Stop SBIR Mills

What is SBIR?

The Small Business Innovation Research (SBIR) program was established by Congress in 1982 to strengthen the role of innovative small businesses in federally funded research and development. The program requires federal agencies with large R&D budgets to set aside a portion of their funding specifically for small businesses to conduct innovative research that has commercial potential.

Original Intent: SBIR was designed to:

• Stimulate technological innovation by funding high-risk, high-reward research in small businesses that might otherwise struggle to secure traditional funding
• Bridge the gap between basic research and commercial products, helping transform scientific discoveries into marketable technologies
• Strengthen national competitiveness by ensuring American small businesses remain at the forefront of technological advancement
• Support small business growth through a structured three-phase process: Phase I (feasibility), Phase II (development), and Phase III (commercialization)

The program has been remarkably successful in many ways, funding breakthrough innovations in defense, healthcare, energy, and other critical sectors while helping thousands of small businesses grow and create jobs.

Enter SBIR Mills

While SBIR has been remarkably successful in funding breakthrough innovations across defense, healthcare, energy, and other critical sectors, a concerning pattern has emerged. “SBIR mills” are firms that have mastered the art of winning SBIR awards but have largely failed to deliver on the program’s core promise of commercialization and market impact.

What SBIR Mills Do:

• Serial Award Winners: These firms specialize in submitting numerous Phase I and Phase II proposals, often winning hundreds of awards over many years
• Proposal Factories: They maintain large teams of technical writers and domain experts who craft compelling proposals, often recycling similar concepts across multiple solicitations
• Phase I/II Focus: They excel at winning early-stage funding but rarely progress to Phase III commercialization, where the real value creation occurs
• Resource Concentration: A small number of these firms capture an outsized portion of SBIR funding, potentially crowding out innovative startups that could bring fresh perspectives and genuine commercialization potential

The result is a system where taxpayer dollars fund an endless cycle of research without the breakthrough products and economic growth that SBIR was designed to produce.

Why This Threatens U.S. Innovation Leadership

The SBIR mills phenomenon creates a cascading series of problems that undermine America’s technological edge and economic competitiveness. Here’s why this pattern is so damaging:

• Stifles Fresh Innovation: When a handful of firms dominate SBIR funding, truly novel ideas from first-time entrants and mission-driven startups get squeezed out. The program becomes an exclusive club rather than an open gateway for breakthrough innovation.
• Weakens Commercialization Pipeline: Mills excel at winning research funding but consistently fail to deliver Phase III products. This creates a dangerous disconnect between federal R&D investment and actual market solutions that America needs.
• Distorts Market Signals: By gaming the system for perpetual funding, mills prevent the market from properly valuing genuine innovation and commercialization success. This misallocation of resources sends the wrong signals to entrepreneurs and investors about where real opportunities lie.
• Undermines National Security: In defense and critical technology sectors, the mills pattern means we’re funding endless prototypes without fielding operational capabilities. This leaves dangerous gaps in America’s technological arsenal when we need reliable, deployable solutions.
• Discourages Risk-Taking: When the same firms win repeatedly, it creates a perception that SBIR success requires “knowing the system” rather than having the best technology. This discourages bold, unconventional approaches from new entrants who could bring transformative innovations.
• Erodes Public Trust: Taxpayers expect SBIR to deliver tangible benefits for their investment. When funds disappear into endless research cycles without commercial outcomes, it erodes confidence in government R&D programs and makes it harder to secure future funding for legitimate innovation.

The cumulative effect is a innovation ecosystem where the same players win repeatedly, while the next generation of breakthrough technologies struggles to get off the ground. This threatens America’s long-term technological dominance and economic prosperity.

How Mills Block New Market Entrants

The SBIR mills phenomenon creates formidable barriers that prevent innovative startups from entering and competing in critical technology markets. SBIR was designed to be the U.S. government’s “front door” - a running start program where small businesses could get their foot in the door of federal contracting. But this door is now slammed shut by SBIR mills, leaving small businesses with no good entry point except to grovel at the feet of large prime contractors, where pass-through costs get passed to the customer. Here’s how this systemic issue blocks the next generation of American innovators:

• Resource Hoarding: Mills consume a disproportionate share of SBIR funding, leaving fewer opportunities for newcomers. With limited Phase I awards available each year, experienced mills crowd out first-time applicants who might bring breakthrough innovations but lack the proposal-writing expertise.
• Institutional Knowledge Advantage: Mills have spent years learning the intricacies of government contracting, topic selection, and evaluation criteria. They understand which agencies to target, how to structure proposals, and what reviewers respond to, giving them an unfair advantage over genuine innovators who focus on technology rather than bureaucracy.
• Topic Manipulation: Mills often work backwards from their capabilities, influencing topic selection or adapting existing technologies to fit solicitations. This leaves less room for truly novel approaches that don't fit the mills' established patterns and relationships.
• Network Effects: Mills develop extensive networks within government agencies, including relationships with Technical Point of Contacts (TPOCs) and program managers. These connections provide insider knowledge about upcoming opportunities and evaluation preferences, creating an uneven playing field.
• Proposal Quality Gap: Mills invest heavily in professional proposal writers, graphic designers, and subject matter experts who know how to craft compelling narratives. New entrants, especially small teams and solo entrepreneurs, often submit technically excellent proposals that are undermined by poor presentation or misunderstanding of evaluation criteria.
• Feedback Loop Exclusion: Mills benefit from repeated participation, learning from each submission and building institutional knowledge. New entrants rarely get detailed feedback on why they lost, making it difficult to improve and compete effectively in future rounds.

The result is a self-perpetuating system where the same firms win repeatedly, while potentially transformative technologies from new entrants never get the chance to prove themselves. This reduces competition, stifles diversity of thought, and limits America's access to the most innovative solutions in defense, healthcare, energy, and other critical sectors.

In defense markets specifically, this pattern is particularly concerning because it limits the Department of Defense's access to disruptive innovations that could provide asymmetric advantages against adversaries. When mills dominate, the military gets incremental improvements rather than revolutionary capabilities.

How to Correctly Align and Fix the SBIR Program