Miscellaneous Stories 1998-99

Stories that earlier appeared in Nelson's News 
Note 1: Carl Nelson Consulting, Inc is not an investment adviser and may hold a financial interest or client relationship in companies discussed.
(Note 2: Carl Nelson Consulting does not endorse these companies or organizations or their activities.) 
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The Greatest Century Ever. There has been more material progress in the United States in the 20th century than there was in the entire world in all the previous centuries combined. Almost every indicator of health, wealth, safety, nutrition, affordability and availability of consumer goods and services, environmental quality, and social conditions indicates rapid improvement over the past century. The gains have been most pronounced for women and minorities. Among the most heartening trends discussed in this study are the following: life expectancy has increased by 30 years; infant mortality rates have fallen 10-fold; the number of cases of (and the death rate from) the major killer diseases such as tuberculosis, polio, typhoid, whooping cough, and pneumonia has fallen to fewer than 50 per 100,000; air quality has improved by about 30 percent in major cities since 1977; agricultural productivity has risen 5- to 10-fold; real per capita gross domestic product has risen from $4,800 to $31,500; and real wages have nearly quadrupled from $3.45 an hour to $12.50. [ CATO Institute Policy Analysis 364 by Steven Moore and the late Julian Simon.] Are Scientists So Necessary? What is certainly clear and is borne out by the histories of England, France, the US, Japan, and Russia over the past two and a half centuries or so is that a top quality science establishment and a high degree of scientific originality have been neither a necessary nor a sufficient condition for technological dynamism. .. LJ Henderson's pithy observation that science has been far more indebted to the steam engine than the steam engine has been to science. [N Rosenberg, Inside the Black Box: Technology and Economics, Cambridge 1982. Heresy. Apostasy. Even perhaps blasphemy against the God of government-funded science. The AAAS must have tried to burn Rosenberg at the stake.
Tech Jobs Are Everywhere. Move over, Silicon Valley. California's high-tech world is about to be eclipsed by the likes of Louisiana and Arkansas as national hot spots for new technology hiring. And Southern states like Florida and Georgia are expected to run a close second in the demand for newly created technology jobs through the year 2000, followed by New England. So says a new study by Computerworld, a Framingham-based information services company that has surveyed more than 1,900 major companies. The study found the hottest market for technology jobs is expected to be in the South and in the central Southwest. New England is pegged to be third. California - despite its spot as the nation's technology center - is a distant sixth. The reason for this shift: Companies across the nation are rushing into the Internet age, and many of them need new technology to compete. [Boston Globe, Dec 28] Should SBIR follow or exploit this trend by deliberately moving awards to the have-not states? Depends on what you think SBIR is. If it is a redistributional scheme for federal dollars, why not? If it a national economic competitiveness scheme, no way, let the best win wherever they are. If it is merely a palliative for small companies, who cares how the money is spent? Unfortunately for the nation, SBIR as managed by the federal agencies is mostly a combination of redistribution and palliative; national economic competitiveness is not now and never was an objective of the mission agencies who have most of the SBIR money.

More Millenial Triumphalism Wealth was and is now being created in America at rates not seen since the second industrial revolution at the end of the 19th century. The 1990s are notAmerica's best decade economically - the 1960s were better. But relative to the performance in the rest of the world, the 1990s represent America's besteconomic performance of the century. [Lester Thurow, Boston Globe, Dec 28]

Fear and Greed In most of the world, Santa Claus shows up only once a year. In Silicon Valley, however, he seems to have taken up permanent residence. Every day is Christmas here. Technology stocks keep zooming upward. New issues routinely double or triple in value on their first day of trading. Entrepreneurs have an easy time finding backers. High-tech companies that barely exist are bought out for hundreds of millions. Best of all, everyone else now acknowledges what the people here have been saying for some time: The Internet will indeed reshape everything about our lives. But if the present is glorious and the long-term horizon truly wondrous for the inhabitants of Silicon Valley, the immediate future is causing some unease. They're waiting for the bubble to burst and doom to arrive, at least temporarily. Some have been waiting a long time. "In such good times, never has there been such anxiety about the impending crash," said Bill Reichert, president of Garage.com, which funds start-up companies. .. The [Red Herring editor and writer Tonya and Mike] Perkinses estimate that the 133 Internet companies that have gone public since 1995 are overvalued by as much as $230 billion. ... the new-issues market has generally been torrid. From 1984 through 1998, according to one estimate, 7,000 companies went public. Only 33 of them doubled on the first day. Last year, more than 500 companies went public, the majority of them high-tech firms. More than 100 doubled. .. Older venture capitalists, who know there are such things as bear markets, admit they're bewildered. "This is the most confusing time in the 26 years I've been doing this," said Baker of Sutter Hill. "There's this fundamental contradiction--there is the biggest financial speculation going on in many decades, many centuries, maybe ever. But the Internet is real--it's the biggest economic discontinuity since the invention of the printing press." ... What has prevented that second group of companies from deflating so far is the unending supply of cheap capital. It's easy to get a company funded here by venture capitalists, and then easy to take it public and raise more money. But since it's so easy, everyone's doing it--which means it's just as hard as ever to build something lasting. The most successful tech companies have traditionally had core businesses that were hard for rivals to replicate. One reason Microsoft has always been highly valued is that it would be difficult to start an operating system company in your garage to compete with Windows. [Washington Post, Dec 25]
Madness? Hardly.. Veteran stock market commentators are reaching deep into their bag of colorful images to explain the current rally. Grumpy remarks have been made with predictable consistency over the last several years, imparting advice that if taken would have cost ordinary investors billions of dollars in forgone stock market gains. But as the New Year approaches, naysayers and even voices of moderation are desperately seeking an audience. Investors facing the New Year are more interested in grabbing a piece of the New Economy. Improved data-gathering methods by the Commerce Department reveal for the first time actual components of today's economy that imply rationality in current stock market sentiment. Economist Susan Sterne at Economic Analysis Associates came up with a Top 10 list of the fastest-growing items on our shopping list. Based on year-over-year gains in unit sales, the 10 fastest growing consumer items are the following: Internet services, up 82%; computers and computer peripherals, up 57%; video equipment and media, up 30%; new foreign automobiles, up 29%; film developing, up 27%; commercial amusements, up 24%; stock brokerage commissions, up 22%; cellular telephone service, up 20%; casino gambling, up 20%, and luggage, up 19%. Students of American culture could make much from this data. Each entry not to mention the items that have fallen from favor, such as restaurant meals, spectator sports and cable television tells a story about Americans at the turn of the century. But from the standpoint of investors, the data help validate the bullish trend in technology stocks. Each of the Top 10, with the possible exception of luggage, represents a technology-dependent industry. Just as important, for eight of the 10 items (excluding commercial amusements and casino gambling) prices have declined from 12 months ago, despite sharply increased demand. Indicating that consumers are price-sensitive, nine of the 10 items showing a decline in unit sales from last year had price increases averaging 6.5%, well above the 1.8% average price increase for retail goods and services. "Over three quarters of the top 30 spending areas are seeing price deflation, and the majority represent some element of new technology making forecasting a slowing [in consumer spending] more treacherous," Madness? Hardly. [Bill Barnhart, Chicago Tribune, Dec 25]
What's the message for SBIR exploiters? If your new technology doesn't have a price-driven market penetrator, it's going nowhere. Everybody's got sweet technology and most of the government SBIR agencies cannot tell market-driven technology or entrepreneurs, even if they cared.You have to decide what kind of creature you are: a seller to government or an market-driven entrepreneur. If the latter, avoid hyping your technology independent of good market analysis. And no, the better mouse-trap approach will get you nowhere.

Y2Buy The Red Herring's ten recommended tech stocks for the next how many years: Broadcom, Charles Schwab, Cisco, CMGI, Dell, EMC, Microsoftt, Nokia, Sun, Time Warner, S&P500. The runner-up ten: AOL, Apple, T, Compaq, Disney, HP, IBM, Kucent, Oracle, Yahoo.

So You Thinks It's All New?. 100 years ago, boom looked just as bright. As the end of the century approaches, the US is an economic juggernaut, the envy of the world. Investors, riding a wave of euphoria, flock to the financial markets in an unprecedented speculative flurry. A century ago, it wasn't so different. The 1899 parallels with today's booming economy are remarkable. Then, as now, the Dow Jones industrial average rallied in the final three years of the century, about 70 percent through the end of November in both cases. Commentators saw similar reasons for the gains: globalization, technological improvements, medical discoveries, the move to a market versus a command economy. The Dow industrials shot to records, as road, metal, and communications companies merged and investments poured into new enterprises. Stock-market volume soared to new highs. Million-share days became common on the exchange, just as, 100 years later, billion-share days have become routine. Even the one or two stray clouds on the horizon seem similar. In 1899, much trepidation arose over a rise in the Bank of England's discount rate to more than 6 percent, to curb excessive strength in the economy. This year, the 30-year bond yield's move above 6 percent has caused similar distress. In 1899, the bulls were stampeded by an unfavorable Supreme Court decision on a merger involving Addison Pipe. Today, antitrust regulators are going after Microsoft, periodically scaring the daylights out of the market. The hopes of the 19th-century optimists have largely been achieved. Life expectancy has now doubled. The cost of a long-distance call and a unit of illumination have each decreased some 99 percent. The number of public stockholders around the world has grown 100-fold. The standard of living of the average Jane and Joe today is, in many respects, higher than for everybody but the kings and queens of 100 years ago, in food, housing, medical care, and entertainment. From 1899 to 1999, the Dow average rose from 66 to 11,000. Adding in dividends of about 3 percent, that works out to a compounded return of 8 percent. An investment of $100 in the Dow average in 1899 would be worth $280,000 today. General Electric Co., one of the 12 Dow stocks in 1899, sells for about 150 today, some 20 percent above where it traded 100 years ago. But that's not counting dividends and the fact that one 1899 share of GE would be 400 shares today, because of stock splits. That's before the 3-for-1 split that GE plans in January. That same $100 invested in GE would have grown to $8.3 million, taking splits and dividends into account. That's by no means atypical. Many drug and chemicals companies, as well as office-equipment makers including International Business Machines Corp., have shown similar returns. The sobering facts should be taken against the backdrop of the relative insignificance of any short-term ripples in the steady returns that may be expected from stocks in the 21st century. [Laurel Kenner, Bloomberg News, 12/26/1999, from Boston Globe Dec 26].

If a Boat Person Can Do It. Trung Dung became fabulously rich Friday, and he said what everyone who becomes fabulously rich in Silicon Valley says: Dung fled Vietnam for a life as a student, janitor, dishwasher and now software mogul. His company, OnDisplay, went public Friday, selling its stock into a market headed for record highs. By day's end, Dung's paper fortune was about $85M. The company he founded, the company built on his Internet technology, had raised about $90M. Its stock, offered at $28, closed at $77, not only making him rich, but lining the pockets of all 170 company employees. [San Jose Mercury, Dec 18] Now, why is it that the government needs SBIR to support commercialization in the software industry? Little matter since the government support for software is almost exclusively in government-use software anyway. Most agencies either don't know beans about commercial software or don't care. Or both.Where is there any evidence that SBIR has made any difference in commercial software adootpion? Would the government not have chosen the same software jobs without SBIR? Where is any evidence that government sofdtware is better off for SBIR - better, that is, than without SBIR? A few nice stories about government buying software from SBIR companies is not compelling evidence of anything. Dung`s Story. Dung, then 17, was fleeing Vietnam with 40 others in a 60-foot fishing boat. He was leaving behind his family, including an army officer father who had been thrown into prison when Saigon fell. Since he was 8, Dung had fished for his familys food and helped his mother run a cafe. His job was to get up before dawn to haul water from the well to the coffee shop. Eventually his mother told him there was no future in Vietnam. No chance for an education. Go, she said, and send for the family when you can. After a week of seasickness, Dung`s boat crashed into an oil rig off Indonesia, and Dung and the others were taken to a refugee camp. He lived there for a year. Dung immigrated to Boston under a U.S. resettlement program. He lived with his older sister, who had fled separately. They shared a four-bedroom apartment with 10 others. Dung passed his high school equivalency test on his first try and enrolled at the University of Massachusetts. He worked weekends as a janitor and nights as a dishwasher. He studied non-stop, says sister Hahn Dung. `I had to cook for him,` she says,`I had to clean for him. I have to bring him food at the computer. I said, `Later on, when youre a success, you`ll have to pay me`Oh, he did. Dung granted Hahn, 34, and younger sister Thao Dung, 29, a total of 400,000 shares, worth about $31M at Fridays close. Trung Dung finished his math and computer science double major in three years. He got his masters, his Ph.D., all the while contemplating the power of programming. In 1990, his family -- mother, father and sisters -- were reunited in Boston. His father, former Lt. Col. Doi Dung, now 60, had served 13 years in a prison camp. About that time, Trung Dung went to work for a Massachusetts software start-up and then another. As the Web age dawned, he began working on a way to automatically collect related information from unrelated Web sites. The idea was good enough, he decided, to build a company around. He enlisted Mark Pine, a former Sybase executive, as CEO. Pine had no interest in moving east. So in 1996, Dung moved west and OnDisplay was born.

the most striking development in the New Economy for many has been the end of the 40-hour week: Americans now log more hours on the job than workers in any other industrialized nation. [Business Week,Dec 27]

Chips, storage and bandwidth. All three core technologies mare headed toward infinite powers at zero cost. Bandwidth is progressing the fastest, then chips. Infinite demand It really does exist for chips, storage oand bandwidth. Software constantly soaks up capacity, and it always will. Risk Capital It's raining down. Every hour yet another college dropout in Palo Alto scores his Series A roiund of venture capital at a $20M valuation. Every hour a colonel from the old ecopnomy smells the money and goes AWOL in a mad dash for seven-digit stock options.
[Rich Karlgaard, publisher of Forbes, Dec 27]
The time from invention of the ball point pen to application was 58 years; for the zip fastener 32 years. [Prospect, Jan 99]
Got a hot recruitment problem? Need the right guy NOW? eBay needed someone to stop the hemoraghing of business from system crashes. The CEO called the headhunter who said there were ten people who could do it, who "had the courage to pull the brake on a car goung 2000mph". He was Maynard Webb, CIO for Gateway 2000. Seventeen days and zillions of phone calls later, eBay offered Webb $450K salary, $108K signing bonus, and extra $300K is things went well, and options to buy 500K shares (which would be worth nothing if Webb couldn't make things a lot better). [facts from Forbes, Dec 13] Now, if you're an SBIR company, too bad. The government will never reimburse you for such compensation regardless of how critical your need is. But then, if you are the hot commercialization prospect you claimed to be in your proposal and in government tech transfer rags, you know you have to pay the market price for any commodity.

Today's mind-boggling pace of technological innovation may soon create backlash in the marketplace. None other than Intel (INTC) Chairman Andrew Grove worries that rapid advances in the computer industry might not be digestible by society, leading to lower consumer spending and lower corporate investment. Companies such as Monsanto Co. (MTC) may be at the frontiers of biotechnology research, but consumers, beginning to worry about the safety of genetically engineered food, are already slowing down their commercialization. [J Garten, Business Week, Dec 13]

Entropic Acquired
(Nov 1) Entropic Inc (Washington DC), a speech recognition software house, has agreed to be acquired by Microsoft. Entropic's operation in Cambridge will remain and the Washington headquarters will evaporate along with two top people. It had two Phase 2 SBIRs from DOD in the early 1990s, one of which was on speech processing the PI of which will be one of the two evaporatees. According to one insider, the cash consolation for departure will be sweet.

INC 500 List
(Oct 25) The Inc 500 list was half info-tech and 15% California which had more than the next three combined. Two are recognizable SBIR names - E-Tek Dynamics and Vixel both doing right well after IPOs which by itself disqualifies them anyway from the list. The list goes on-line Nov 1 at inc.com. Past listees: Microsoft, Oracle, Domino's Pizza, E*Trade, Gateway 2000, Intuit, Wordperfect. Criterion is revenue growth percent over five years with the least being 595%. Four others have had some SBIR:
Advanced Modular Power Systems (Ann Arbor, MI) grew steadily it says from Ford's adoption of its liquid sodium power cell and a steady government interest. NASA and SDIO invested in it in the 80s and early 90s. The Website amazingly shows annual revenues but no details on how much comes from government space contracts or whether there are any product sales and nothing about the competitive economics (just the usual techno-blather). . But someone is pouring money into it which is the supposed objective of SBIR. Barely profitable. Caelum Research (Silver Spring, MD) had a few SBIRs and a growth rate of 1200%. But. The Website has the usual blather, it is an 8(a) firm, and its chief revenue source may well be 8(a) favored service support and not new technology development. The SBIR subjects sound too much like one-off jobs for government customers. 8(a) firms often crash after they lose the status and the contracts run out. Barely profitable. a href="http://www.doc.com/">Digital Optics (Charlotte, NC) had two Phase 2s, 1992 and 1996, and has grown 1800%. It started in a Charlotte incubator in 1992 and had $1.6M from ATP. Not profitable. AI Signal Research (Huntsville, AL) had two Phase 2s for analysis of noise and vibration. Sales rose 3400% but it is barely profitable. (no apparent Website)
Is the government proud of having a minuscule part in the most dynamic companies in the country in its allegedly seed money for technology programs? Ask them at the SBIR National Conference in Las Vegas Nov 21-23. You'll hear various rationalizations for hurling $1B a year at R&D service contract houses. Then ask the other 494 high tech companies on the list why they did so well without government succor.

The BU Photonics Center, a politically inspired $80M showpiece, claims its first business success - Mosaic Technologies which says it has commercialized optical fiber based biomedical devices to rapidly detect bacteria and viruses in human blood. Mosaic was started five years ago by an MIT gang of and joined the Photonics Center two years later. Mosaic now has about 30 members of staff and has attracted funding of about $6.5M. Whether such a center is worth the money depends on how you value the money. Politicians love such things because it will be years, and probably an eternity, before any decent evaluation ever appears. Meanwhile, the Center keeps press releases flowing and the Congressional politicians pressure the executive Branch to "invest" there. Of course, if one state has one, each other state with the same two Senators gets an equivalent temple. Alaska, Mississippi, etc. And why cannot the Congress keep spending in check? Why should it when there are votes to be bought with such temples?

Latest business selections from The Book Club in Hell:
1. "The Big Book of Worst-Case Scenarios"
2. "It's Only Going to Get Worse"
3. "Desperation Hiring: The Art and Science of Scraping the Bottom of the Barrel"
4. "168 Careers Wearing Paper Hats"
5. " `Do You Have Any Toilet Paper in There?'--Tricks of Networking in Public Restrooms"
6. "Has Anyone Seen My Book on Getting Organized?"
7. "God Doesn't Care Who Wins"
8. " `Wanna See My Thong?' and Other Icebreakers for Ambitious Employees Seeking Mentors"
9. "It'll Have To Do: A Manager's Guide to Compromising Standards"
10. "Buy My How-to-Succeed Book Before I Starve to Death"
If you're like me, you don't read business books for pleasure, much less for silly gimmicks, but for ideas. And after sorting through thousands of business books, I can conclude that your odds of finding useful ideas soar when the books are one of two types: biographies or "best practices" collections. The most useful autobiography I've found, the one with the most ideas per dollar, is Sam Walton's "Made in America." It's not just Walton's own story, but a collection of everything he learned from his competitors and from his stores and employees. .... You can spot plenty in the autobiographies of Dave Thomas of Wendy's ("Dave's Way") or the late Brandon Tartikoff of NBC ("The Last Great Ride"), or in collections of ideas such as Bob Nelson's "1,001 Ways to Reward Employees" or Jay Conrad Levinson's "Guerrilla" books.... The Chinese have a saying that a book is like a garden you carry in your pocket. A good business book should be like carrying packets of seed in your pocket.
[Dale Dauten, King Features Syndicate, Chicago Tribune, Oct 3]

Read The Original Newton. After losing the Ryder Cup to a bunch of golf hooligans, the Brits have lost Newton too. A SECRET deal between Keele University and a book dealer has resulted in Sir Isaac Newton's private library and some of his original manuscripts being exported to America,. The deal has infuriated Chris Smith, the culture secretary, who has ordered officials to draw up new rules to control the export of historic books and artifacts. [Jonathan Leake, The Sunday Times, Sep 26]

It's always a good time to invest in technology. We're in the early stages of the third major generation of the technology revolution. The first generation was the mainframe. The second was client-server computing. Now, we are in the Internet stage, and there is nothing on the horizon that will succeed this. A significant amount of global gross domestic product will be digitized through the Net. Every investor needs to participate in this explosion. ...We try to pick tomorrow's winners. The Internet is the future of technology, and if you're not [invested] in the Internet, you're not in technology. [Alberto Vilar, Amerindo Technology Fund manager, Business Week, Sep 6]

Just as he began his research, a Japanese university scientist made a breakthrough that transformed gallium nitride into a contender; Nakamura then perfected a cheap way to make the stuff. Today Nichia gets 50% of its revenues from LEDs. An additional $2 million comes from another of Nakamura's inventions--the world's first blue-violet semiconductor laser, which allows videodisks to store four times as much information as they can with longer-wave red lasers. Despite the patents, Nichia has serious competitors in the blue LED business. One of them is Agilent Technologies, the recent scientific instruments spinoff from Hewlett-Packard. Nichia's blue LEDs, though, are brighter than Agilent's, producing 10 lumens of useful output per watt of input, while Agilent can do only half the lumens per watt. (Compare the 100-watt incandescent in your bridge lamp: It does 17 lumens per watt.) Nakamura doesn't stand to profit from his work; the patents belong to his employer. Innovation may have come to Japan. But apparently the rewards of entrepreneurship haven't. [Forbes, Sep 20] If you are going to propose GaN or any other LED to SBIR, you ought to forecast your strategic position IF YOU SUCCEED. Otherwise you are just a science hobbyist hoping for a government handout.

California doesn't have a good or bad business climate. It has a lousy business climate if you're in petrochemicals. But it has a thousand different business climates, depending on the industry or location. The same is also true for small high-tech business. Think microclimate, not macro. [Roger Dunstan California Research Bureau, quoted WSJ, Aug 25]

New Technology Eventually Becomes A Commodity When price is the sales discriminator, you are a commodity. Komag Inc., the leading maker of disks used in computer disk drives, announced Wednesday that it will cut another 480 local jobs, or 54 percent of its remaining U.S. workforce, and close two San Jose plants. San Jose-based Komag, which said earlier this summer it would cut 900 jobs, will shift its production from San Jose to manufacturing facilities in Malaysia. Komag is the world's largest independent supplier of magnetic thin-film disk ``platters'' that store digital information inside hard drives. Whatever your innovative idea, you don't make big money until your stuff approaches commodity stage. Then you, the inventor, tech genius, are irrelevant. Plan for your irrelevancy.

Only in high tech do consumers expect most products to emerge from the box with problems; almost any dreck thrown on the market survives long enough for version 3.1 to ''engineer out'' the most egregious stupidities. So what's the fix? Cooper says it's conceptually simple: Do fewer things better and always consider the user's experience - keep ''interaction design'' in mind from start to finish. This would produce what Cooper calls ''polite'' software that doesn't make a user feel stupid or incompetent, instead serving reliably, cheerfully and easily. [Charles Piller, Los Angeles Times]

[Economist] Robert Solow likes to say that there are two kinds of economists: those who look for general results and those who look for illuminating examples. [Paul Krugman, Slate, Aug 18] So too with SBIR evaluations: economic results or success anecdotes. Pick the approach that make you comfortable, not the one that best evaluates the agency or government program. Most pick the success stories to avoid messy problems with consistency and closure. But they get what they pay for - useless analyses.

Is Anyone in Silicon Valley Still Making Things? asks Po Bronson (author). Has the cutting edge of technology left Silicon Valley behind? As the valley's venture capitalists pour money into "dot commerce" ventures, are they ignoring more important innovations? ... MIT has a weighty legacy of inspiring can-doers to take bold, often impractical risks. And wonder of wonders, they're still making things here. Engineering hasn't been completely co-opted by Web programming. Past midnight and into the next morning, I was given some astonishing demonstrations. After a spring spent in the inspiration-parched valley, it nourished me to bathe in such fertile and raw invention. .. Among my most memorable encounters was one with 25-year-old Gregg Favalora, founder of Actuality Systems. In the basement of the house he shares with four physicists, he has set up the midscale prototype for what could be the display device of the next century. .. This was Mr. Favalora's senior project at Yale, and the old prototype he donated to the campus still runs 14 trouble-free hours a day, three years later. He took his work to Harvard to pursue a doctorate in engineering, but along the road was named a runner-up of the prestigious MIT 50K Entrepreneurship Competition. .. Favalora's business tactics are solid. Because his project is so cool, engineers are happy to work for equity stakes. ... as chairman he recruited Rob Ryan, the founder of Ascend Communications, who also runs an entrepreneurs boot camp in Montana. Mr. Ryan has no trouble opening doors for Mr. Favalora. A single phone call and the prime-time Monday-morning slot is cleared on the schedule of first-tier venture capitalists. After making his presentation, the response Mr. Favalora hears is, appropriately, "Wow!" and then, predictably, "Great Team!" and then, sadly: "But we're only investing in dot-coms." They began to talk less about return on capital than return on time invested. Five years ago, venture capitalists would have thrown money at Mr. Favalora's company. Even today, I don't think he's going to have any trouble getting angel funding from obvious corporate partners - biotech firms and 3-D software companies and entertainment giants. But the point is clear: Just because venture-capital investments this year will dwarf last year's record $5.7 billion, don't presume they're funding the technology of the future. ... Many venture firms were in the midst of raising their fifth fund. While previous funds promised to get the capital pool fully invested in startups in three to four years, the new funds promised to repeat the feat in just a year or two. They no longer have the luxury to look far and wide for the next big thing. Most were content to look for the next little thing. They began to talk less about return on capital than return on time invested. [Wall Street Journal, August 16] If you ever want inspiration on writing SBIR proposals, read Bronson. Here Bronson adds volume to the SBIR advocates' cry that VC is ignoring good technology. Which is true of most SBIR-funded projects. No VC would touch them - ever - even if dot.com weren't competing for so much of the money. But the not-too-careful reader would fall for the advocates' line. Nor would almost any agency have funded Favalora's dream even if he had asked.

Have you given any thought to where your business is going to be in 2008? If you don't have some wild ideas, go out and find some. What if...? [JR Garber, Forbes, 11/2/98] If you are going to propose SBIR to the government, you might try some forecasting that captures the imagination of the reviewers. Yes, they do have imagination. That's why they are working in the field they are.

The New World of Business As recently as 10 years ago, most business leaders thought they had figured out the logic of global competition. The 21st century would belong to Asia, whose fast-growing economies would eclipse the slower-growing markets of Europe and North America. The 21st century would belong to Japanese companies, which had perfected a model of management that their US rivals were scrambling to copy. The 21st century would belong to a small collection of dominant global brands, as ever-higher barriers to entry would put even the most savvy entrepreneurs at a crucial disadvantage. Sound familiar? It's the rationale for SBIR and its 1992 doubling. What a difference a decade makes! Asia is in retreat, Japanese companies are struggling to mimic their American rivals, and the Internet has unleashed an explosion of start-up driven challenges to established players in almost every industry. [Fast Company, Aug 99] So, if the rationale has evaporated, shouldn't SBIR be increased? Or changed to some other rationale with an accompanying shift in purpose?

Eric Brewer of Inktomi put it best when he explained that when you are involved with a startup, every moment in the history of the startup may be the moment when it could go either way. [Tony Perkins, editor, The Red Herring]

More Workers Needed. With the US birth rate only 1.6 per woman and the economy rising, the pundits like Gilder and Drucker find it easy to project a continuing worker shortage. So does the US Senate as it proposes yet another immigration increase to 200,000 for high-tech industries for three years. Gramm's proposal would expand the program well beyond the present 115,000 which itself was a boost from 65,000. Oh sure, the protectionists and the nationalists will screech. Just hear Pat Buchanan. Subtraction.com All three Internet-related initial public stock offerings ended their first day of trading under water--the latest sign that the Net IPO craze has taken a dramatic turn back to Earth. [LA Times, Aug 4] Is that good or bad for SBIR companies? For good companies making some profit with realistic products it will divert the attention of a lot of risk-takers to what was once the cream of IPOs - money makers. Companies like AstroPower.

I believe we're in the midst of the third Industrial Revolution, the name of the game is start the new and shut down the old. That's a game we're super at. In Japan if you go to an engineering class at the University of Tokyo, they basically give an A for a guy who figures out how to make something 1 percent better. At a place like MIT or Stanford or Berkeley, that's a B-. We give an A to somebody who has a great new idea, even if it doesn't quite work! ... People tend to forget that in 1984 Intel was being ``run out of business'' and it couldn't make DRAMs with Japanese defect levels. It never does succeed in making DRAMs. But it then invents the microprocessor, and the great thing about the microprocessor is you can invent a new one every 18 months, and it conquers the semiconductor business. [Lester Thurow, San Jose Mercury, Aug 2] Did Intel look for a government handout for its transition or for a protection program?

economist Mancur Olsen, in examining why great economies lose their dynamism, emphasized the rise of special interests that win protections and clog up the gears of a market economy; although he was writing about the West, the same analysis applies to ...(?) [ND Kristof, New York Times, Aug 1] In this case, Japan, which has high per minute phone charges and thus little Internet connection, expensive junk mail, and no book discounts. But Japan's politics reminds one of the US Senate's disproportionate influence of empty states that flows from the Constitutional compromise of 1787. Fortunately, we have had a string of Presidents who saw the great benefit of free-trade and suppressed the bleatings of special interests. The President is, after all, the only nationally elected official that has to balance commodity sellers with Internet providers.


Now in its third year, the spring ''Entrepreneur's Challenge'' business-plan contest, run by a student group, has taken on the drama of National Football League draft day. Students are invited to submit startup ideas and have them critiqued by some of the biggest venture backers in the Valley. The nominal prize is $25,000, provided by a local VC firm. But venture capitalists routinely push business cards at students whose ideas don't even make the final cut. ''If you have a good idea, you have money available,'' says Kristen D. Growney, a business school student whose ''Summit'' team came up with a women-oriented E-commerce site idea that was a recent winner. She subsequently discussed financing ranging from $250,000 to $1 million with Valley venture capitalists. [Business Week, Aug 2] Is this the "market-failure" that SBIR uses for justification? VCs falling over students to invest in their innovations? Will SBIR's investments steer the VCs away from Stanford students and toward randomly located scientists? medical research emanating from government-funded labs has provided us with a leg up in biotech, scanning devices, and a range of pharmaceuticals. These government research dollars have been, for the most part, phenomenally well spent, yielding social rates of return on the order of double the private rate of return. Moreover, when we increase spending on public-sector R&D, increases in private sector R&D spending tend to follow within as little as a year. Thus a dollar shifted from reducing the federal debt to public investment yields a powerful growth premium. [Barry Bluestone, The New Republic, Aug 9]
David Birch on the high-tech future:
Unemployment will do nothing but drop for the next 60 years. ...

we've sen nothing compared to what is coming. Most of what is going on with computers today is doing what we have always done, just a little faster or a little more easily. And probably 95% of all business computing is word processing, spreadsheet analysis. It is not rocket science. If we took all the computers out of all the businesses in the US today, most people would not be affected in any significant way.

Virtually none of the growth in the US is in publicly traded firms. So very little growth is accessible to investors. I should be able to pool a bunch of companies, put them together like a REIT and sell that as a pool. We should do for young companies what we have done for office buildings.

Hot spots - Phoenix, Denver, Salt Lake, Las Vegas, Atlanta. What to do to make a hot spot? 1) good airports. The knowledge value economy travels by air. Nine of the top ten and 16 of the top 20 have hub airports. 2) research university that creates the labs and the ideas and the technology. 3) nice place to live. 4) entrepreneurial climate. Where are the cold spots? Rochester (NY), Hartford, Albany (NY) area, NYC, Pittsburgh, Sacramento, New Orleans, OK City. The Northeast is a basket case - terrible airports and schools. [Wall Street Journal, May 24]

In real terms, American companies increased their annual investment in computers fourteenfold in the 1990s, while other investment hardly rose at all. As a result, the high-tech industry grew at a startling rate. Between 1995 and 1998 the IT sector, despite accounting for only about 8% of America's GDP, contributed, on average, 35% of the country's economic growth. By 2006, according to a new report by the Commerce Department ("The Emerging Digital Economy II"), almost half the American workforce will be employed in industries that are either big producers or intensive users of information technology. And not only are "new economy" sectors growing fast, their productivity is shooting up too. Value-added per worker in IT-producing industries grew at an annual average of 10.4% in the 1990s, far higher than in the rest of the economy. As the "new economy" (thus defined) mushrooms, it affects ever more aspects of American business and is transforming ever more parts of the country. Even three years ago, you could delineate the new economy geographically. Silicon Valley (obviously), Seattle, Boston, the Research Triangle Park in North Carolina and Austin, Texas (home of Dell Computer) were its homes. Now every state is, or wants to be, a high-tech state. California is still by far the biggest (employing 784,000 high-technology workers in 1997), according to a study by the American Electronics Association, the country's largest high-technology trade group. But other states are showing remarkable increases in high-tech activity. With 82 technology workers per 1,000 private-sector workers, New Hampshire has the highest concentration of new-economy employees. And the fastest-growing technology industries (starting, admittedly, from a low base) are in South Dakota, Utah and Idaho. [The Economist, Jul 24]
Where's King? Route 128 or Silicon Valley.
In the race with Silicon Valley to create the economy of the future, Massachusetts has moved into the lead, according to a new study. In a ranking of all 50 states on how well they are making the transition to a ''new economy'' made up of dynamic, high-tech companies, the Bay State surpassed its archrival, California, as the leader, according to the Progressive Policy Institute, a Washington think tank affiliated with the centrist Democratic Leadership Council. The exhaustive study, which uses 17 economic indicators to compile rankings, found that a bounty of professional and high-tech jobs, top-drawer universities, and a prominent role in the global economy have propelled Massachusetts ''farthest along the path to the New Economy.'' The study found that Massachusetts has achieved its top spot despite its dismal rank of 34th among states providing Internet access and technology training in its schools. Surprisingly, just 39 percent of Massachusetts adults are on line - putting it eighth behind such states as Alaska, Colorado, Maryland, Utah, and New Hampshire. [Kimberly Blanton, Boston Globe, Jul 22] Meanwhile. Across on the left coast, More affordable areas undermining cyber-mecca WHITHER Silicon Valley? The fertile high-tech crescent? The Paris of digital culture? The heart of more wealth creation than any economy in history? Every year or so, doomsayers warn the valley will lose high-flying companies and highly skilled workers to other high-tech regions, from Seattle's "Silicon Forest" to New York's "Silicon Alley." The latest scary omen comes in a survey of 100 companies by Joint Venture: Silicon Valley Network, a public policy group in San Jose run by technology companies and public groups. If Silicon Valley doesn't watch out, it'll lose its prized workers to areas with cheaper housing, lighter traffic and tax-cutting local governments, the survey says. Already, the valley faces a shortage of 160,000 skilled workers this year. [San Francisco Chronicle, Jul 22]

Humming economy, fundamentals firing up smaller tech firms Small-cap stocks have done well this year after several years of poor performance. Small technology companies have done better still, in part, because the fundamentals of the business are improving. Take semiconductors, an industry that can go from feast to famine practically overnight. Last year was famine. This year the food has returned. Orders have rebounded, driven by a better economic picture and strong growth in the telecommunications business. Big firms like Boston's Teradyne, which makes test equipment for the industry, have improved. But enough crumbs have spilled from the table for the little guys to eat well too. A surprisingly large number of Massachusetts companies are suppliers to the industry. Local beneficiaries of the upturn include LTX, Applied Science and Technology, IBIS Technology, PRI Automation, Brooks Automation, Helix, and Cognex. [Steven Syre and Charles Stein, Boston Globe, July 20] And there is a trickle down to the next level - the market-driven SBIR firms getting technology started. There is a little trickle down to the R&D service firms who depend on government spending for their day-to-day survival.

It's no longer about the big beating the small, it's about the fast beating the slow. [Larry Carter, Cisco CFO]. If Carter is right, SBIR cannot help be merely putting slow free money into start-ups (or any other small company). It must combine money with market-sensing speed. Like DOD's Fast Track. But it must also abandon the rigid pattern of two-year contracts at nearly uniform spending rates.

Cisco's customers did not just go to the website to get information, they started using it to share their own experiences with both Cisco and other customers. Today more than 80% of customer and partner queries are answered online. Cisco's sales are over six times their 1994 level, but technical support staff has only doubled. [The Economist, June 26]

The Future of Startups. we are looking at 2% to 3% unemployment. Which means you are really scraping the bottom, and if you are a small company, you have an enormous problem finding people to work. I was in the grocery store the other day, and I couldn't find something, and I couldn't find a single person in the store who spoke English. Not one. ... increasingly the economies of scale are vanishing. You know, 150 years ago, you had to be a Mellon or a Rockefeller to build a railroad or to have a steel factory. Today, you can start a software company with a credit card. You can start almost any company with a credit card. There is very little capital needed. You can call anywhere in the world for 10 cents a minute. And everybody now speaks English around the world.Excpet in his grocery store] I mean, they speak better English in Sweden than they do in downtown Boston. ... what we've seen is nothing compared to what is coming. Most of what is going on with computers today is doing what we have always done, just a little faster or a little more easily. And probably 95% of all business computing is word processing, spreadsheet analysis. It is not rocket science. If we took all the computers out of all the businesses in the United States today, most people would not be affected in any significant way. The real breakthrough in technology is when the machine starts to develop a little bit of intelligence of its own rather than being a reproducer or a slave. Right now, computers are basically slaves: They do what you tell them to do. What happens when they become reasonably intelligent and do things that you can't do? That has not started yet, and that's where the real impact of technology starts to take hold. ... Back in 1840 or 1850, the "high-tech company" at that point was Baldwin-Lima-Hamilton, or BLH. It was the IBM of its day. You probably don't even recognize what it is. It made steam engines, and it was the sexiest company in the United States, headquartered in Philadelphia. Well, in retrospect the steam engine wasn't a very significant industry. It was the Rockefellers and the Mellons and the people that used the steam engine to start resettling the country and building factories and made the Industrial Revolution and all that. The really significant conglomerations were the people who used the steam engines intelligently. ... virtually none of the growth in the United States is in publicly traded companies. In other words, in the best of times, when large companies are doing very well, only 30% of the companies that are growing are traded on any exchange in the United States. And under normal circumstances it is more like 10% to 12%. And in a recession it is 5%. We have a database of 10 million companies, so we know the companies that are growing and those that aren't. The anomaly is that very little of the growth is accessible to investors; America's smallest companies, which are also the growers, don't have access to the equity market. David Birch interview, Wall Street Journal Interactive]

Silicon Beltway The bureaucrats are turning into nerds. The National Capital Region has become the third largest high-tech center after Silicon Valley and Route 128 as high-tech companies expand and the government work force shrinks. The Wall Street Journal (Jul 21) says that Regional Financial Associates found that in the last seven years, the number of federal jobs in the area has fallen 14.6% from 1992 as fed job share dropped to 13.1% from 25%. Meanwhile high tech high-tech jobs 33% to 7.7% of all the jobs. The biggest companies are AOL, Lockheed Martin, Nextel, Orbital Sciences, and PSINet.

Who's gonna be hot? No one knows, BUT. Smart Money (a WSJ mag) syas the following companies have a head start on the latest technologies: Ciena, Conexant Systems, HP, Inktomi, Marimba, RF Micro devices, Uniphase. There's a tendency to think that just because you've identified a cool technology you're going to make money. The real trick is to find out who the winners are and know enough to buy when others sell.

License from University? In the exchanges between Vanu Inc. and the licensing office, the two sides keep arguing not only over the deal but also over who has the best interest of the school in mind. Is it MIT's higher responsibility to make sure that useful technology is disseminated, or to earn money for the school? Should MIT be fighting for spinoff business profits or giving its faculty and students good deals in hopes of donations when they get rich? (MIT has built a $4.3 billion endowment with the help of such largess.) [AD Marcus, "MIT Seeds Inventions But Wants a Nice Cut of Profits They Yield", Wall Street Journal, Jul 20] The classic confrontation between a great university with public funds and entrepreneurs who created the idea. And here the doddering conservative head-in-the-clouds faculty aren't even a player. It is the university business interests against the former student now licensee. Fortunately for both, they are fighting over something worth having. At most schools no such fight exists because they do not produce world-class technology despite the posturing of them and their politicians. The MIT Licensing Offivce has a very profitable history including under the direction of the master-mind of DOD's Fast Track - John Preston.

Bronson Writes Again. Silicon Valley in the 1990s has earned a place in history, that much is clear. But just how it will be characterized is still up in the air. Is it the cradle of a New Age of Humanity or just another variation on the same old gold rush? So far there are precious few certainties: Silicon Valley is the prime destination for global legions of fortune-hunters. The personal Web site has replaced the electric guitar as the preferred adolescent power-object. And judging from the escalating price of real estate in this region of northern California, something very, very big is going on. Whatever it is, it appears to be blowing away the conventional wisdom about wealth, careers and class. So, of course, we'd all like to understand. ... It seems the fires of digital innovation generate a lot of smoke, and it's hard for the casual observer to penetrate the fog. ... Nevertheless, Po Bronson, who satirized Silicon Valley in his 1997 novel, "The First $20 Million Is Always the Hardest," has captured this remarkable place and time, and his ability to burrow into the Valley's back rooms and hidden chambers in search of detail is impressive. ... Silicon Valley may be the story of the century (or the millennium, as its more manic boosters insist). On the other hand, the Valley has a kind of protean, all-things-to-all-people quality these days, twisting itself into a number of promising apparitions that may or may not materialize. In the age of freakish P/E ratios, it can be difficult to shake the notion that the Valley is important largely because everybody says it is. [THOMAS SCOVILLE, reviewing Po Bronson's SV history "The Nudist on the Might Shift", Wall Street Journal, June 16] If all Scoville and Bronson say is true about SV as the heartland of high-tech capitalism, why does the government need to intrude to support the companies who cannot do what the SV entrepreneurs do? Wouldn't a tax refund generate as much economic activity as putting federal dollars into second-class companies?

If you think the shortage of qualified information-technology pros is bad now, just wait. According to a recent report from the Meta Group, demand for IT services is growing 25% annually in the United States. Meanwhile, only a small fraction of high school graduates will likely go into IT fields, meaning that even more jobs will go unfilled in the future -- and salaries will continue to grow. This year alone, some 900,000 IT jobs will go unfilled. This will be the situation at least through 2003 [Jeff Bounds, Dallas Business Journal, July 12]

Trade Helps Everyone Two economists say that every percent increase in trade yields an increase in per-capita income by somewhere between 0.9 and 2 percent (depending on which theory they us). And a growth in population or area increases per capita income by from .1 to .3 percent. [JA Frankel & D Romer, "Does Trade Cause Growth?", American Economic Review, June 99 (Vol 89, No 3, pp379-399)] Which certainly undercuts the trade protection and anti-immigration crowd.

No Serious Europe Competition A study from the European Employers Assn., UNICE, says the number of new companies formed on the Continent still seriously lags the U.S. America, says UNICE, creates five times as many fast-growing companies as Europe does, and four times as many initial public offerings. ''We knew that Europe had to become more entrepreneurial,'' says Wytze Russchen, one of the authors. ''Yet we were surprised that we have so much to do to catch up.'' For example, it still takes five times longer to get a small business off the ground in Europe, notes UNICE. Plus, businesses suffer from higher wages and taxes than their U.S. counterparts. [Business Week, July 19]

Good news: rapid change, huge markets, plentiful capital. More people will grow rich than ever before. Bad news: Any idea that works will be cloned within days or hours. Patents and copyrights won't mean a can of warm beer when a market is global and your competitors reside offshore. Better to keep your eye on the customer ball. As a hint to where the future lies, consider that approximately 75% of the product-life gross margins for a typical PC are earned within its first 90 days of sales. Jump late through that window, and it's all glass shards and blood. ... So how are you keeping up? These are bleak times for the slow, cautious or simply tired. And that won't change. It will just get more so, following the breathless acceleration of today's socio-economic twin drivers: chips and bandwidth. For the coming years, the Yankee Group's Howard Anderson foresees a blunt sorting of businesses and businesspeople into two camps: the "quick and the dead." [Rich Karlgaard, Forbes, July 5]
So, will government programs and government sponsored business be quick or dead? With Congress and the agencies calling the shots, how could they ever be quick?
If Adam Smith were to visit the U.S. at the millennium's end, he would like what he saw. For most of this century, corporate concentration and government intervention inflicted arthritis on the "invisible hand" that Smith said guided selfish individuals in a market economy to achieve greater collective wealth. But today, the invisible hand is more limber and supple than ever. In the past two decades, globalization has forced American companies to compete on a world-wide scale, and the collapse of communism has extended capitalist principles to every corner of that globe. Deregulation has injected market forces into areas long insulated from them, such as telecommunications, air travel and medicine. The Internet has helped better-informed buyers find legions of new sellers, and sellers find far-flung buyers. The principles of market economics, detailed by the Scottish philosopher in 1776, have infected U.S. life with an intensity unmatched in history -- thanks in part to remarkable technological advances. [Alan Murray, Wall Street Journal, Jun21] Does Murray's world sound like the same world that [politician] Roscoe Bartlett talks about. Did Roscoe miss the 80s and 90s? Is this a world that needs government subsidy for small business even if programs like SBIR actually delivered anything worthwhile for small business? Would every foreign observer laugh in scorn at protestations that America is going right down the drain? Does Roscoe really believe his story or is he just pandering to the small business crowd?

Three Boston Photonics Companies The BU Photonics center (a political pork barrel of $26M) has spawned three photonics companies from three academics in the care of a private venture firm - Marenghi & Co. PhotoSecure, PhotoSense, and Photodetection Systems. [facts from OE reports, Jun99] If they have the goods, they should be decent SBIR candidates at agencies who care about commercialization. Will the same politicians who ponied up the money for the Center now pressure the agencies to fund the children? Watch the attitude of Mike Capuano who in the Science Committee hearing last week banged the drum for SBIR's being just a research program (guess where his voters come from and what they do)?

Speaking of reading ...
[Gene Epstein's] recommended summer beach books on the Dismal Science. The Commanding Heights, by Daniel Yergin and Joseph Stanislaw, was a bit superficial, but it does tell some great stories. The book's theme is how free-market ideas swept the world over the course of the past few decades.
Friedman's bestseller, The Lexus and the Olive Tree, also tells some great stories and is written with the New York Times columnist's customary grace and verve.
Krugman's The Return of Depression Economics, addresses a drawback of globalization that Friedman skirts: the shocking recessions that have gripped Asia and Latin America and the scary prospect of more to come.
The delightful piece about France, "Unmitigated Gauls: Liberte, Egalite, Inanite," is alone worth the price of admission.
On the topic of wages and wealth, Andrew Hacker's Money: Who Has How Much and Why, is entertaining and informative. The chapter on "M.D.'s, J.D.'s and Ph.D.s" is a lot fun, as is the profile of the 68,064 households declaring an income of at least $1 million a year in 1994
On the nature of consumerism, try Pursuing Happiness: American Consumers in the Twentieth Century, by Stanley Lebergott. With lucidity and humor, this economist effectively parries all the ascetic treatises ever written that contend buying things is somehow a misguided activity.
Economist Richard Thaler's collections of essays are indispensable treatises on the nature of semi-rational homo economicus, and they're a necessary antidote to the standard assumption of total rationality made by the mainstream. For those misguided souls who still believe in efficient-market theory, try his chapters on the closed-end funds.
The late, great Murray Rothbard's two historical volumes, Economic Thought Before Adam Smith and Classical Economics, are an intellectual feast. I also treasure this brilliant economist's two posthumously published collections of essays, both bearing the title, The Logic of Action. All these volumes should be obtainable from the Mises Institute at 800-636-4737.
Knowledge and Decisions, by Thomas Sowell, is still the best book I know on the workings of capitalism.
[Barron's, Jun 21]

Why have the US economy and stock market done so well? According to Massachusetts Institute of Technology economics professor Lester Thurow, it is because the United States is remarkably flexible. It is a country that is willing to embrace the new and toss out the old. The same might be said about Thurow himself. In an interview this week to promote his new book, ''Building Wealth,'' Thurow seemed to have discarded most of the ideas he has been peddling for the past 20 years in favor of some new and different ones. Apparently economists can be flexible, too.[Boston Globe, Jun 11]

Next time Andy Grove says it looks like rain, don't waste time getting your rain coat -- buy stock in an umbrella company. When Intel Corp. on Wednesday formally announced its widely known timetable to begin making chips from larger silicon wafers, stock in equipment manufacturers skyrocketed. ..[which means] state-of-the art manufacturing plant in its Hillsboro, Ore., campus with 300 mm wafer technology. [TOM QUINLAN, San Jose Mercury News; Jun 19] Intel still drives the bigger, better, faster world of computer chips.

Innovation, the process of translating inventions and new ideas into commercial products, is largely responsible for the tenfold rise in the living standards of American families over the last 100 years, he says in a new manuscript. Baumol's contribution is not to emphasize the impact of innovation but to pinpoint how competition forces companies to make innovation routine, much as marketing and advertising are. In Baumol's analysis, capitalism emerges as a system that hums because it has figured out how to make innovation humdrum.... The profit from innovation routinely leaks to third parties. A firm spends a lot of money bringing to market a clever new electronic organizer or tennis racket. Ten nanoseconds later, another firm tears the product apart and reverse engineers a variation that gets around the patent. So the first firm winds up making relatively little money, a heavy disincentive for would-be entrepreneurs. Professor Edward Wolff, a colleague of Baumol at New York University, estimates that innovators can expect to earn about 10 cents a year from each dollar they invest. But because the innovation leaks to other companies and other sectors, the economy as a whole reaps a benefit of about 50 cents. The implication, according to the textbooks, is that capitalism provides entrepreneurs too little of the profit that investments create for the economy. So they invest too little in the development of products. Consumers suffer from high prices, restricted choice and delayed innovation. [New York Times, Jun 5]

Suing Each Other Now that big profits are in prospect for laser eye surgery, the inventors are all suing each other over the patent. Even an Air Force scientist is suing. The openness of government-funded research and the novelty of the ideas led a lot of people to talk to other people about the ideas. Result: a tangle of claims of thinking it up first. Today's Wall Street Journal features a Page One piece on the tangle "Eye Shadow". SBIR played a role not in the excimer laser idea for the cutting but in an eye tracking idea of Autonomous Technologies (Orlando, FL) now a subsidiary of Summit Technology, the Number Two in the market.

In May 1998 for the third time in its history, Disneyland opened a revamped Tomorrowland. [V Postrel, The Future and Its Enemies, The Free Press, 1998] If you are proposing innovation often, the same rule applies - your future will change even if the government isn't ready (it never is).


Got a Great Semiconductor Industry Idea? Consider this Wall Street opinion by Chaudhri: The commoditization of hardware has negative implications for the semiconductor capital-equipment companies. These companies provide the equipment that is used by chip companies like Intel, Texas Instruments and Motorola to make their products. And this industry consists of companies like Applied Materials, Lam Research, Novellus, etc. One, that because the demand for leading-edge semiconductor technology at end-user level is not as strong as it has historically been, the need for the chip companies to invest in vast amounts of the latest and greatest semiconductor capital equipment is also diminished. So the secular growth rates for the semiconductor capital-equipment sector have been negatively impacted. ... There is also a cyclical negative: D-ram prices have started to come down again. Now the semiconductor capital-equipment companies ship anywhere from a third to a half of their equipment to the D-ram makers. And the D-ram makers' capital spending plans are intimately tied to their cash flows, which in turn are a function of D-ram prices. So as D-ram prices have come down quite sharply in the last few months and look like they will continue to come down in the foreseeable future, that is going to put a crimp on the cash flows and therefore the capital-spending requirements of the D-ram companies. The bottom line is that the rate in which the capital-equipment sector will grow in the next couple of years is quite a bit lower than what Wall Street is expecting will happen. [Barron's, May 10] Your SBIR is a capital-spending item for your strategic partner. At the moment it costs around $4000 per KW to make a fuel-cell engine, compared with $40 per KW for an internal combustion engine. [The Economist, Apr 24] Which is why only a cost-insensitive government will invest. Until the environmental concerns drive up the acceptable price. The Economist story on fuel cells starts with This week two nails were hammered into the coffin of the internal combustion engine. But SBIR proposers in general make claims and beg for government support for ideas that have little economic justification. Fortunately for many of them, government sees itself as an uneconomic investor and will ignore its own economic ignorance in pursuit of a dream. Doing it with SBIR though raises false hopes in the naïve companies who deceive themselves into believing that government will help them hurdle the economic barrier. No such thing is likely to happen and the most likely outcome is a complete SBIR project with no future. Be careful not to fall into that trap. Into fuel cells DOD SBIR, for one, has poured a lot of money - 32 Phase 2s in 22 companies (from 95 Phase 1s) with no hint of cost-effectiveness in the published abstract as a motivator. Government could, of course, help keep economic reality-check by insisting on third-party play. But that is unlikely in a government that wants performance and is willing to pay almost any price to get it. If you want to be a government service R&D contractor for higher performance fuel cells, by all means propose. If you want to sell the resulting product in any volume market, you will have to have cost-effectiveness as a prime criterion - say $40 per KW.


Wozniak offered the then unnamed PC to HP, which rejected it on the grounds that there was no money to be made from selling a computer for less than $3000. .. Apple's third co-founder, Ron Wayne, was bought out for just $17,000 in early 1977 and left. [D Smith reviewing MS Malone, "Infinite Loop: How Apple, the World's Most Insanely Great Computer Company, Went Insane", 1999, The Sunday Times, Apr 25] Would any agency have flexibly invested SBIR in something so radical as a personal computer? Not if 15 years of defensive management is any guide. To be sure, VCs are riding high these days, investing more than $14B last year in more than 2800 deals. .. Most VCs don't see good business plans. What they see is somebody else's dream, pie in the sky, a concept presented without a lot of rigorous analytical thought or even the hint of practical results. ... They're [money guys] investing their money because they think they can make money on it. You're nothing more than a vehicle for them. [M Bloomberg, Bloomberg Personal Finance, May 99] SBIR agencies should take note that if a VC isn't willing to invest in a new technology, there may be no business prospect regardless of the glowing blather of commercial potential in a cloud of unrealistic assumptions.

Says a small software company CEO, Today I had a customer in Taiwan really want to order straight from us via the Internet, not from our distributor in Taiwan. Each morning I wake up to see 25 or 30 downloads of our product from Europe or Asia. I compete each day against products developed in the US, Switzerland,Germany, England, and even Japan. Cultures that sweat this are just going to cause strife for their members. You can't fight it. What's that CEO's attitude toward SBIR as government help against the tide of global competition? Been there, done that, no thanks, government doesn't get it.


Q: How do VCs view companies that are heavily funded by government contracts? Milton Chang's A: I have never seen any VC funding of "contract mills" that work on technologies with no commercial potential. On the other hand, a large fraction of the companies in our [photonics] industry with venture funding have their initial technologies developed with government funding. Most sophisticated investors, however, do not believe that the transiiton of company culture from contract to commercial sales is an easy one. So there is a likelihood that a VC would require a change at the top soon after funding. [Laser Focus World, Apr 99] Good news or bad for SBIR? Bad news for any government agency that funds "contract mills" in the hope that the technology will commercialize because neither the company nor the technology makes a decent investment candidate. Investment, you may recall, is to make a future profit. It is the heart of capitalism. Government spending goes for other goals, like societal good and buying votes from interest groups, but should NOT be thought of as investment. Politicians only use the term to cover their true intentions. When the SBIR debate heats up next year, watch the language and keep your airsick bag handy for the arguments.


This is Europe where technology companies are scattered over several countries and VC is hard to find. A growing band of visionaries - like McKinsey & Co - are building their own VC networks from scratch. They are introducing entrepreneurs to the Continent's growing pool of venture funds, handing out advice for the inexperienced, and encouraging Europe's shy capitalists to step up. ... Even much-hyped technology clusters in cities such as Cambridge or Helsinki fail to match the dense community of lawyers, money men and start-ups that make up Northern California. ... To kick start his now-growing Internet service provider, Cybernet AG, Andreas Elder had to use private possessions as collateral for bank loans. That was after applications to several funds sponsored by the German government came to nothing. One of the funds sent him a 20,000 mark bill for evaluating his company. [M Rose & K Strassel, Wall Street Journal, Mar 23] Well, our bureaucrats may be as dense about entrepreneurs but at least they don't charge $11K to misread a proposal. Sounds like Europe has the problem that most areas of the US except MA and CA have - a non-critical mass of entrepreneurs and their supporters; for a substitute some look futilely to government which cannot supply the needed service no matter how many bureaucrats are assigned to the jobs. Nor is a subsidy like SBIR the answer unless it drives start-ups into the arms of the true capitalists that made America the economy it is.
What Makes Technology Grow?
In another undercut of SBIR favorite myths, economist Paul Romer derides the idea that our national growth came from technology. In the traditional economic view, technological progress comes in two steps: the heroic discovery and the ensuing transformation of the economy. .. James Watt invents the steam engine, then the industrial revolution just happens. ... It's not the opportunities in nature that are scarce; it's the human talent to pursue the many opportunities. .. we make progress in almost any area we put our minds to ... overnight delivery at FedEx, just-in-time management at Toyota, and discount retailing at Kmart and Walmart. ...
In the traditional account, the flip side of the heroic discovery is the critical roadblock. This too is vastly over-rated. If it had been impossible to build transistors, audio equipment would still have improved over the course of my lifetime. Vacuum tubes would have become smaller, cheaper, and more reliable. ... historians believed that the invention of the railroad fueled the rapid growth of the early American economy. Fogel showed that if there had been no railroad, North America would have invested more extensively in canals, wagons, and roads. But the rate of the economy's growth, he concluded, would have been about the same. [P Romer, "What Makes Technology Grow", Outlook, No1, 98, reprinted in part in Wilson Quarterly, Spring 99]
The canal industry was going well in the early 19th century until the railroad suddenly blossomed from nowhere, and canal transportation today is still a lot cheaper than rail. As the Serbians will discover when they cannot get barge traffic on the Danube.


Americans Beat Europeans at Pharmacy. European pharmaceutical companies, which 10 years ago dominated the drug industry, will supply only three of the world's top-selling 25 drugs by 2002, according to forecasts of a British drug-research group. Pharmaceutical-research team Evaluate Pharma said the marketing power of the major US pharmaceutical companies, patent expirations on European-made blockbusters and the trend toward lifestyle drugs such as Viagra are giving US companies the lead in the biggest-seller stakes. [M Reid, Wall Street Journal, Apr 12] Economic nationalists rejoice! SBIR advocates despair - the nationalism card gets harder to play (unions and Pat Buchanan excepted). QWERTY Myth Innovation lock-out? The QWERTY keyboard has suppressed better versions like the Dvorak keyboard because of market lock-in? Think again, say Liebowitz and Margolis ["The Fable of the Keys", Journal of Law and Economics, Apr 1990]. The Economist's series on economics reminds us that market failure isn't always what economists believe. Actually, the Navy tries to re-inforce the myth by studying comparative speed of QWERTY and Dvorak in 1944. Strangely, the Navy hired the same Dvorak to conduct the study. Guess the result! GSA in 1956 showed no advantage to either. Moral: don't believe everything you know about market economics of innovation (and don't necessarily rely on a government study).

Enough Biotech Investment . a [biotech] company determined to eke out a living can probably get by. R&D partnerships with pharmaceutical firms (or indeed, with larger biotech companies) can provide badly needed cash. Private money, toto, is still available; VC financing reached $3B in 1998, a 50% rise over the previous year. That is why, despite the frosty climate on wall Street, a mass-extinction among small biotech firms is not going to happen just yet. [The Economist, Mar 27]


In a continuing effort to tackle the labor shortage conundrum, the Minnesota High Tech Association (MHTA) said Thursday that it will spend about $300,000 on an initiative to attract and train workers for the fast growing tech industry. The program, titled "Upgrade Minnesota," will be led by a former state representative and chairwoman of the House Education Committee, Becky Kelso. ... One estimate claims that Minnesota companies have about 9,000 information technology job openings each year, while Minnesota's Department of Economic Security predicts there will about 1 million jobs of all types vacant by 2006. [Minneapolis Star Tribune, Mar 6] The first [railroad] engines seemed to run mostly on hope. Rail cost outrageous sums to lay, a massive sink of both capital and labor. Trains were slower and less reliable than the creatures they competed with. Locomotives eternally exploded, setting fire to the fields, boiling clientele alive by the hundreds per year. Extorted by canal companies, foreign interests and politicians alike, the start-up railroad companies nevertheless plowed into the frontier, as inevitable as the grave to which all expansion leads. [Richard Powers, "Gain" (a novel), 1998]

Yet chip making is a notoriously conservative and financially competitive business, and companies won't embrace major change until the industry is painted into a corner. And, with the price of a new fabrication plant starting at around $3B, no one can blame them for wanting to be sure before betting all their chips on one particular number. "If you were starting out today to design a car from scratch, the last thing you might choose to power it is an internal combustion engine", says Vecco's Kania. "But that is the current technology, and no automaker is going to change it until they're forced to."" Likewise, chip makers are working hard to get every last nanometer out of optical lithography before turning to new technology. [D Voss, "Chips Go Nano", MIT technology review, M/A99] The reality is that your new technology, that you got government to support with a small SBIR, has a big barrier to hurdle with no government help to ever make it into economic return.


The Internet reaches far. A company discussed here in late 1998 got a cold e-mail from Russia inquiring about employment. The investors have heard/ a discouraging word. A Wall Street house downgraded ATMI and the stock price tumbled 30% in two days.

Forbes on WDM: the component vendors sell to systems vendors. Uniphase (recently merged with JDS Fitel and will become JDS Uniphase), Corning (GLW) and E-Tek (ETEK) are the leaders here. [Forbes, The Digital Tool, Mar 1]

baltowash vc thriving. Venture capitalists invested $274M in Baltimore-Washington area companies during the fourth quarter, according to Price Waterhouse Coopers. Far above the $90M in 1997's quarter. Local venture capitalists said the difference during the fourth quarter of 1998 was the number of opportunities available to venture capitalists. [William Glanz, Baltimore Business Journal, Feb 22] Think Balto-Wash needs SBIR and other subsidies? Depends on what you think SBIR is and what you think government should be doing. If you get the free money, you can convince yourself that it is right for government to do so.

Buy Tech Stocks, Just Not the Ones I BuyThe worst-performing technology fund of the past three years is run by one of the most ardent proponents of technology investing. Michael Murphy, editor of California Technology Stock Letter, regularly urges investors to load up on technology stocks and mutual funds as a way to profit financially from society's dramatic technological advances. The "buy tech" message is in his late-1997 book, "Every Investor's Guide to High-Tech Stocks & Mutual Funds," just released in its second edition. ... Monterey Murphy Technology has the worst three-year record among 44 tech funds tracked by Morningstar, a negative 8.3% average annualized total return, compared with a 27.6% average annual gain for the tech-fund category. ... In his book, published by Random House, Mr. Murphy says most people "are woefully underinvested in the greatest opportunity of our generation." He explains that "the world is no more than halfway through a massive 30-year to 40-year growth cycle in electronics and computer technology" and just beginning a similar period of huge growth in medical technology and biotechnology." [Wall Street Journal, Feb 26] Win a Few. Murphy proves there is a gap between average industry performance and individuals company's fortunes. So it is with SBIR. Government support for technology is needed but government does no better than Murphy's dismal record in picking winners. Not only are subsidies to individual companies not needed, but government's record in picking SBIR winners for their future market potential is equally dismal. Fortunately, the politics of American small business will overlook such inadequacies and continue to let the federal agencies pour SBIR money into nice and useful (to the agency) science. Economics and ROI will not be used as a measure of program value. If you're a small R&D company looking for some service business, there will still be $1B on offer (less the 5-10% actually targeted to commercially valuable technology). Get yourself a good science story accompanied by a commercial fantasy and propose! You'll win a few.

"The electric light is very probably a great invention, and .. let us take for granted that its future development will be vast. But this, unhappily, cannot be urged as a reason why the pioneer companies should be prosperous." The same [1882] sentiments apply to today's great invention, the Internet. ... Venture capitalists in Silicon Valley have more money than they know what to do with [The Economist, Jan 30] If then, you have the next electric light invention, what position should the government take on your SBIR proposal for money to keep improving it? 1) since government cannot do anything to speed up market acceptance of a revolution, you will just have to wait; 2) since your invention won't be useful for at least another decade, no mission agency should consume its R&D budget in funding it; 3) government money should be spent on things that have no market value (closer to what government actually does with SBIR); 4) give you money as a well-deserved prize for your invention; 5) what policy do you prefer?

New sayings that should be on buttons...
Well, this day was a total waste of makeup.
I started out with nothing & still have most of it left.
If I throw a stick, will you leave?
Did the aliens forget to remove your anal probe?
Better living through denial.
How do I set a laser pointer to stun? [Washington Post, Feb 4]

we think semiconductor stocks have moved too far, too fast, on too little news of importance., says Individual Investor. One beneficiary has been ATMI which has zoomed up to the high 20s from the low teens. Why? the Semiconductor Industry Association is projecting only 9.1% growth in revenue for 1999, 39% off the industry's historical growth rate of 15% and well below the golden days of 1993 to 1995 where the industry grew 30% to 40% annually transforming itself from a $60 billion business to one worth almost $150 billion. Applying this discount relative to the historical P/E would mean that the basket of stocks above would be fairly valued when sporting an average P/E of 25, a 24% reduction from current levels.

The Y1K News
Business and Finance
Vikings earned substantial profits from Slavic slave trade;
Ghana again dominated the gold trade;
Horseshoe prices rose in Europe;
China's harvest rose sharply;
Mayan farmers produced bumper crop of specialty vegetables and fruit;
Byzantium increased taxes and enacted trade measures for more Treasury revenue;
Moorish ceramic makers introduced polychrome glazed pottery;
The recession in Central Asia worsened.
Famine in France has worsened as constant feudal warfare ravages fields;
A sex scandal swirled in Japan's ruling court;
Norway threatened Ireland with trade sanctions and possible invasion;
Danish Vikings continued pillaging England;
Moors engaged in a power struggle following Sultana Subh's death;
Toltec leader Ce Acatl Qutzalcoatl reportedly escaped to the Gulf of Mexico;
Explorer Leif Ericson disclosed plans to sail to Greenland;
Polynesian settlers have cleared land in Hawaii and Easter Island with fires;
Viking women have win the right to divorce by public declaration;
The world's population was estimated at 250 million, unchanged from 1000 years ago.
From the Wall Street Journal, Jan 11,1999

Analysis Companies Can Go Big Time. San Diego-based SAIC (San Diego, CA) set a new share price of $69.82, a record high for stock in the employee-owned company - an 18.6 percent increase over the previous price of $58.87. During the past 12 months, the price of SAIC shares has gained 78%, compared 51% last year. It's one of the only American companies with an internal trading of its own stock which can be bought and sold only by the company's 34,000 employees, consultants and directors. Setting a high price protects present holders from dilution. Whether an open market would offer the same price is mere speculation. SAIC started as an assemblage of essentially independent scientist cells and has expanded into system building. Although it's too big to compete for SBIR, it occasionally offers to partner with SBIR projects. This week SAIC got part of a $1B contract from GSA, one of SAIC's 5,000 contracts a year. [facts from San Diego Union Tribune, Jan 9]

"An entrepreneur to me," said Bennett M. Shapiro, the executive VP of Merck's worldwide basic research, "is someone who picks up something not going on at Merck, but is important to the future development of a drug, and then makes the case for why we should fund a relationship, as if he were an independent entrepreneur appealing to venture capitalists for money." [Louis Uchitelle, NY Times, Sep 23]

Atlanta. Industries of the Mind program. The Metro Atlanta Chamber of Commerce's campaign to attract technology talent to Atlanta will be the central initiative for the next five years and has the potential to "define economic development for the next 20 years in the Atlanta area," according to Sam Williams, the chamber's executive director. The chamber already has spent $1M in preparation for the project and could spend an additional $6-8M the next five years. The campaign is sponsored by Forward Atlanta, the major funding source for the chamber's economic development initiatives during the past 70 years. [Atlanta Business Journal, Jan 4] Baltimore. Delegate Kumar Barve, recognized as the General Assembly's leading tech industry advocate and chairman of its subcommittee on science and technology, said using money from the State Retirement and Pension System, which holds some $27B, is among the changes he will push for this year. Barve sees the use of public funding as an efficient way to provide capital for Maryland's surging technology industry. Last year, though, a similar attempt to introduce legislation that would authorize such use of pension funds failed. [Baltimore Business Journal, Jan 4] Portland A San Francisco-area venture capital firm recently decided to break with tradition, much to the delight of a promising local internet start-up company. RuleSpace, which makes internet filtering software, last week finished its first round of funding, netting $4 million. The successful first-round fundraising was completed just one month after the company finished off its $1.1 million seed round of financing. Taking the lead in the most recent round was Sequoia Partners, not to be confused with a larger venture firm called Sequoia Ventures. [Portland Business Journal, Jan 4]

Why More R&D? When Mariko Sakikabara of UCLA told the academic AEA audience that the more diversity in an industrial R&D consortium, the more R&D done by the individual firms, Sam Kortum of Boston University said so what. More R&D has no value per se; the objective is more innovations with less R&D. R&D needs outcome measures, not input measures. Good call, Sam. Sound like SBIR's problem? The beneficiaries and the R&D performers and the government R&D agencies want more R&D and will scare up whatever argument they can find to justify it. Motherhood. Justify it with output measures or go hungry!

blunders of the modern world (from The New Scientist) * Cloning sheep when they all look the same anyway and growing an ear on a mouse that could hear perfectly, Justin Byrne
* Bubble packing for arthritis pills, Mike Collins
* Giving men the vote, A. McGary
* Mission statements, P. Naghten
* One-size tights that don't fit anyone, Catherine Side
* Computer "help" menus, Phil Boland
* Car theft alarms, M. O'Neill
*** SBIR proposals that say nothing new.

Peter Bernstein from "Against the Gods", 1996
When the Soviets tried to administer uncertainty out of existence through government fiat and planning, they choked off social and economic progress Venturesome people place high utility of the small probability of huge gains and low utility on the larger probability of loss.
Arthur Clarke from "Profiles of the Future", 1977
It is impossible to predict the future, and all attempts to do so in any detail will appear ludicrous within a very few years. With few exceptions scientists seem to make rather poor prophets; this rather surprising , for imagination is one of the first requirements of a good scientist.

Korean DRAM manufacturers are no longing closing their fabs for one week out of the month but instead are running them full out. Given that situation, coupled with increased production from Intel and Advanced Micro Devices, Hambrecht & Quist analyst Gus Richard believes that microprocessor production will reach between 33-35 million units in the fourth quarter, 3-5 million units, or 10-15%, more than expected consumption. [iionline.com] Where to sell the excess? NIMBY, say American makers. Of course, cheaper microprocessors mean cheaper computers for American consumers, which makes an opportunity for the Intels to compete with the Dells for political protection. May the better lobbyist win. Actually, the economic lobbyists have a problem with Washington being consumed in a silly impeachment squabble.

The Customer Doesn't Know Best. If you're listening to your customer it's almost preordained that you'll miss the new market. And when the new market expands to encompass the old market ... that's when companies becomes obsolete. David Eisenberg, AT&T techno-nerd.

A good principle for SBIR from Edwin Land: Don't undertake a project unless it is manifestly important and nearly impossible. Land's principle would enable a cutback of SBIR to a fraction of its present size and would free the agencies to pursue their normal R&D with small business without having to pretend about irrelevant commercialization. Those few agencies who wanted to use SBIR for seeding new technologies that would go through the private market to volume use could still do so.


Humans share 98% of their DNA with the great apes. But that last 2% - the intellectual part - is enough to permit our species dominion over the Earth, while the apes occupy a corner of the local zoo. [Rich Karlgaard, Forbes, Oct 19] If we go to Monterey for the weekend and leave the light on, we will have consumed as much in the way of artificial illumination as an average pre-1850 American household consumed in a year. Such consumption would have cost that household about 5% of its income in candles, tapers, and matches. [J B DeLong, [Wilson Quarterly, Autumn 98]

GaAs Rides Finally. The wild popularity of the cellular phone has propelled gallium arsenide technology from the niche military market into the consumer mainstream. And Massachusetts has emerged as one of the leaders in gallium arsenide semiconductor production, with several companies that have watched sales boom as gallium arsenide products find their way into all kinds of wireless communications products, including futuristic intelligent household devices, personal digital assistants, even automotive radar. .. Alpha is among a group of Massachusetts companies - which includes Kopin of Taunton, M/A-COM Inc. of Lowell, Hittite Microwave of Woburn, and Raytheon Microelectronics of Andover - that makes or designs gallium arsenide wafers, amplifiers, receivers, and other communications products [Boston Globe, Dec 23] All that government money poured into the material of the future finally came to some fruition - a sure sign that more such wishful thinking will also rationalize other uneconomic R&D.

John Cramer's "Einstein's Bridge" (Avon Books, 1997) tale involves time travel and high-energy particle physics, but in one scene, we witness his protagonist, George Griffin, finishing his work on a plane flight. Here he explains to a fellow passenger how his 21st-century laptop works: "[Data cuffs] go around my wrists and measure my hand and finger positions by monitoring the movement. ... They send the information to the computer over another infrared link. The glasses were making the image of a keyboard on the tray table. When I typed, the cuffs detected my finger motions, the computer correlated them with the locations of the keys it was drawing, and the words I typed appeared on the computer screen that I saw on the seat back." In other words, what his fellow passenger saw was a man seeming to type on a tray table while staring at the seat in front of him. For the user, the "screen" floated in front of his eyes, while the "keyboard" was an image on his tray top drawn into virtual reality with electronic glasses. George's actual computer was a workstation in a briefcase that he had placed under his seat, sending data by infrared link. [Paul Gilster, Raleigh Observer & News, Dec 20] OK, in your next SBIR proposal, how will you project your contribution to such a vision? Or do you think that government reviewers and academic scientist panels have no vision to excite? Whose got the lesser vision? You or them? And whose role is it to excite a vision?

Somewhere on the list are other longtime concerns such as the continued decline in commodity prices, on which underdeveloped economies rely, the possibilities of inflation or deflation, Social Security. . . . Why go on? Statistics show 40 percent of the world's economies are in recession, with some beyond recession and into collapse. And in a world economy such things as these cannot be geographically contained. ... Despite the troubles, and even as new ones are added, the economic and market forecasts and expectations of many Wall Streeters remain unchanged. While it is encouraging to see such stability, it raises questions of why. ... In some instances, "why" isn't difficult to determine: Corporate economists aren't likely to broadcast expectations of a very poor year, and brokerage houses understandably resist discouraging investors. [John Cunniff / Associated Press, Minneapolis Star Tribune, Dec 20]

Is it Pete Sampras's racket or Pete Sampras' racket? There is no rule, says the Washington Post's Red Pencil, because the experts cannot agree on a standard. You can find a quotable source for whichever form you choose. The genitive gets even messier when you have a plural of a proper noun. If there were two of Sampras, how would you describe their rackets? I once looked it up and found three authoritative answers in three different authoritative books. SBIR proposers, though, make a lot of other mistakes with the genitive on which authorities do agree, such as "its".

Almost 525,000 workers have been laid off in 1998, primarily in the high-tech industry, and the number is accelerating every month. Perhaps what's more troubling to many economists is that smaller cities such as Rochester, Minn.; Boulder, Colo.; and Huntsville, Ala., have yet to experience the full brunt of the Asian financial crisis. According to a soon-to-be-published report by Dynamic Resource Solutions, a Pennsylvania-based economic forecasting firm, the high-tech industry may be more vulnerable to a global economic downturn in some of the smallest cities in the country, not the high-tech megacenters such as San Jose and Boston. [Cincinnati Business Journal, Nov 30]

An Intellisense puzzle. You have two ropes. Each takes exactly 60 minutes to burn. They are made of different materials so even though they take the same time to burn, they burn at separate rates. In addition, each burns inconsistently. How do you measure exactly 45 minutes? Answer from Intellisense (Wilmington, MA)

The problem is the time it takes them to commercialize a product. Any respectable company can do this in two to three years. The problem with R&D is they don't know how to rapidly take products from the bench scale to commerical in a short period of time (requires team work and engineering know how). In addition the company just doesn't understand that there has been no progress in the development of their bread and butter water treatment carbons. You cannot stand still in a market with old products and except to be competitive. These products performance could easily be improved by several factors (like computer disk speed) if management would encourage innovation. [jabber from a Yahoo message board in an NYSE firm] Sound like an SBIR firm problem?

Internet to the rescue! The further north the aircraft and the closer to the poles, the higher the radiation doses." The research shows that a passenger on a London-Tokyo return flight receives the equivalent of six x-rays, on a London-New York flight three x-rays and the same dosage on a London-Rio flight. By comparison, the average doses received from cosmic radiation on the ground in Britain is equivalent to 13 x-rays a year. ... "All frequent flyers should be registered in the same way as aircraft crew. Some businessmen will fly more than the crew. Cancers in some people can be instigated by exposure to cosmic radiation." ... The opposing voice, oh sure, the profit-makers, like British Airways, There is no medical evidence of any adverse health effects for long-haul flight crew which could be related to cosmic radiation exposure. [The Sunday Times, Nov 29] during a visit to America, [DTI Minister Peter] Mandelson said Britain needed to look at ways of changing its business culture. He thought entrepreneurs who failed should not be dismissed as permanent failures but rather should be seen as potential stars who would not make the same mistake twice - a view common in America. As part of this attempt at changing the culture, Mandelson has ordered a review of the bankruptcy law to try to "reduce the stigma of financial failure". [The Sunday Times, Nov 29] Whether SBIR deciders care about previous bankruptcy has not been tested since few pay much attention to the business prospects anyway. Worse, there is a still a gaggle of technical people in DOD who resent the company's even making a profit. If you want an SBIR program that gives you credit for being an entrepreneurial business, go see BMDO. No, not just talk about entrepreneuring, actually doing it.

Black and Scholes sent their paper in Oct 70 to Chicago's The Journal of Political Economy. The editors rejected it saying, "too much finance, too little economics." Harvard's Review of Economics and Statistics equally rejected it without referee review. Chicago finally published it in 1973 after two faculty interceded. The article turned out to be one of the most influential pieces of research ever published in the field of economics and finance. [Peter Bernstein, "Against the Gods: The Remarkable Story of Risk", Wiley, 1996] A Nobel Prize and the bailout of LTCM followed. Got something really innovative? No, not a nice piece of research on well- established lines, something new. But don't be shocked by its rejection, even by SBIR which is supposed to be taking small chances on remarkably new ideas. The conservatives in the federal agencies fund what they understand. So, YOU have to tell a story that changes their minds.

Hayes Corp, the developer of the PC-modem 20 years ago, went back in to bankruptcy for the second time in three years. [ChiTrib, Nov 28] For those who remember the dumb terminal and the acoustic modem, the Hayes modem was a great innovation. But life moves on after a great innovation runs its course having spurred even greater innovation and worse - competition for the juicy profits. SBIR proposers with glowing commercial hype for the government should remember that fast-paced innovation sows the seeds of its own destruction. It's OK to fool the government but don't fool yourself in the process.

Michael Malone did a thoughtful piece on Silicon Valley history back to 1777 in Forbes ASAP's special issue on time (Nov 30). Tech journalists will flock to any technology that delivers an order of magnitude increase in speed - call it Moremoremore's Law [Wired, Dec98]


Economists are usually accused of three sins: an inability to agree among themselves, stating the obvious, and giving bad advice. [The Economist, Oct 3]How about scientists? Same sins? Disagreement is healthy where answers are unknown; stating the obvious panders to conventional wisdom even when wrong and especially when in denial about inconvenient change; anyone who believes advice from economists can't complain. In an age unaccustomed to scientific discovery, the notion that information could be passed through wires ran contrary to convention and received wisdom, and was stoutly resisted. Not until the 1850s did the telegraph begin to win acceptance. [J Yardley, reviewing Standage's The Victorian Internet, Washington Post] Does your SBIR proposal for a revolutionary technology (yes, a few have it) project a vision of disruptive innovation, or do you think the government so dumb that you talk only about substitution in a present paradigm?

[technical skill] is an entry level requirement. You have to have enough to do the job - but that's not what sets star performers apart. A UC Berkelely study, started in their 1950s, followed a group of PhD students in science and the technical fields for 40 years. It turned out Emotional Intelligence abilities were four times more important than IQ n determining professional success and prestige by the end of their careers. And a study of managers who failed found it was always because of a deficiency of EI. [Daniel Goleman, Wired, Dec 98] Goldman's 1995 book, Emotional Intelligence, now translated into 30 languages explains how "soft skills" matter more than science and forms the basis for his consulting firm Emotional Intelligence Services. Scientists intending to write SBIR proposals, especially Phase 2 proposals to commercially-minded agencies usually could use some advice on why the government guy won't swoon over their science.

Your job if you are an academic technology researcher is to invent ideas, dress them up snugly and send them out into the world. You can cheer them on, but in the end they have to make it on their own. Your reward if they do is to be proclaimed a visionary and issued a temporary license to pontificate. ... A new Haven CT company called Scientific Computing Associates foresightedly built the first industrial strength version of tuple spaces in the mid-80s. Today SCA has customers world-wide, from oil and pharmceutical companies to microelectronics and financial services. [David Gelernter (Yale prof, author, and Unibomber victim), Wall Street Journal Europe, Oct 28]Gelernter was part of getting SCA started and SBIR played a small role in Beverly Thalberg's company. But she made the company into a force of distributional computing mostly on private money and diligence. See her sometime on BMDO's video Her Window of Opportunity. Gelenter also describes his later saga in getting another company going, Lifestreams, a Yale spinoff. He says We described the project to what seemed the right federal agency (unnamed and likely not the best choice anyway by an academic) and also to private investors. Result: we couldn't get the funding agency to invite us to Washington for a visit, but prospective investors came to see us. Nowadays, private capital often seems a lot more enterprising than federal agencies. Wait a minute, David! Isn't that the way a free market government is supposed to work? If private funds will do it there is no direct role for government. Besides, entrepreneurs don't wait for an invitation, they break down the doors. SBIR straddles a middle ground in such a situation by allowing a cold proposal a reasonable hearing although the decision on funding is rather unpredictable and unlikely to mimic private sector judgments.

An acute shortage of skilled workers in Massachusetts will continue to plague high technology and related companies and could further limit growth of an economy that is already slowing, according to a new report. [Boston Globe, Nov 6] The Mass companies had a chance at Tech East '98 last week to steal techies from the companies exhibiting at the combined Photonics East, NASA Tech 2008, and National SBIR Conference.

Technology, the engine of the Wall Street bull market, will be the at the center of the storm as companies reverse trend and slash their information technology budgets.... The root cause of the crisis is excess capacity. Asia has proved the key victim precisely because it was the region where the multinationals and international banks were most willing to invest and lend on account of their unquestioned belief in the never-ending Asian miracle. This is nothing new. Indeed it is the oldest story in capitalism. [CHRISTOPHER WOOD, "Embrace Creative Destruction", Wall St Journal, Oct 21]

Interest rates on short-term Treasuries fell to the lowest level in years - 3.85%. Long term money is down around 5%. At such rates, long term investment has a much better chance than at high rates and new technology with far-off income streams gets more attractive. Low interest also means that real engineers have a shot at the executive suite in place of the money engineers who rose to power in the 60s when discount rates soared.


The amount of data that can be squirreled away on a square inch of disk surface has increased by 60% every year since 1991. Over the same period, the cost of storage capacity has fallen from more than $5 a megabyte to a mere five cents. [The Economist, Sep 19] If you are going to make economic arguments for your SBIR commercialization (For the agencies who would actually read and understand them) you need this kind of reasoning from which you build a scenario of how your technology will do likewise when it grows up. Just citing, for example, the size of the PC market in mega-billions does nothing for your case if you don't ever show that you could get one nickel of it. Today's T-1 line costs about the same as a monthly lease for a BMW 740i. But by 2008, the cost of a T-1 line is sure to drop to $20/mo, when it morphs into a wireless service from Teledesic. Cable modems the shuffle 3M bits per second will be given away like plastic dog whistles in boxes of Froot Loops. ... The Web is sure to throw this trend into warp speed. It allows a handful of smart people with T-1 connections to skim off the real value proposition and leave the large incumbents holding the bag of commodity assets and sunk costs. [Rich Karlgaard, Forbes, Sep 21]

Can't Keep Up?. There were only 50 Web sites when Clinton first entered office; today, 65,000 sites are being created every hour. [J Swartz, SF Chronicle, Sep 24]

Gloomy forecast for tech stocks Warning: The following contains cautionary language from a normally upbeat type, an investment banker. The head of technology stock sales for Morgan Stanley Dean Witter advises clients that the view isn't pretty. Ruth Porat, ``It's unclear today whether we've really reached that firm ground.'' Her numerous data points -- statistical and anecdotal - suggest it's a matter of months, not weeks, before the market for tech stocks recovers. For instance, Morgan Stanley's economists recently have cut their forecast for world economic growth in 1999 from 4% to 2% and she reports that the consensus opinion of Morgan Stanley's money managers is that Wall Street estimates for overall corporate earnings next year are too high. And perhaps her scariest input: ``The only time we saw volatility like this was the (autumn) of 1987.'' What's more, the poor performance overall this year of initial public offerings tends to feed on itself. Fund managers like to invest in IPOs because they can win outsized returns. The average 1998 technology IPO is down 7.3% through last week, with 29 issues above their offer price and 33 below. However, she says,``Terrific stories transcend difficult markets,'' [A Lashinsky, San Jose Mercury, Sep 25]

Foray into South, Disaster at Home Front. The ominous-looking loan quality problem at Silicon Valley Bank that caused the single biggest sell-off of SVB stock in history. The Sept. 10 sell-off, during which SVB's stock plummeted 42 percent to $14.81 a share, was prompted by two analyst reports forecasting higher-than-expected loan losses and non-performing asset levels. It was accompanied by the largest volume in the bank's recent history: More than 4.8 million shares were traded, compared with the stock's average volume of fewer than 100,000 shares a day. [Silicon Valley Business Journal, Sep 21]

Two Bay Area researchers have won the top awards in the first annual Merrill Lynch Forum, an innovation grants competition intended to move doctoral research off dusty library shelves and into the marketplace. Both Bay Area winners, who were told of their prizes at a New York banquet Tuesday night, have developed technology that could create entirely new niches in the chip industry. University of California, Berkeley student Jan Mark Noworolski invented a way of making chip-sized power converters, an innovation that could reduce the size, complexity and weight of portable electronics. Stanford University student Jay Groves figured out how to put biological membranes on chips, a discovery that could alter a $100M segment of the medical diagnostic industry. Other winners conducted research that could result in a male oral contraceptive, artificial retinas to restore sight to the blind and cholesterol-reducing yogurt. Noworolski received the competition's $50K first place prize. Groves collected $20K for second. [San Jose Mercury, Sep 18] In principle, SBIR could do likewise. In practice, the government cannot pick winners as well as Merrill Lynch's panel of nine venture capitalists, entrepreneurs, innovators and a journalist who pored through 213 entries from 16 countries.


When the history of the 1990s bull market is written, one of the more intriguing postscripts will be that it has given birth to so many new companies that created so little wealth. From May 1988 through the market's record high on July 17 of this year, stocks of America's blue-chip companies rose more than fourfold. In that period, about 4,900 companies had initial public offerings. Their fate? Just 71% are still trading regularly, and of those, on July 17 fully 44% were below their offering prices, a study by Piper Jaffray Inc. shows. Of those no longer trading, most had been delisted; about one-quarter had merged or been acquired. Piper figured the median annual returns of those still trading. Though the study has its limitations, its results are striking: The median annual return as of the July market peak was a minuscule 2.4%, not even beating Treasury bills. [Wall Street Journal, Sep 15] While turmoil in the public markets has upset the fund-raising plans of companies of all sizes, it is proving especially troublesome for smaller firms with fewer resources and financing alternatives. Start-ups seeking seed money may be suffering most of all as the stock market's decline erases some of the wealth of the people who supply such funding. ... With declining demand among public and corporate buyers driving down the value of venture firms' existing investments, venture capitalists now are offering less for new stakes in companies. "Their job is to increase returns to their investors, and one way to do that is to pay less," says Allan Will, an entrepreneur turned venture capitalist and chairman of the Foundry, a business incubator for medical-devices firms in Redwood City, CA ..... Moreover, publicly traded corporations, which have been huge sources of funding for small concerns, are starting to divert cash to buy back their own shares, says Andrew Duncan, president of EC Co., a Palo Alto, Calif., provider of software to conduct electronic commerce. [M Selz, Wall Street Journal, Sep 15]

The gibberish resounding from Wall Street is so loud I can scarcely hear myself losing money. Ever since this Jello market began to jiggle, any pundit with a tongue to wag has raced before the television cameras to declaim in the most sober and sapient tones the foulest nonsense to hit the airwaves since Howard Stern first panted into a microphone. [Steven Levingston, Boston Globe, Sep 15] Ever think of writing an SBIR proposal with Levingston's breezy style?

Every January between 1982 and 1997 analysts as a group forecast a 22% increase in the earnings of the S&P index. Actual earnings were up 7.6%. [D Dreman, Forbes, July 27] Don't worry that the government SBIR deciders won't believe any estimate you make of the earnings from your technology. The few who care won't know to check your previous forecasts. It is better to make some forecast than to just wave your arms.

Brazil That's what the diplomats call a place that has great potential and always will," says Ilan Greenberg [Bloomberg Personal Finance, Oct 98] The future vision never arrives. An example: the 9.5 million videophones that one firm expects will be sold by 2002. Video phones have been predicted since the age of the vacuum tube. It was Brazil then and it's Brazil now. That's the problem with technology and the future. Ultimately everybody is guessing, even the gurus. To see such vision, sift through SBIR proposals for electronic materials. They're all the situation of the two economists who fell into a well: said one to the other, "Simple, assume a ladder."


The shift to a technology-based economy was clearly marked by IBM's introduction of the personal computer in 1981, which int run led to an economy being driven by ever-cheaper semiconductors. ... The essence of high-technology is rapid product advances due to heavy spending on R&D. [Michael Murphy, Bloomberg Personal Finance, Oct98] Murphy argues that we undervalue technology because we are still using measures developed for an industrial world dominated by physical capital. He argues for a growth flow metric of earnings plus R&D to replace earnings plus depreciation. You gotta have ... help. Pres Clinton went to China with a staff of 800. Pres Lincoln began in office with a staff of one assistant. By the time he had won the Civil War it had ballooned to - three. Imagine what could have been accomplished with 800. The Union would probably still be dug in around Petersburg. [Chris Buckley, Forbes FYI, Fall 98] Ever wonder why government solutions take the conventional path? When many people each have a veto and a power incentive to use it, the muddling middle triumphs. While that may be good for lawmaking where you don't want disruptive change, it will not produce any remarkable progress which is the alleged goal of R&D.

(Sep 8) IPOs are extending their late summer vacation by not showing up for work this week. Not until "small-cap stocks show a visible recovery", they're down 20% from their highs, "accompanied by positive cash flow into the funds", will IPOs re-emerge, says Greg Eisen, a small company fund manager. (WSJ, Sep 8)

Markets never learn from their errors because the 28-year-old who gets fired is invariably replaced by a 22-year-old with no knowledge of history. [Callum Henderson's Asia Falling [Barron's, Sep 8]

Can't Get Your Price? It'll Get Worse and Better. Since 1749, prices have risen at double digit annual rates in wartime, buy have fallen more than 1% per year on average in peacetime. ... The Fed nd other central banks continue to fight yesterday's war against inflation. [Even in wartime, politicians hype lower rates. That's why they hired a central banker to say no and take the abuse.] the developed countries have, in effect, exported the industrial revolution abroad and are importing the low-cost output in return. Never mind, SBIR proposers, just continue your simplistic appeal to economic nationalism. The SBIR deciders don't know much better and won't hold you ignorance against you.] With 1% to 2% deflation, 30 year Treasury bond yield will fall from the current 5.5% level to about 3%, low by recent standards but high in real terms. But remember that the lower the long term discount rates, the less excuse you have for not finding longer term investors. Still, don't worry much, the people who invent things like Tibbetts Awards will find a way to urge Congress to throw money at a problem that no longer exists. [facts from A G Shilling, Wall Street Journal, Aug 26]

There's no inventory in the system, and the Internet demand is doubling every 100 days. It's amazing. The things that people want to do on the Internet is probably over time going to force them to get more and more sophisticated equipment (which will increase the demand for semiconductors). ...Remember Moore's law: Every 18 months you get a new technology. In three years, that's two generations, so a lot of the plants that were around in '95 essentially are functionally obsolete. LSI Logic's CEO Wilf Corrigan on why the semiconductor industry will snap back in 1999. [San Jose Mercury, Sep 7]

An Ominous TrendAsian nations turning away from capitalism The sudden meltdown of Russia's currency and the volatile swings of the U.S. stock markets have triggered a collapse of confidence in the West's prescription for Asia's economic crisis. Some Asian nations are closing their borders to currency speculators. Others are intervening massively in their stock markets to prop up battered prices or raising tariffs to protect domestic companies. Still others are beginning to defy International Monetary Fund demands for fiscal austerity by boosting deficit spending. Taken together, these moves suggest Asia is losing confidence in the free-market medicine the IMF and the United States have advised for the ailing global economy. Asian officials and some Western economists argue that nations have no choice but to try to defend their economies from currency speculators and other predators. [MICHAEL ZIELENZIGER, San Jose Mercury News Tokyo Bureau, Sep 3] If capitalism gives way to "managed economies", all bets are off on whether a new high-tech development will have any economic power. Whenever governments get into improving the country's economic position, politics trumps economics, followed by corruption. If things get bad enough, trade wars start and every nation has an impulse to self-protection of some sort. Our politicians are not immune from the disease - witness the debate and the programs in the 80s to counter Japan. Back would come "critical technologies" and "technology investment" programs with criteria other than economics. The politicians and the bureaucrats would drive investment which would find fewer opportunities and would retreat to safe harbors - the mattress. An ominous trend.

A Ferric Clash. Will it be Ramtron's PZT or Symetrix's superlattice materials? The Economist (Aug 22) reports a battle over standards between the two technologies, both born in Colorado Springs and adopted by competing Japanese FeRAM makers. FeRAMs would replace DRAMs if the industry can agree on a standard. Therein lies the battle like the VCR standard battle of the 1970s. Symetrix got a small hand from BMDO's SBIR in the 80s; Ramtron got to the world stage without any DOD nor NSF nor NASA. (The other agencies do not let the public into their SBIR records so readily as DOD, NSF, and NASA Phase 1.)

Like Contests? Motorola and Kopin have jointly sponsored a Virtual Display Application Design Contest to develop ultra-portable product concepts using the leading virtual display technology with Motorola's VirtuoVue(tm) Display module incorporating Kopin's CyberDisplay(tm) AMLCD display. To enter, contestants simply submit a write-up on how the virtual display can be incorporated into an exciting, new product and how the market can benefit from Motorola's and Kopin's technologies. Entries will be judged on creativity, technical merit/accuracy, applicability, product feasibility and market potential. Grand prize $10K; entries until October 30, 1998. Motorola's VirtuoVueQ(tm) Display module, incorporating Kopin's CyberDisplay active matrix liquid crystal display is a virtual display solution which includes display panels, required optics, control and interface circuitry and connections, as well as a backlight support. For more information and an on-line entry form: http://sps.motorola.com/vv_contest


From the Internet to biotech to cutting edge technologies that are just now nearing commercialization, the US is riding a groundswell of innovation that could carry it well into the next century. [Business Week, Aug 31] Thus starts Business Week's optimistic preview of the 21st Century of a tech-driven world. But today's innovations have a better chance of succeeding because they are being driven by the private sector in response to the profit motive, which automatically gives an incentive to seek out technologies that are economically viable. Could government get the message and join SBIR to the profit motive to sponsor those innovations most likely to grow on their own once seeded?

When High-Tech Becomes a Commodity Fiber-optics industry in Mass. reeling tough times for the people trying to develop a small patch of Central Massachusetts into a hotbed of fiber-optics ventures. Senator Kennedy was on hand when the Center for Advanced Fiberoptic Applications welcomed a new member, its 14th. The problem: the two Sturbridge-based companies that tower over the other fiber-optics businesses are both on the skids with no short-term rebound in sight. SpecTran has been hit by a worldwide fiber-optic glut and its stock is down an astonishing 72%. Down the road, Galileo is down 60%. The center itself was a creation of commercial interest and government support. The idea: provide pooled product development work that small companies couldn't afford on their own and help move those businesses from component production to more lucrative system work. Most of the local fiber companies signed up. .. Local fiber executives like to think of Southbridge as the birthplace of fiber optics in the 1950s. American Optical, then the nation's largest maker of eyeglasses, never did much to commercialize the idea. It also missed the development of plastic eyeglass lenses years later and now exists primarily as a landlord of its old buildings. SpecTran is overshadowed by truly giant companies like Corning and Lucent, which are both customers and competitors. Corning boosted its capacity and other rivals in Asia added more supply to the market. Although demand for fiber optics continues to grow by 15 percent or more a year, excess supply and a strong dollar are slashing prices for US producers. Prices for single-mode fiber-optic cable used for telecommunications are down by more than 25. Galileo has struggled to recover ever since its biggest customer Xerox walked out the door early in 1997. [S Bailey & S Syre, Boston Globe, Aug 21]

Deloitte & Touche LLP, one of the nation's leading professional services firms, announced that it has updated the finalist list in its ``1998 Orange Coast Technology Fast 50,'' awards program to included more winners and give special recognition to subsidiary companies with impressive performance. ... The 50 include SBIR winners: AstroTerra, HNC Software, Irvine Sensors, SRS Labs, and ViaSat.

His book had foretold everything: the rise of networks and network economies, the migration of value from hardware to software, the rough summary judgments that global financial traders would impose on dumb governments, the death of vertical integration and the birth of a plug-and-play economy.[Rich Karlgaard's comment on Walter Wriston's 1992 The Twilight of Sovereignty, Forbes, Aug 24]

The U.S. economy is in the early stages of a powerful new wave of innovation, not the later stages of maturity. Information technology already spawns nearly a third of all growth. Biotechnology, the next big thing, is starting to roll out new products. Nanotechnology is poised to create a new generation of miniaturized consumer electronics early in the next decade. The innovation pipeline is full of breakthroughs. [Editorial, Business Week, Aug 31]

The first thing to learn is a little humility. Everybody today believes that the present information revolution is unprecedented in reducing the cost of, and in spreading of, information - whether measured by the coats of "byte" of by computer ownership - and in the speed and sweep of its impact. These beliefs are simply nonsense. At the time Gutenberg invented the press, there was a substantial information industry in Europe. It was probably Europe's biggest employer. It consisted largely of thousands of monasteries, many of which housed hundreds of highly skilled monks. Each monk labored dawn to dusk, six days a week, copying books by hand. ... Fifty years later, by 1500, the monks had become unemployed. [Peter Drucker, Forbes ASAP, Aug 24]

...the Information Age which had all the markings of a soulless IQ Age, has turned out differently than expected - call it a Network Age, which commoditizes IQ and pushes value to speed, creativity and the kind of derring-do once thought reckless. Suddenly Japan, lacking those critical factors, finds itself in the wrong quadrant, while the party moves on. [R Karlgaard, Forbes, Aug 24] SBIR could work the same way if government would act as a driver for many new ideas. Instead government lives on in the Scientific Age emerging from WWII where IQ (and associated academic preparation) dominates. No, don't bet on it. Jon Barons are few and NASAs are many.

The revisionists' great mistake was to believe that a handful of government planners could outthink millions of private decision makers - could pick "strategic" industries, allocate capital in defiance of market signals, and prop up the stock market and real estate values. Only a few short years were needed to burst the bubble. No that's not about the ATP program (whose assumptions are much the same only on a much smaller scale), nor SBIR (which is just politics, not planning). It's a CATO Institute paper on American analysis of Japan. [B Lindsley & A Lukas, "Revisiting the "Revisionists": The Rise and Fall of the Japanese Economic Model, CATO Policy Analysis, July 98] In case you had not guessed, CATO is a Libertarian think tank.

asserts Robert Prechter, the el supremo guru of the 'Eighties, whose Elliott Wave technical system has caused him to fire mostly blanks in the past decade. In any event, he claims that a bear market has begun that pushes the Dow below 4000, perhaps by the end of December. And before the bear market finally bottoms out in 2003 or 2004, a nuclear winter will descend on Wall Street, sending the Dow reeling into the realm of "triple digits" (i.e., below 1000). "Markets move on predictable waves in mass psychology and not policy mechanics," he asserts."... Hear also .P.Q. Wall, who recently turned bearish after playing the long side of the market for much of the year, is equally gloomy. "Man is mere unwitting actor in a dumb show ruled by merciless economic cycles beyond his control. Get ready for a stock market that will deliver repeated lashes to investors over the next five or six years on its way to under 1000," You don't have to believe any such bearishness but you do have to recognize that split opinion on investing causes split personalities in the markets. Your idea can get caught in one of those swirls just when you need to raise a pot of capital. [quotes from Barron's Aug 10]

I don't want to be a prognisticator because there's no percentage in it. But look at the number of people in this country who don't yet have PCs and how PCs are getting more affordable. Steve Ballmer, President, Microsoft, Upside, June 98] If you're going to convince the government that you have real commercial potential from an SBIR (not just the usual pieties that government wants to hear but has no intention of believing), you have to forecast a scenario wherein your product wins a market. It is NOT enough to forecast a zillion PCs with no credible reason for you to get any piece of the PC market. Oh, don't worry, the government guys don't really know whether you are right.


...already a magazine .... the monthly Digital Coast Reporter is produced in New York--one of Los Angeles' biggest rivals. Jason McCabe Calacanis, editor and founder of Silicon Alley Reporter, launched Digital Coast Reporter in April as an insert to his 18-month-old magazine. Come October, DCR will be offered as a stand-alone pullout available on newsstands in Barnes & Noble and Borders. "New York and Los Angeles are very similar, but Silicon Valley is very different," said onetime Angeleno Calacanis, explaining his interest in the Digital Coast. "Silicon Valley is about the plumbing. New York and L.A. are about what goes through the pipes." (Besides, he said, "the people in New York and L.A. are better-looking, funnier and dress better than people in Silicon Valley, who are boring and don't look good in photographs.") [LA Times, Aug 3] The Dayton-based National Center for Industrial Competitiveness gave a $500,000 loan to Springboro-based Color Savvy Systems Ltd., which it can draw on for two years, and a four-year $200,000 loan to Pinnacle Products Group Ltd. But NCIC's manager of business development, said Color Savvy may not need to use any of NCIC's funding -- which NCIC said would be used for working capital -- if the company's revenue grows as Savvy's business plan predicts. NCIC is a $20 million venture capital fund, specifically targeting technology companies. .. Last year, [Color Savvy] was one of three companies to get part of $1.15 million in funding from the Miami Valley Venture Capital Fund. [Dayton Business Journal, Aug 3]


High-Tech is More. High-tech aficionados typically extrapolate from their success to a working advance. Not so easy, as the anti-missile debate continuously shows. Advocates who blame treaties [as M Kirkpatrick, What's Blocking Missile Defense? A Defunct Treaty, Wall Street Journal, Aug 3] assume that mere legalities prevent a deployed defense. Actually the treaty makes political cover for not spending tons of money trying to do what cannot be done anyway. For all the high-tech advances, systematizing has proved a tougher job than the advocates will admit. More and more high-tech is still needed but cannot be used until its reliability comes up to military. As a result, BMDO will still need SBIR-fundable advances that can be turned into working systems. Unfortunately for both the ultimate users and the small developers, BMDO cannot afford to wait for the new tech to be developed nor to invest in the multiple options to raise the chance of getting one working combination. What then is an SBIR company to do? Get SBIR to start development of something that, with demonstrable success for under $1M, would then be pursued by other monied actors (like commerce which has all the real money) for unmissile purposes. No, forget it, there is almost no chance whatever that BMDO would continue the development with BMDO money. It has declined almost every chance to do so in its entire history. It at least has the good sense not to start something with Phase 2 SBIR that would die without BMDO follow-on money. BTW, the other DOD components have the same problem with big performance jumps but adopt a different SBIR strategy of ignoring those needs and using the SBIR money for small predictable advances that either could be safely bought (but probably won't be) or merely advance internal DOD knowledge of the subject.

Need an Economics Lesson? New research suggests small-stock performance has suffered and will continue to languish because there is a significantly greater supply of small stocks and much less demand relative to large stocks. The supply-and-demand dynamics have changed fundamentally in the past 10 years to virtually ensure "there will be no mighty small-cap rally this time," argues a study from investment bank Needham & Co., which specializes in small issues. ... In the past 10 years, the amount of venture capital has risen tenfold and venture capitalists are taking companies public faster. [Wall Street Journal, July 31] Thus, there is a downside to the VC boom and yet another reason for the SBIR advocates to plead for government subsidy, as in, "we need help because things went so well for so many companies." If SBIR companies had gone public in big numbers, there might actually be some cause for complaint. But most SBIR went to companies who had no idea at all of going public - companies who just wanted to do R&D for the government.


Three books from Barron's
...convincing proof that small stocks as a class have not historically beaten big stocks. The fact that every Microsoft starts as a small stock leads human psychology to believe the academic claims in favor of small-stock performance, but the sad truth is that a thousand mediocrities and bankruptcies take place for every Microsoft. [J Coxon's review of Dreman's Contrarian Investing, Barron's Aug 3] ... One of the great reads is economist Thomas Sowell's Knowledge and Decisions, the best book I know about the workings of capitalism. The Barnes & Noble I recently visited had it stocked in Sociology, maybe because it's written in English, rather than in the mathematical mumbo-jumbo that most economists prefer ... ... the essays of MIT economist and columnist Paul Krugman are a treat. I don't always agree with what he says, but I'll defend to the death his right to say it, particularly since he always says it so deftly. His Pop Internationalism is the best collection of pieces on the global marketplace I know and soundly raps the knuckles, and names the names, of the economists and economic journalists who think of international trade as a win/lose proposition.

Wonder why your small stocks aren't performing the way the big ones are? It's not you. Large-company shares, as measured by the Standard & Poor's 500-stock index, are up 15.9 percent for the year despite some price slippage the last two weeks. In contrast, the Russell 2000 index of small-company stocks, which chalked up its ninth consecutive losing session Wednesday, is down 2.5 percent so far this year-making it the only broadly based index losing ground. [Kathy Bergen, Chicago Tribune, Jul 30] Maybe that's what SatCon wants to take advantage of while the government supplies its R&D capital needs.


Semiconductor Industry Blues
(Jul 15) New chip technology in jeopardy The chip industry's slump -- which already has slashed company earnings and forced thousands of layoffs -- is now threatening to slow the typically breakneck advance of semiconductor technology. Semiconductor manufacturers are hesitating to invest in the development of larger silicon wafers -- the stuff from which silicon chips are cut -- despite the new wafers' promise of long-term cost savings. And semiconductor equipment manufacturers are saying they can't shoulder the cost of developing technology for these 300-millimeter wafers alone. Publicly, both industry segments are placing most of the blame for potential delays on the factors roiling the chip industry as a whole, including the Asian financial crisis, overcapacity and slowing demand. Privately, however, there are signs of an intra-industry spat: Equipment manufacturers are complaining that chip companies are unwilling to pay their fair share of the cost of a technological advance, while the chip companies are blaming the equipment manufacturers for demanding orders before the technology can be fully evaluated. [TOM QUINLAN, San Jose Mercury News, Jul 14]
At the semiconductor show in San Francisco the faces were long, The industry is going through a downturn that James C. Morgan, chief executive of industry leader Applied Materials , called "one of toughest and unforgiving I've ever seen." His own company has not escaped. Applied had to announce last Friday that it would fail to meet third-quarter estimates - and that orders for future business would be well short of Wall Street's expectations. [ Dow Jones, Jul 14] When Applied Materials is slipping, the rest of the industry is plunging. Even big successes like ATMI (Danbury, CT) feel the sag as its stock dives to a third of its high a year ago. SBIR companies looking for industrial semiconductor partners (those really looking and not just those talking to impress government), even the handful that are making money,may have to depend a little more on SBIR for a while (if SBIR will allow such dependence). It does present a dilemma for SBIR when the politics of saving present jobs competes with the economics of "creative destruction". Return to Index

In Redwood City, Calif., for example, 27-year-old John Lilly invites all the smart people he knows to dream up new high-tech businesses every other Wednesday. Dinner's on his company. All ideas are public domain, like open hands of poker. Pick a theme, any theme. Say, technology and sports. Such informal brainstorming and networking are part of everyday life in Silicon Valley ... People who've built businesses in Silicon Valley say it has four critical elements that Richardson [TX] lacks:
- A generation's worth of entrepreneurial success stories that encourage risk and forgive failure.
- A concentration of venture capitalists with money at the ready.
- Support businesses that cater to tech start-ups.
- Plus, from respected Stanford University near Palo Alto, a constant supply of new players. [Dallas Morning News, July 12] Now, while that story was about how Richardson TX will have a hard time becoming another Silicon Valley, the lesson applies equally to the government's illusion of SBIR competing with SV. Let the beneficiaries and dreamers babble how they can "significantly improve" a technology; let the politicians throw illusory nuggets to small business. The economic results so far would keep any VC far away. Yet, why would anyone be surprised that government agencies would fumble a job that demands risk and reward? Government, after all, works on a principle of re-distribution while private investment works on the principle of concentration.

"Some American businessmen don't even have passports," a well traveled German executive recently remarked incredulously. One sign of this conscious [German]internationalism is that several big German companies have adopted English as their company language. ... But on closer examination the picture is less impressive. Most of German management is blindingly un-global. {Even if Germans outnumber Americans in passports per company.] [The Economist, July 4]

The world, according to Dent, is on the verge of the greatest economic and stock boom in history. "The sudden emergence of information technologies along with the peak spending years of the massive Baby Boom generation, the largest in history, will usher in a new era of prosperity and sweeping changes," Dent says. The confluence of these two will ignite a period that Dent characterizes as "the most exciting boom period since the Roaring Twenties. [Barron's, July 6] If track record counts for credibility, remember Harry Dent predicted the 90s boom in the 80s. Compare Dent with Ed Yardeni's prediction that Y2K problems will shoot a hole in the optimists.

Asia has gotten worse rather than better since the first quarter -- because Asian economic and business leaders are still in denial about what has happened and so they have not done the right things. Instead they've continued to do the same old bad things. As a result, the markets are continuing to punish them.[Barton Biggs, Barron's, Jun 29]

I've been talking to companies we own out in Silicon Valley. Other than the few that aren't hooked to PCs -- for example, LSI Logic -- they tell me business just disappeared in April and May. Whether it wasKLA-Tencor, Cohu, Applied Materials, the story was the same. It's a lot worse than many of the sell-side analysts want to believe. [Scott Black, Barron's, Jun 29]

In less than two decades, America's software industry - indeed, the entire PC industry - has become the most vibrant, innovative and competitive industry in the world. Without government regulators restricting or managing its creativity, it has grown to generate one-quarter of America's real economic growth and 8% of its national output. [Bill Gates, The Economist, June 13] Yet, government R&D programs (like SBIR) pretend that the software industry needs subsidies to promote innovation and the convenient fiction that funding military software will also serve the commercial market. Gates would find thew proposition laughable

All-Star Picks ATMI
(Jun 30) Of all the investment picks of the Wall Street Journal's all-star list of analysts (Jun 30), (former SBIR user) ATMI was the only SBIR company named. The semi-conductor star says the Asian producers have postponed a lot of factory expansion which could bring capacity more into balance with demand.

Top Ten Entrepreneurs for 1998 by The Red Herring had one with SBIR. Dragon Systems, voice recognition software, had $400K of SBIR from DARPA in 1991-1992 while it grew from 40 to 65 employees on the way to today's 280 employees and a 25% equity stake by Seagate Technology. The other nine are either not American firms or they didn't need (or didn't want) a government handout.

The small business dialed up its Internet service provider at noon and the local phone company interjects "sorry, all circuits are busy now". The next morning the phone company says that the problem will be fixed "today". At the end of the day the phone company said, "we cannot do anything about that circuit unless the company informs us of a problem. Is the monopoly phone company then a liar or an incompetent? And does the monopolist care? Is the phone company devious enough to put ISPs at the bottom of the repair priority and thereby induce more profitable voice calls? How far would trust a monopolist? Is there a market for wireless as an alternative to land lines? Can the local phone companies combine into a national monopoly before wireless turns them into either dinosaurs or a completely reborn competitive creatures who can do more than seek paid and friendly regulation?


It's a bigger bubble, [contrarian David] Dreman reckons, than the previous three he's witnessed, two in the '60s and one in the '80s. "Every one of those blew up," he says. "It's not that these companies are bad, it's just that so few survive." Dreman isn't against tech at all. But tech generally isn't cheap now, so Dreman keeps his clients out. He says until recently the Kemper-Dreman fund had 15 percent of its assets in tech stocks, but none now. ... Dreman's edge--every market guru has one-is behavioral psychology. He studies the expected performance of stocks and the expected behavior of investors. And he's keen on studying how other gurus--the much disparaged analysts--"help investors make the wrong decisions, especially on technology companies. ... "Tech is a great area for us because all the analysts are manic-depressive," [Adam Lashinsky, Chicago Tribune, June 1] Some years ago, a demographer gave a speech at Stanford urging that government policy for the future be based on demographic projections. He considered it an unfair question when I asked him how governmental policy since the 1940s would have been better if it had been based on projections made by demographers in the 1940s. He knew as well as I that those projections turned out not to be anywhere in the ballpark. They were not even in the same county as the ball park. [T Sowell, Forbes, June 15] The same kind of skepticism is warranted for technology projections in SBIR proposals or elsewhere. That does NOT mean that predictions should not be made; it means that no one should rely on them. As is well accepted for planning for the future: the plan means nothing, planning means everything.

Unitive, which has developed a new semiconductor manufacturing process, racked up $11M [of VC]. ... Unitive raised local money from the Aurora Fund and the N.C. Technological Development Authority and two international investors, in Switzerland and Taiwan. The company was founded in July 1996 as a spinoff from MCNC, the nonprofit technology center in Research Triangle Park ... Unitive plans to hire up to 300 people as it competes for what it estimates will be a $100M global market. The money was also good news for Unitive's parent, MCNC, which is about to enter its last year of receiving state funding. MCNC officials hope to spin off more companies like Unitive to ensure the non-profit's survival. [Raleigh News & Observer, May 29] No SBIR.

For rent: 7,000 Bulgarian programmers, willing to work cheap. While that wasn't exactly a sign the Bulgarian deputy prime minister was carrying during a visit to the Triangle Thursday, it might as well have been. A delegation from the former Soviet satellite state showed up to study the workings of Research Triangle Park but also was touting Bulgaria as a supplier of hard-to-find software talent to solve sticky issues like the Year 2000 problem. Bulgaria has lots of well-educated people with a knowledge of programming, and given a shortage of technology workers in the West, these Easterners could contribute significantly to the Bulgarian economy if enough firms are interested. [JOEL B. OBERMAYER, Raleigh News & Observer, May 29]


The Brits reached a milestone: more people are standing in line for medical treatment than for jobs. Only socialist systems count queues; capitalists clear the market with price (except for those unfortunates who have no money with which to bargain). A long queue always results from offering a free good; the more the value, the longer the line. In America, SBIR works the same way: no matter how much money Congress dictates for a free-good (this time money) program, a queue will form and complain of neglect. Everyone in the queue will claim a virtuous idea worthy of government subsidy. The program bureaucrats will agree with them and blame the denials on a budget shortage. When the program comes up for legislative re-consideration, the actors who will be denied subsidy (or business) because they were in the group from whom the money was robbed (set-aside) are too diffused and uncertain of identity to mount a counterattack against the handout. no evidence of positive correlation between productivity and high levels of investment ... casts at least some doubt on the assumption that is implicit in much of US fiscal policy - that investment is the primary agent of productivity growth [Laura Power, "The Missing Link: Technology, Investment, and Productivity", The Review of Economics and Statistics, LXXX(2), May 98, 300-313]Investment in R&D is motivated by future profit (except where government spends to create jobs) from either new products or higher productivity of existing products. If the economists cannot find the productivity gains, then the burden of proof falls to new products. Or we need new economists who start with the "right" answer and develop the needed methodology to get there. On the other hand Davis and Wessel ["Prosperity", 1998], among others, argue that productivity gains from a new technology take a long time to appear as they did for electric power (50 years).

Bill Gates isn't the only business person putting out feelers against small changes that could become giant ones. Intel has a portfolio worth $750M invested in 125 small companies. In the VC world that buys a lot of startups. And yes, Intel hopes that some of these investments will turn out to be winners, but a big reason for all this spending is to keep Intel alert to what's going on out there in the marketplace. [Forbes, May 18] Why scatter your investments all over the landscape and get a lot of losers. Why not pick winners? How easy it sounds in hindsight. Says Gates's technology guru Nathan Myhrvold, "The only thing more expensive than doing product development this way is not doing it this way."

Most mystical corporate strategy: We're determined to take our business to the next level. The Next Level is more a quest than a specific destination. [Forbes, May 18] Dan Seligman's "Bromide time" spears the business-babble of annual reports. Sadly, many SBIR proposals have about as much clarity and imagination as the Acme Company's annual report when nothing happened in the last year that hadn't exactly happened for the ten years before. The only difference for SBIR proposals is that it is science-babble.

The first primitive transistors were too unreliable to be accepted for gruelling military applications. Thus, even though it had invented them, Bell Laboratories chose in 1953 not to include transistors in improved versions of the Nike Ajax antiaircraft missile system it had developed fore the US Army. [FM Scherer, Industry, Structure, Strategy, and Public Policy, 1996] So, you got a whiz-bang innovation with overwhelming better performance and the Air Force won't buy it for its new airplane. Shocked, and reaching for your phone to call your Congress member? Save your 35 cents. BMDO's THAAD failures show why: even the tried and true technology fails too often especially when people are watching. Nevertheless, military agencies provided $53M of R&D support to fledgling US semiconductor manufacturers between 1955 and 1960, and military orders accounted for 43% of the industry's sales. So, there's hope seemingly if you are a "manufacturer" in Scherer's terminology.

Beds Outrunning Sleepers. Classic capitalistic response to rising demand - expand supply until everyone goes broke. Coffee, bagels, and now hotels. In extreme cases, called a bubble. Occupancy rates reach a four-year LOW while airlines raise business fares. What should government do? Doesn't that sound like a silly question? Nothing, of course. Wait, careful with your answer. If government should do nothing about hotel investment where big guys can wipe out small guys by over-expanding, why should it "fix" an alleged (but hardly proved) under-investment in high-technology? Students of market v. government should read today's (May 14) WSJ feature "Capitalism is Giddy with Triumph" ]Like never before, the U.S. is unleashing the turbulent forces of the market: competition and choice, prices and profits., and Alan Reynolds's essay "Let's Burst the 'Bubble' Theory'.

A Different Future, Anyone? [Watts Wacker] is not predicting some garden variety change - such as the rise of new industries or a shift in geopolitical power. Watts Wacker says we are in the midst of an honest-to-goodness, economic, cultural and political change of the magnitude of the fall of the Roman Empire or the emergence of the Renaissance. It is ``change so rapid and massive that by century's end it will have swept away nearly the entire underpinnings of modern life,'' Wacker and co-author Jim Taylor, now global sales and marketing director of Iomega, wrote in the introduction of their 1997 book, ``The 500 Year Delta.''. The key to riding a tidal wave of change? ``Do anything that gets you out of your view of the world,'' Wacker says. [Hartford Courant, May 13] Note that if you are trying to sell a future you believe in to the SBIR bureaucrats, you have a problem. Most government people deny dramatic and unsettling change. If you want to hear a more modest approach to future, you might go to the World Future Society annual bash - Chicago, July 19-21. Wacker recounts how, in Vienna, he saw fresh flowers on the grave of Leopold I, the 17th-century Roman emperor. ``Wouldn't you like to have someone to put flowers on your grave a thousand years from now?'' he asked.

Not Straight Up Can't find software programmers? Not all companies have that problem. Virtus Corp (Cary, NC), a small but high-profile software company, laid off nearly a quarter of its work force Tuesday because it had decided to halt development of some older programs and focus on new technology. The privately held company, which develops software that creates three-dimensional im- ages, counts high-tech giants Intel and Motorola among its backers, as well as best-selling author Tom Clancy. [Raleigh News & Observer, May 13] The Wall Street Journal also reported that the unemployment rate among computer programmers over 50 was 17%. Maybe you're looking in the wrong places or with the wrong attitude.


[Les] Vadasz: We [Intel] invested $300 million last year in startups -- all equity deals. For accounting reasons we never take more than a 20 percent stake; usually, it's in the single digits. We also like to make sure that the company has some other professional money, so we have other board members helping the entrepreneurs. [The Red Eye from The Red Herring] editor, Tony Perkins. Get the latest news from the Red Herring Online by subscribing to Red Herring Direct, now delivered twice a week. Perkins is also viewable on Digital Jam, CNNfn's tech news show, every Friday at 7:30 p.m. ET. I'm so happy to see a book like The Fortune Sellers, which exposes the unscientific nature of much of what passes for predictive research in the 20th century. Author William Sherden deftly dissects the entire prediction industry, including weather forecasters, economists, stock market and investment analysts, futurists, technology forecasters and environmental forecasters. They are big businesses. In the U.S. alone, there are 10,000 money management firms, 15,000 actuaries, 172,000 loan officers and 6,000 meteorologists. [Upside Today, May 11]

Bug Brief Soon not just computer geeks but globe-trotting diplomats will be wrestling with the Year 2000 problem. When the G8 nations meet this week in Birmingham, England, to chat about crime, poverty and high finance, they should be talking Y2K, a vice-chair of Goldman Sachs said today. "If it is not dealt with aggressively, then it could be very, very disruptive from the point of view of finance, from the point of view of trade, from the point of view of aviation, from the point of view of telecommunications," Robert Hormats said this morning at the National Press Club in Washington, D.C. Hormats reminded reporters that the G8 summits began in the 1970s to confront the energy crisis, and the Y2K problem could have a similar impact. "This is exactly the kind of issue that the summit ought to deal with... because they need to highlight the importance of this issue," he said. Although Hormats said Y2K wasn't on this week's agenda, Tony Blair, Britain's prime minister, said in March that it would be. Small surprise: What right-minded politician would pass up such an opportunity to scare the living daylights out of the voters -- then assure them he's doing something to solve the problem? --By Declan McCullagh/Washington

They (we) are getting it: Persons aged 50 years old and over surfed the web 19% longer than all web users combined and spent nearly one hour more on the web in April compared to March. [LA Times, May 11] Do you suppose was driven by the need for advice on the ever more complex income tax laws for people with savings.

A Quiz: Which is smaller: electron or atom? Which travels faster: light or sound? Did early humans co-exist with dinosaurs? Does the earth orbit the sun or the sun orbit the earth? [The Economist, May 9] Easy, right, for you techno-trainedYet the public you are trying to persuade that it needs your valuable service, get those questions wrong surprisingly often. And the percentage getting them right hasn't changed in a decade. Complicating the problem may be the public taste for sci-fi movies which may alter science to create a plot without telling the consumer. (No, don't expect the FTC to step in.) Nor is the situation helped by straight reporters fabricating stories as The New Republic just revealed about a hacker story by Steven Glass who is now looking for a new situation. You will just have to educate the public yourselves. Or do you think that too is a government function for which you pay your taxes and forget about it?

In 1896 he failed the entrance exam to the technical school. Later, he spent much of his day puzzling over the theoretical implications of work by Maxwell, Hertz, and Mach. Still later, when Einstein was unsure that his theories would pass the test of experiment, he worried that "If Relativity proves right, the Germans will call me a German, the Swiss will called me a Swiss, and the French will call me a great scientist. If Relativity is proved wrong, the French will call me a Swiss, the Swiss will call me a German, and the Germans will call me a Jew." In 1933, the French denied him employment because of his German citizenship, and he left for the US. [facts from N Davies, "Europe: A History", 1996] So, after he stood on the shoulder of giants, as claimed Newton, European nationalism cost Europe its greatest mind since Newton. And the wider result was that the 1914 Europe that owned the world had by 1945 had squandered it all in another Thirty Years War. What, then, would the American nativists make of the moral? If a Nobel laureate physics theorist sought entry to the US from, say Pakistan, what would President Buchanan or President Gephart do?

In 1896 he failed the entrance exam to the technical school. Later, he spent much of his day puzzling over the theoretical implications of work by Maxwell, Hertz, and Mach. Still later, when Einstein was unsure that his theories would pass the test of experiment, he worried that "If Relativity proves right, the Germans will call me a German, the Swiss will called me a Swiss, and the French will call me a great scientist. If Relativity is proved wrong, the French will call me a Swiss, the Swiss will call me a German, and the Germans will call me a Jew." In 1933, the French denied him employment because of his German citizenship, and he left for the US. [facts from N Davies, "Europe: A History", 1996] So, after he stood on the shoulder of giants, as claimed Newton, European nationalism cost Europe its greatest mind since Newton. And the wider result was that the 1914 Europe that owned the world had by 1945 had squandered it all in another Thirty Years War. What, then, would the American nativists make of the moral? If a Nobel laureate physics theorist sought entry to the US from, say Pakistan, what would President Buchanan or President Gephart do?

What scares most entrepreneurs into making really aggressive revenue projections -- even if they haven't a clue how to live up to them -- is that there are 100 other business plans on the venture capitalists' desk clamoring for attention. "People think they won't get a decent company valuation -- how much the VC is willing to invest -- without aggressive projections," says Paul Morin [Dow Jones. May 7]

OK, we got the technology to eliminate the rush hour congestion, says Gary Becker, Business Week, May 18. Demand dependent pricing; make the Dan Ryan or the 101 or the 128 COSTLY at rush hour. Why not? Politics reflecting the American love of car and the unfettered right to use public roads free. What economists can see clearly looks a lot cloudier to the public. Just ask the gun control advocates whether common sense is. What's it to you? You will have the same problem with your forecasts of demand for your technology. (Fortunately, if all you want is SBIR, you can safely spin almost any yarn you want about the future. The politicians will eat it up and the bureaucrats don't know what's true anyway. Just don't fall into believing your own fantasies.) Technologies especially vulnerable to too easy assumptions include television, video, personal information appliances, anything that requires consumer acceptance.

Got a great new idea of uncertain value? Consider druggist John Styth Pemberton (who?) who sold his invention in 1887 for $283.29 -the biggest steal since the Dutch bought Manhattan. But it couldn't realize its value without another of the greatest and simplest inventions - the Crown Cork and Seal Bottle Cap. The marriage of the two in the 1920s in a temperance beverage created one of world's biggest businesses - Coke. [Paul Johnson, A History of the American People, 1997] But note that it was 40 years from concoction to howling success, not for lack of development capital, but for lack of demanding consumers. To predict whether your new gizmo will go anywhere, you have to project the conditions that would create a demand for it. If you are going to convince a government bureaucracy of such value to get a subsidy like SBIR, you will have to capture the bureaucratic imagination. (They are people too.) Above all, do NOT say that the market is obvious once the science is settled. Even bureaucrats know better.

Not me, Says Buffett, to technologyOMAHA, Neb (AP) -- Billionaire investor Warren Buffett says he won't invest in technology companies because, quite frankly, he doesn't understand them. Buffett told 11,000 shareholders gathered Monday for the Berkshire Hathaway annual meeting that he won't be putting money into Microsoft, IBM, Intel or any of the other high-tech giants because he doesn't know the industry well enough. He plans to leave that market to Microsoft billionaire Bill Gates, the only American wealthier than Buffett. "I've been an admirer of Bill Gates, but I'm sorry I can't put my money behind him," Buffett said. "I don't know what that world [technology] will look like in 10 years. Technology is just something we don't understand, so we don't invest in it." So, look for someone else as your strategic partner for a Phase 2 SBIR and beyond.

The future isn't what it used to be, says Paul Krugman, controversial MIT economist. Krugman notes that Herman Kahn in 1967 overpredicted the technology future: Kahn got a lot of what happened right but most tech advances he predicted didn't come true. [H Kahn & AJ Weiner, The Year 2000, The Hudson Institute] Kahn was famous for his chapter Will the Survivors Envy the Dead? in On Thermonuclear War. Krugman ends his essay in The Red Herring's fifth anniversary issue with The truth is that we live in an age not of extraordinary progress but of technological disappointment. Krugman also predicts some future himself: productivity will drop in 1998, inflation will be back, American triumphalism will turn sour in 2-3 years, Internet growht will slow drastically, jobs for IT specialists will decline in ten years, and a raw-material crunch will re-appear. Because Julian Simon suddenly died recently, no one is likely to pressure Krugman to put his money behind his doomism. Note: even if you believe Krugman's funeral march, don't tell government such stuff in your SBIR proposals. Your competitors would win all the money because the government SBIR deciders people don't believe Krugman. (Actually, few of them understand Krugman's arguments and he is a clear talking economist. If they did understand economics, the SBIR selection lists would look a lot different.)

The Net is an extraordinary method for promulgating communications drool. As such it provides a range of new opportunities for people, communities, businesses, and government to blather and goof-off without ever having to get anything done in the real world. It is a global Congressional committee with 150 million members. It also provides large numbers of people who were once thought of as kooks who couldn't get a job in the Circus the ability to spout absolute nonsense and get taken really, really seriously. [ Gerard Van der Leun, TECHNOBLATHERISM]

The 4000 men at Carnegie's Homestead Works made three times as much steel in any year as the 15000 men at the great Krupps works in Essen, supposedly the most modern in Europe. This higher productivity enabled Carnegie to get the price of steel rails [98% of passengers went by rail] which cost $160 a ton in 1875, down to $17 a ton in 1898. These enormous savings worked their way through into every aspect of the economy, with consequential benefit to the public. No president, by miracles of administration, no Congress, by enlightened legislation, was capable of bringing comparable material benefits to all Americans in this way. [Paul Johnson, A History of the American People, 1997]

The public is a thick-skinned beast and you have to keep whacking away on its hide to let it know you're there. [Walt Whitman, ca 1860] Paul Johnson (A History of the American People, 1997) calls the shamelessly self-promoting Whitman an all-American American. SBIR winners and proposers take note.

Predicting the future is always a tricky business, but most economic forecasters have done an especially disappointing job of predicting the recent course of the seven-year-old U.S. business boom. "No one really saw over the last two years how fast the economy would grow or how low inflation would be," says Dean Croushore, an economist at the Federal Reserve Bank of Philadelphia who surveys private forecasters. {Wall Street Journal, Apr 9] Just because the experts can't get the future right doesn't mean that you can throw up your hands in despair when proposing SBIR. After all, you don't have to be right, you have to sound more convincing than your competitors. And the government reviewers don't know any more than you do about the future.

Hazel Henderson "independent futurist" says mainstream economists have missed the changes wrought by info tech. When you tell economists we are going to a new system that doesn't use money, they get very upset because all of their degrees and skills come from a focus on money. This has been a 25-year long crusade for me, and I've earned a lot of enemies in the economics profession. No one likes to be told that they are obsolete. [The Red Herring, May 98) Note that if you have a real innovation you may be in Hazel's boat, which is perhaps why so few innovations win SBIR and so many incremental advances win instead.

Alley to Valley American Airlines will introduce a daily non-stop flight between San Jose and New York in July -- the first such flight in more than seven years. [San Jose Mercury, Apr 8] Meanwhile, United says it will restrict carry-on. The Des Moines experiment apparently didn't fetch enough objections from fliers. Next move, put "main cabin" seats atop each other by removing remove the overhead baggage racks. At least that way I won't get another laptop dumped on my head.

Mercantilism was on its last legs, overwhelmed by the complexity of global trade and the inability to distinguish what was in the true long-term interests of a country with a burgeoning self-sustaining dominions. Entrepreneurial capitalism, spanning the Atlantic, was already too subtle and resourceful for the state to manage efficiently. [Paul Johnson, A History of the American People, 1997] The 1960s? No, the mid-18th century. Johnson opens with The creation of the United States of America is the greatest of all human adventures. And the small high-tech enterprise in the 1990s is as much an engine of the American growth as it was in the mid-18th century. In both eras, though, government had the self-serving idea that it could and should steer (as a rationale for the powers of office).

A prize for superficial analysis should go to Associated Press for its story that the stock market should suffer from the government's report that U.S. corporations suffered their worst quarterly profit slide in almost four years. [Minneapolis Star Tribune, Mar 27] If the market were scared of last quarter's earnings or even next quarter's earnings it would already have gone down. Stock prices are a "leading indicator" of corporate profits, not a response to already realized earnings. Which is why business pubs like the Wall Street Journal publish reports of earnings v. expectations. Lesson for SBIR proposers? Don't write superficial analysis of your business prospects. Use leading indicators, not lagging indicators, and put some spin on your projections.

Need A Vision? When Intel began, computers were a rare species - hulking machines found largely in government laboratories, tended by specialists in white lab coats. Now many children use PCs to practice their ABCs - on small machines driven by Intel chips. [Washington Post, Mar 27] So long, business genius Andras Grof refugee.

When General Motors called Peter Drucker in 1945 about studying GM, Drucker's academic superiors warned him You are now at the point where you can go into either political theory or economics. With this topic you will lose all respectability in either. [The Economist's review of Jack Beatty's biography of Drucker's views, Feb 14] Drucker's lesson: ignore what academics say about the prospects for an innovation.

It fired him up. ``How do you know if you have a start-up?'' Sheng Feng Li, a computer science student from Cambridge, England, asked Carl Dellar, vice president of engineering at C2B Technologies. Students listened intently for the answer: Find something, said Dellar, that people will buy.... Ah, yes, that could include government, but if it's SBIR, remember that the government is UNLIKELY to buy it with real money when the SBIR ends. That kind of prosaic advice is freely given each week as groups of students, government officials and trade organizations come here from every continent to learn the secret sauce of Silicon Valley. {San Jose Mercury News, Mar 25]


If you're involved in creating, selling or using technology, Growing Up Digital is a useful characterization of your largest future market. [Karen Southwick's review of Don Tapscott's book, Upside, Apr 98] Phillips maintains that trade originates in urban areas, and industry, which focuses on always improving cost variables, spawns close relations with government. This distinction makes it easy to see why industry cannot change as quickly as trade can. [Michael Pellecchia's review of Gods of Commerce, Upside, Apr 98]

WHAT do Madonna and Philip Ball have in common? They both proclaim "We are living in a material world, and both are brilliant communicators. Let me state upfront that Made to Measure: New Materials for the 21st Century is an outstanding book. Written for the general reader, it will also appeal greatly to specialists. If you are a solid-state physicist, chemist, materials scientist, engineer, science policy maker or keen amateur scientist, then sell your shirt to buy it. [Colin Humphreys, New Scientist, Mar 21]

too many hospitals - stuffed to the gills with too much technology, too may beds, and too many administrators says Regina Herzlinger (Harvard Business School) in her book Market-Driven Health Care. What's that heresy - too much technology - after we technologists deny such a concept? For if the medical profession ever thought there was too much technology, we would be in TROUBLE. But as long as a third party pays for development (the government) and use (employer's insurance), where is there any incentive to subject technology to market forces?

Cypress Semiconductor Corp. of San Jose announced a restructuring that will eliminate 320 jobs in Texas and Asia, while Spectrian Corp. said it will lay off 200 workers in Sunnyvale. Cypress Semiconductor said it will reorganize its manufacturing operations in a bid to cut costs and end a prolonged financial slump. The chipmaker said the move will result in a loss of between 6 and 8 cents a share for the first quarter ending this month. On top of that, Cypress said it will take an $85.5 million charge against earnings to pay for the restructuring. ... Cypress employs some 2,700 people worldwide.

American medical technology is the best on earth, but its health-care system is the most wasteful. Americans spend roughly twice as much on doctors, drugs, and snazzy brain scanners as Europeans, but live no longer. [The Economist, Mar 7]So, you have a new technology with medical potential (cure cancer and all that). What will say about it and what will the government believe about your "commercial potential"? Well, since the government people who fund medical technology don't manage patient care, they can be for anything new will advance their careers. Theirs is the classic "not my problem" approach. And government people, like DOD and NASA, who have no interest in medicine anyway, can believe anything they convenient to rationalize their choice of R&D funding.

It seems hard to believe now, but only a decade ago pundits everywhere were paying their last respects to America's lost technological supremacy. and prompting solutions like SBIR. Today, those obituaries are landfill, replaced by glowing tributes to the prowess of U.S. high- tech firms. There's more going on than just a shift of perception: Hard evidence from the U.S. Patent and Trademark Office points to a dramatic acceleration in the pace of U.S. technological innovation. The increased productivity of R&D investment in major firms is striking. Charles Larson, executive director of the Industrial Research Institute in Washington, D.C., notes that IBM received nearly three times as many patents in 1996 as in 1991, despite spending 20 percent less on R&D. Without increasing staff, Bell Laboratories had 809 patents last year, roughly double the level a decade ago. Such theories have been put to the test in a recent paper by Samuel Kortum and Joshua Lerner of SBIR control-group analysis fame at the Harvard Business School. Their conclusion is reassuring: U.S. inventors really are getting better at managing the process of discovery. That seems to be true in a wide range of industries, not just a few stars like biotechnology and software. [Jonathan Marshall, San Francisco Chronicle, Mar 9]

What's A Conservative? A Conservative is a political creature who wants to throw an existing tax structure in the history's most successful diverse society into the trash heap to be replaced by nothing they can even agree on. DoubleSpeak. Conservative? A Conservative respects tradition and requires a thought-through consensus for any fundamental change. Political populists and anarchists spout ideas about destroying the existing structure. Ah well, we get the government we deserve.

Industry experts say about one high-tech job in 10 in the nation's larger companies is currently unfilled. From the Silicon Valley to the Delaware Valley, more openings pop up every day. With skilled workers free to pick and choose, new technology hubs from Chicago to Austin, Texas, to Philadelphia increasingly compete with one another for labor. In Pennsylvania, where rapidly growing companies have created frenzied demand for workers, Gov. Tom Ridge recently recommended incentives and programs to promote the state's high-tech image and attractiveness. ... So acute is the shortage of electrical engineers, programmers and technical support staff that companies will do just about anything to get them. When Cypress Semiconductor Corp. of San Jose, Calif., heard another Silicon Valley company was laying off large numbers of workers, the company's chief executive officer, T.J. Rodgers, quickly hired a plane. For most of a day, it flew over the struggling company, waving a banner: "Cypress Has Good Jobs," along with the company's phone number and Web address. You do what you have to do, said Rodgers, without shame - especially when headhunters are calling "your" workers daily, trying to steal them away. ... The crisis begins to look more severe when you consider that during the years 1986 to 1994, the number of college degrees in computer science dropped 43 percent, from 42,195 to 24,200. [Arizona Republic, Feb 26]

Partnering, the Latest Fad. It's an election year and that itself may explain why so many national and state politicians have suddenly seen fit to make appearances at events promoting various economic bootstrap programs aimed at small businesses. The carousel of conferences in the last two months ... "At a lot of these things, it's usually the B list that shows up, and they can't take it forward because the A list is busy doing their work." Perhaps that observation is too harsh. Political leaders and business owners need to take a break now and then to reevaluate goals and set action plans. But too often, promises go unfulfilled. ... the reality is that, despite all the talk about entrepreneurship and innovation, many of these public-private programs simply add another layer of bureaucracy to assure that business-as-usual can be conducted even in neighborhoods that don't have business-as-usual environments. The end result is that those in minority and low-income communities that don't fit the model either don't get the help they need and fail, or they find away to do it themselves. And the promises keep right on coming. [LA Times, Feb 18] When politicians offer nice sounding phrases like partnering, take a cold look at your calendar and competing time demands. Politicians and bureaucrats have little else to do in a free market economy.

Half the lobbyists in this town claim credit for the sunrise at least once week said Bruce Babbitt to a Congressional committee whose chairman thinks a particular lobbying issue ought to be investigated just as a matter of course despite no evidence of any criminality. What still true is "where you stand depends on where you sit".

Murphy's Law - Buy Technology NowIn last year's roaring bull market, [Michael] Murphy's model portfolio produced a loss of 36.7% while the Wilshire 5000 was up 31.3%. That ranked Murphy's letter number 140 of 142 newsletters followed by Hulbert Financial Digest, which has long tracked the advice business. ... The California Technology Stock Letter did do very well for a decade starting in 1986, and was in fact rated the number one newsletter by Forbes in 1996. [Boston Globe, Feb 12]

Talk about tough! Japanese small firms. In a different culture, expect different winners and losers. While the Nikkei Index fell 21% in 1997, the OTC index plummeted 41% to a record low. [Bloomberg Personal, Mar98] Be glad you're not a government subsidized small firm coming to the end of your dole in that market. It's tough enough to come to the end of the SBIR dole in the world's best market for small technology firms. Which is why so many firms don't even try.

Reader Raj Tanden was perplexed by an item last week, regarding Galoob Toys, in which I wrote: ``Don't ever confuse the price of a stock with a company's real value.'' He asks: ``Isn't the purpose of public markets to determine the real value of a company, since such markets ascribe the price that a willing buyer and seller place on the value of the company through its stock?'' Sure, but the public markets aren't always right. (Boston Chicken or Planet Hollywood, anybody?) I always hark back to the days of Media Vision. After several items questioning the accounting of the now-defunct company appeared here, the stock continued to rise. A few days later the CEO phoned and said something like, ``Ah-ha, our stock is going up. It shows that your short-seller friends are wrong.'' No, it merely tells more about the power Wall Street has to keep a game going. [Herb Greenberg, San Francisco Chronicle, Feb 10] The gap between "real value" and "market value" permits companies to claim almost anything as value. They have a fielder's choice, accept whichever value best supports the company story. For private companies trying to keep a government subsidy program alive, the temptation is irresistible.

Sililcon Valley has 14% Seventy-two Silicon Valley companies were among the nation's most rapidly growing companies in Deloitte & Touche's ``1997 Technology Fast 500'' ranking, which surveys tech companies in existence for five years or more that have at least doubled revenues over the past five years. Top Silicon Valley companies include International Network Services, ranked 5th; Silicon Storage Technology, 15th; and Premisys Communications, 16th. Information can be found on Deloitte & Touche's Web site. [San Jose Mercury, Feb 10]

The overall message at the eighth annual Innovative Thinking conference: Innovate or die. ... the two-day conference, whose attendees have shelled out $2,500 apiece to hear some of the latest - and perhaps radical - thinking in business management. Among the themes sounded Tuesday is that employees are an asset, perhaps the only real asset, of many companies in this information age. Yet companies typically worry more about their shareholders than their key workers, who, it was pointed out, have invested their lives in these firms. British philosopher and author Charles Handy urged companies to view themselves as communities, not properties, and their employees as citizens. Such citizens traditionally enjoy freedom of speech, a share of the wealth and a say in governance. In turn, these citizens would pledge their loyalty to the company. [Arizona Republic, Feb 4]

Want a prediction? Doesn't everyone. The best prediction for 1997 came from Ed Yardeni of Morgan Grenfell. Despite all those copies of Entrepreneur and Inc. magazines zipping off the shelves, the number of American small businesses founded in 1996 - and probably in 1997 - declined. According to the second annual ''Business Starts and Stops'' survey by Wells Fargo Bank and the National Federation of Independent Business (NFIB), the number of companies started from scratch decreased 14% in 1996 from 1995. That's a slip of 473K businesses, to 3M from almost 3.48M. Likewise, the number of business owners, including those who bought or inherited a company, declined 12%, to almost 5.6M - a drop of 786K during the year. [LISA BIANK FASIG, The Cincinnati Enquirer, Jan 4]

The real source of our prosperity lies not with a president or even our politics but with an American entrepreneurial culture that has given us Bill Gates and Steve Jobs and Larry Ellison and the inventors of everything from FedEx and Starbucks to Amgen and cell phones. Our success is the success of the American capitalist model, which lies closer to the free-market vision of Adam Smith than any other. Much closer, certainly, than Asia's paternalistic crony capitalism that so seduced critics of the American system during Asia's now-burst bubble. The critics have fallen silent now. America's success should not surprise. After all, America is largely composed of people who left the rest of the world to seek their fortune. We are descended from gamblers and risk takers. Europe and Asia are populated by the folks the gamblers left behind. This entrepreneurial drive with deep roots in an immigrant past is the long-range cause of our economic success. And in the past 20 years, it has produced the more proximate reason for our return to economic dominance: the computer revolution, born and bred in - practically owned by -- America. [Charles Krauthammer, Washington Post, Jan 2]

Second-generation lasers are also being developed by .. Autonomous Technologies . It's unclear whether doctors will switch to the new lasers. [that] cost $400-500K, with annual maintenance about $50K ... Using lasers to correct farsightedness offers even greater potential for growth. Dr. David Hardten, an ophthalmologist, is excited by the possibility. About twice as many people are farsighted than are nearsighted. ''We'll be able to treat about 95 percent of the glasses prescription problems.'' [Karen Padley (member of the Bloomberg News staff), Boston Globe. Dec 28] Got a new technology for eye-fixing. Look into the economics. In fact, do so for ALL new technologies before asking the government for SBIR - unless you just want to play in a sandbox.

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