about, referenced, and discussed ways to get commercial technology into the U.S. government and specifically the Department of Defense is the Small Business Innovation Research [SBIR] program, commonly referred to as a SBIR. 

What SBIR does is it provides an opportunity either for a focused challenge, like there is a problem statement that has been written and you think your technology could be adapted or already meets that need, or it's an ‘Open Topic’ which is commonly done by the Air Force through AFWERX and AFVentures saying ‘hey, show us what you're working on, what do you have that's cool?’

Those are called Open Topics, and what you'll do is propose: ‘Hey I have this piece of technology, here’s how I think it can support the mission.’ You’re building a business case for it.

The Three Phases of SBIR: What to Expect and How to Succeed – 01:06

Phase I Objective: Discovery and Research – 01:17

SBIRs work in three phases. Phase I, usually discovery/research. Again, it'll depend who you're doing the SBIR with. Each organization is a little bit different. For the purposes of this, we'll talk a little bit more about the AFWERX SBIR. It is one of the biggest. Phase I for an Open Topic in AFWERX is a $50,000 reward. There are rumors the amount might change a little bit for those this year. 

The entire purpose of that Phase I is for you to find a customer. Think of it as a business development stipend. Here’s $50,000, use that to go do discovery in the Air Force. Go talk to users; AFWERX will usually put a list of different individuals, or organizations, the stuff they’re interested in, and the stuff they’re working on.

Your job during that Phase I is to confirm or deny if somebody or some unit in the Air Force would like to try your stuff out or would like to see you adapt your stuff, your technology, to meet some specific need they have.

That sounds really easy, but it takes a lot of work. You're chasing. It's a lot of phone calls. It's no different than any other business development effort you're going on, right? It's a bunch of interviews, it's a bunch of follow-up. If you are able to identify that, you then can move to submit a proposal for a Phase II.

Phase II Objective: Lock Down Your Government Customer and End User – 02:58

Phase II is a much more robust proposal. That Phase I proposal is normally a 5-10 page white paper, maybe a pitch deck, and then some compliance documentation through submission.

Phase II looks and feels like a government proposal. It's 15 to 25 pages, depending. It's got some pretty detailed pricing information in it. You can bring in letters of support. They give you a format on all the different stuff you need to hit, which should make it way easier, but if you start trying to write a whole bunch in each section you're going to run out of space real quick, so you need to take the Mark Twain approach, ‘Sorry it's so long, I wish I had more time!’

You’ve got to find a way to be brief with it. The biggest thing to be successful in an AFWERX Phase II is securing an memorandum of understanding (MOU). That MOU has to be signed by a highly empowered customer, and a highly empowered end user. The end user — the person who's going to actually use your software. The customer — the person who's going to buy the software. They can be the same person. They are often different people.

The reason it's done this way is so you don't start on this big project without someone who already understands the contracting process, the legal process, the finance process, and security on the other side. That's that sort of customer. That end user is the mission owner, the requirement owner who's going to benefit from the software. 

That's where it gets really important, and that's the work you want to do in your Phase I is really identifying and understanding your user. Understand their pain points. It's user discovery, but instead of looking for product-market fit, like we do in a pure B2B commercial sector, you're looking more for what we call product-mission fit. 

Does your product satisfy a mission need, and does it help a mission user execute their mission better, faster, cheaper, more secure? Pick your qualifier here. Having those two things can be quite compelling, because you're able to talk about the use case, you're able to talk about why. 

What's the value or the benefit going to be to the Air Force? And again while it might be a longer government proposal, it's a business case. They want to see commercial traction. ‘Hey, are you commercially viable? We don't want it to just be something that has to sustain through the Air Force.’

Let's say you get a Phase II. Phase II, they’re usually between three quarters of a million to like $1.25M. It's an opportunity to actually take that concept you were researching and validating in Phase I, build the prototype or the commercial adaptation of your software, and then you're starting at that point. 

The day you’re awarded a Phase II, you should start thinking about what are the funding cycles. What are the contracting cycles? What are the processes you need to get into? Because if you haven't learned yet, you will quickly learn, while the Department of Defense is the world's largest software buyer, it pivots about as fast as the Titanic, and any deviation from something that's already been planned is going to require a lot of political capital for somebody to go push it. 

And while to you and your piece of software is absolutely the most important thing going on, that Airman, or air person, or space person, or Navy person, or whoever probably has 20 different of you coming at them saying, ‘Hey I've got this cool piece of tech.’ They've got their day job, they've got their normal life, and they've got whatever crazy stuff is going on in their respective unit or service at the time. 

So you want to think, ‘How can I make this as easy as possible for my customer and my end user?’ When you think about it like that it sounds just like user experience, so you want the user experience of working with you to be one that sparks joy, one that sparks delight, one that is easy, because if you're successful and you can think about how to transition in a way that's easy for your customer they're gonna wanna do it, one. Two, you're gonna make them look good, which is also great. 

In line with thinking about financing and contracting early and understanding, plan for how you're gonna get an Authority to Operate (ATO) for your software. 

Phase III Objective: Pursue Commercialization – 07:56

I can't emphasize this enough—on day one start planning for an ATO, because the second you start talking about transitioning into a Phase III, or a program of record or anything: A) That's non-SBIR dollars, which means an organization is taking that money out of their budget to execute the purchase order, and B) The first question you're going to get asked is, ‘Do you have an ATO?’ because they can't use your software on their networks or with their data if you don't have an ATO. 

So you'll hear one side saying, ‘Oh no you'll get your ATO in Phase III.’ That briefs well, but flip it around and think about it. Would you buy a piece of software that didn't have the compliance or the regulatory certifications you required in your organization and say, ‘I'm gonna buy it now, and then, you know, when you catch up I'll use it?’ Would you do that? Because I wouldn't. 

That's the position we're putting companies in if we're not telling them to start thinking about this on day one, and then all of that, we've sort of just gone through it, but thinking about transition on day one. 

Who are your transition partners? Transition is moving off of that SBIR R&D dollar on to program dollars, on to hard customer dollars. Understanding, building championship, building adoption, building that requirement, that use case and that business case early is going to allow you to successfully transition. 

Getting to the end of your SBIR Phase II, looking at an Air Force customer and saying, ‘You ready for Phase III?,’ is gonna set you back a number of months. You've got opportunities for this, it's all laid out so you think about what that phase gives you. That Phase I gives you a hunting license, a hall pass to go talk to anybody you want to, and you can say, ‘Hey, we're a SBIR company, we've already been vetted by the government. I'd love to talk about what we're doing and see if it's potentially a fit.’ That's awesome. That SBIR Phase II gets you onto product-mission fit. ‘We're a Phase II company. We're building this new prototype. Love to better understand how your funding works? How does contracting work?’ You can be asking all of those in Phase I as well. It's giving you additional dollars, non-recurring engineering dollars, so you can build your product out a little more. 

If you understand those contracting accreditation transition pathways, that gives you the opportunity to not necessarily have to fork your product and have a government version of your product and a commercial version of your product.

If you take advantage of what that SBIR gives you and start thinking about the end state, you can decrease the need for rework because you're pulling those a little bit left in terms of a lens or a prioritization matrix, and you're able to be a little bit more thoughtful early with how you're doing adaptation, and how you're doing commercial roadmap development. You'll more often than not find some pretty interesting synergies in there.

Planning for transition early is allowing you to build that corporate business plan and that corporate strategy and you're not being reactionary and it's not like, ‘The government just told me to do this now.’

The government's already given you a map on what this looks like. Is it easy? No. Is it a lot of work? Is it a different sort of process than commercial? Absolutely. Are there people you can go talk to about it? Absolutely.

General Services Administration has an Office of Assisted Acquisition Services (AAS)’ that does SBIR to transitions to Phase III. Call a contracting officer or a program office and again network around. Build some relationships and ask. There are organizations like Dcode, like Decisive Point that exist and can help answer questions because they're doing tech acceleration. 

Go call somebody at DIU. Call somebody at AFVentures. Call somebody at NSIN, National Security Innovation Network. AFWERX has AMAs every couple weeks. There's the Defense Entrepreneurs Forum. If you can't find someone to answer the question you're probably doing it wrong, because there are so many resources there. Again, they require you to put forth the effort. 

You're gonna get out what you put in, but it's there. It's all there. It's all documented, and I think that's pretty awesome because that gives you the opportunity in the beginning. I mean you could do most of this before you even go for that Phase I and say, ‘If we're successful here, what's this gonna look like? How are we going to make a business plan?’ But the biggest mistake I see is people get a SBIR contract and they're like, ‘Awesome, I won,’ and they sort of sit back and they're like ‘Alright government, bring me that sweet sweet money,’ and they don't realize that now you're competing in open water. It's not just you trying to move to the next one. 

There are hundreds if not thousands of other SBIR companies. There are other contractors, so you've got to go put the effort in. Ultimately at the end of the day, what the SBIR does give you, that I think is different than anything else I've ever seen is, a SBIR contract means you have sole source justification, so if an organization comes in and says, ‘I really want your technology,’ they can just execute a new contract based off of your SBIR Phase I without having to go through a massive bid, and competition, and nine month requirements, and development. 

We all hear these horror stories on how long it takes the Department of Defense to buy technology. A SBIR lets you speed that up. It gives you not only, like we talked about, that ability to go talk to anybody you want, that SBIR Phase II lets you bring folks in to demo and do user testing and discovery and all of that. Both of those give you a justification to be able to go to a SBIR Phase III without having to go through another competitive cycle, meaning you're removing barriers to scale and to transition, but that scale is to make the Federal line of business a sustainable line of business. 

That's why it's important to take advantage of these by being thoughtful early on: what are those users, what are their problems, how do I get product-market fit? Okay, how is this going to be funded? How is it going to be accredited and what does that contracting process look like? If you're walking through that checklist and you're continually validating that as you're going, I think you're going to be in great shape.”

What is the difference between networking with government & commercial people? – 15:21

“So there's a premise there that it is different— yes I get a lot of flack for this. I don't think it's super different. I mean I've worked in pharmaceuticals, I've worked in hospitality, I've worked in finance and healthcare and aerospace and national security. I've consulted and advised, and it's empathy, emotional intelligence, and understanding somebody, and then knowing where they're going to be so you can go— and COVID has definitely added some challenges. 

But AFWERX does events all throughout the year. Capital Factory down in Austin [Texas] does an unbelievable job curating great events for folks. There are AFCEA and AFAs, and, I don't know, whoever else! All these different organizations. 

I'd flip it around and say, who are you trying to meet? What do they do? Look at the events that are happening in the industry. Where are they likely to be? Where are you likely to be able to bump into them in a relaxed setting so you're not just cold calling them or lobbing emails across. Is there a local chapter of some technology coalition that has an event up at Hanscom [Air Force Base]? Okay, PEO Digital will probably have somebody there. Is the CIO of the Air Force speaking somewhere? Great! You can bet that there will be a bunch of Air Force people in the audience there or around. Go find them. 

DoDIIS is a great way to find folks in defense intelligence and DIA [Defense Intelligence Agency]. Air Force Association, like we mentioned. So I think finding events like that are super useful. Defense Entrepreneurs Forum, and Naval Constellation, and some of those Slack groups that are out there are super useful. 

The beauty of the internet is you're like two clicks away from everybody. It used to be like six degrees of Kevin Bacon, I think. It's like two clicks of LinkedIn now and you're to anybody. So if you've got a good commercial network, like somebody can help introduce you, then it's a series of virtual coffees and asking around. 

If you ask questions, I have found that people love to share their ideas, and if you're genuinely interested and you come with a thoughtful question— or yeah you can have a bunch of really really good conversations and that'll allow business development down the road to be far more impactful. 

Are you going to sell a contract with just an introductory coffee? No. But if you want to understand how the customer organization works, what are the different levers that are driving behaviors? Better understand how your customers' incentivization model [works]. How do they get promoted? 

If you're selling something, it's really important to understand how it could benefit your customer. Do they get a raise? Do they get promoted? Does it give them some soft power in the organization that they can use? But that's where I see it is exactly— I would do exactly the same thing before I went into a large bank doing a digital transformation. I would understand: who are the winners, who are the losers, who stands to benefit, what's the outcome, is it cost savings, and who cares about that? And then you gotta go map it out. 

I think people are scared of the Department of Defense a lot because they're like ‘ah warfighters!’ It's a big bureaucratic organization that's no different from if you were bouncing around United Airlines or JP Morgan. They might wear something different, and they have different buzzwords but it's the same thing. Half of the time I was working with a big hospitality company helping them do a digital currency transformation, and a huge bank helping them do an enterprise IT transformation, and I was working with the National Security [Community] for the other half of my time. 

All four organizations that I was working with had the exact same problem and they all called it something different and they all believed that they were the only ones who had this problem and the problem was super different. So what that can create is a reinforcing effect that us on the outside are like, ‘I don't understand DoD.’ Okay, well what do you understand? Do you understand design? Do you understand architecture? Do you understand neuroscience? Whatever it is, bring that in and have that conversation to start and let that customer help you understand where it could marry up. 

That's the beauty of a SBIR program. If you don't have someone on your team you could dedicate to this full-time there are organizations like SBIR Advisors and like Long Capture that exist to help do some of the proposal writing, help identify customers and use cases, and stuff like that. Go take advantage of that because you'll get some learning out of that as well. Get a guide, a sherpa if you will. 

When I was bumping around freaking hospitality and everyone just kept saying revpar I was like, ‘What is revpar?’ And they were like revenue per available room, it's the only metric that matters. I was like, ‘It's like a USR report in the Army’ where like this one thing needs to be green or nothing else matters, alright, now I understand how to drive value in this organization. 

Planning for an ATO early – 21:11

Planning early for an ATO gives you the opportunity for a couple different things. You can build that in as a payable milestone in your SBIR Phase II. You can talk to your customers about funding it as an ODC [other direct costs] like another direct charge or material cost, and you're also identifying to what level do you require an ATO, because think about it, if you go out, you get an ATO at, we'll call it impact level [IL] 4, CUI information, controlled unclassified information, and you're all excited and you're like ‘hey we did it!’ 

Ring the bell and you get to the end of your SBIR Phase II and you haven't planned for it with your customer and they're like ‘well that's great but I need you at IL 6, I need you on SIPR [SIPRNet]’ and now you've got to go back and redo the whole thing. Conversely you didn’t plan for it and they're like ‘hey we can't transition you until you're accredited.’ 

That accreditation process can take— you know there are some solutions where it's quick, like with Game Warden®, and there are some solutions where it takes months and years. So if that's a barrier to you going through a successful transition, that's where that planning for it early [comes in]. What can stop you from transitioning? No customer funding, jacking up the contract process, and not having your software accredited. 

If you've got a user and you've got some sort of a product-market fit, you need those three things to transition and to scale. If you're missing one of them, you're in the hurt locker. If you're missing two of them, you're probably hosed, and if you're missing three of them, you shouldn't be watching this video! So, you're on the wrong YouTube channel.”

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