surprising things to us is that people who we least expected successful, innovative proposals to be written by, indeed did come through with innovative proposals that receive awards. That was very rewarding both for the company and for the people themselves to see this happen.

The program, we think, is extremely good for both the small business community and the country as a whole. I believe there are many challenges ahead that I want to address in just a few mo

ments.

Of the programs that we are conducting and addressing, there are many different technologies involved. One particular one I would like to mention is a small optical ranging device, we call it. Basically, what it is, is an optical device miniaturized which can measure very precisely distance from the measuring instrument to the object in question.

Applications would include quality inspection, for example. Another one that has generated a lot of interest in the industrial community as well as at Government laboratories is for a miniaturized robotic sensor. We are very excited about it.

This particular program was funded under a phase I program from NSF, and the phase II decision is still pending, I do believe. The reactions to the SBIR program from my associates in the small business community has also been very positive. Others are not yet personally aware of it to participate. Once they have learned about the SBIR program their response has been very positive.

Also, the people in the Government agencies that we have worked with, especially in the program offices, have been very cooperative, very helpful, and very positive and for the most part the project officers whom we interface with on specific projects also have been very positive and very helpful.

I want to express just a few concerns that I have that I think we all need to monitor in order to keep the SBIR program on track. First, I think it very important that we keep innovation in the SBIR program, and I think there is a real threat that that could not be so. I have first-hand experience that certain offices really treat these programs as just another funding mechanism, and treat the programs as a mechanism for continuing ongoing work at the project office and not focusing on the innovative idea and certainly not focusing on how we can translate this innovative research work into the industrial marketplace where we can really affect productivity and efficiency. That is one concern.

Second, I think that the decisions on phase II should also be based on the long-term objectives of the program, namely to impact productivity and efficiency in this country and not on fewer scientific interests or merit.

There were in a couple of cases difficulties we have experienced in negotiating contracts with these agencies who fund SBIR's, negotiating profits on these contracts. I think it is important to drive the point home that all businesses, and especially small businesses, need to accrue profit on the research work that they do in order to grow and survive and to develop the capital base to take these ideas to the marketplace.

Finally, a general comment is that I really urge, both on the part of the Government and on the part of the private small business community, close vigilance of the small business innovative research program to assure that it does not get derailed.

My view is that the real measure of success is not in who wins or does not win phase I awards, but who can take these programs through the three phases of the program and into the industrial marketplace, and really make a contribution to the country.

The last point I want to just expand on a bit, and that is that I think there is a tremendous responsibility lying with the small business community itself in doing a self-monitoring function, taking care that we are intent on achieving the long-term goals of the program.

I think the Small Business High Technology Institute which Mr. Stewart has initiated is a real positive step in that direction, and I have expressed my full support of his efforts in that area.

In closing, I would simply like to express my appreciation on behalf of myself and my company, and my other small business associates, to you, Senator, and to all the people in Government who have pushed this legislation and program though. I think it is tremendous and I pledge my company's and my support to see the program successful in the long term.

Senator RUDMAN. Thank you very much, Dr. Busch.

Mr. STEWART. Mr. Chairman there is no need for me to repent for our Institute, the people who work with it. Our thanks for the vigor with which you have conducted this committee's oversight of this program. We have given you our first Franklin Jefferson Award as a way of demonstrating publicly our high regard for doing the magnificent job you did of monitoring the program during oversight of the first year's activity.

I have tried to put into the record a balanced statement in which I have stated candidly that I think the program is off to an excellent start. Every program has growing pains; this one has them too. They are inevitable. Compared to many others, this one has had fewer and they have been better handled than many others. But you do not fight for this kind of program for 7 years without worrying about it, and no one knows better than you what kind of fight it wound up being. So I have, with some bluntness, perhaps, talked in my prepared statement about the risk of attitudinal sabotage within the executive branch. I want to underscore and emphasize that this does not relate to the line officers who manage this program. Uniformly, I think, they have come to understand it and respect it, and have the same kinds of hopes for its potential that we do.

But there still are people who were involved in the fight against this program on what they consider principle or doctrinal grounds, judgmental grounds, who have yet to be persuaded and who have retreated to what you might call executive branch redoubts of one sort or another. They continue to express great skepticism—and in forms often that are genuinely destructive to the success of the program.

I have given specific chapter and verse to the extent that I felt it was appropriate or necessary.

Finally, I just want to underscore again our own conviction that the ultimate success of this program rests with the private sector. The kinds of results that Dr. Busch, Mr. Little, and Dr. Myers have talked about that we all hope to see in the civilian marketplace, the kinds of enhancement of our international technology competitiveness-those things cannot happen without changes in private sector institutions and the relationships among them-those that finance small businesses; that lend to them; that provide equity capital; that provide management counseling in universities; those in large companies-the relationships that all of those have with small firms. Small firms themselves have to acquire skills and competences many of them do not yet have.

That is a private-sector job. We are trying to do the best we as private citizens can.

Perhaps the most appropriate closing note is the title of the article I have put into the record from a British magazine called "Your Business" which is addressed to entrepreneurial business. It is called "America's Precious Project Leads the World."

That is a genuine reflection of the attitude that Europeans in key common market and other foreign countries have. They see bright prospects in this program not just for us but for them-prospects of effective utilization of small firms to lick their two biggest problems, unemployment and international innovation competitive

ness.

Again, we want to thank you and the others on this committee for your efforts, and to assure you that we will continue to do everything we can to make the program successful.

Senator RUDMAN. Thank you very much. I would just like to say that, you know, it is really great for my morale to sit at a hearing and hear all of this good news. Most of our hearings are rather depressing lately. [Laughter.]

And I think it is very significant to note but not surprising-I do not say this in any critical way-that we have very little press coverage here this morning.

Mr. STEWART. Too much good news, Senator.

Senator RUDMAN. That is right. I mean, if I could find some little bit of scandal in this program, I could pack the place with lights. This is how the way things are in this town.

But I just want to say that it is very refreshing but frankly, to all of us who believe in it, it is not surprising that we hear this kind of testimony. I think these three witnesses in particular shed some very interesting light on it.

Of course, what we do not know now and we will not know for several more years, is what the impact will be in terms of the employment that will flow. It is my view that the greatest increase in employment we can get in this country will flow from this program and other innovations taken by the private sector on its own. I thank you very much.

Mr. STEWART. Thank you, Mr. Chairman.

Senator RUDMAN. We will move on to the next panel. Dr. Philip Speser and Ms. Ann Eskesen, if you would like to step forward?

Dr. Speser is executive director of the National Institute for Entrepreneurial Technology here in Washington. Ms. Eskesen is

president of the Innovation Development Institute in Swampscott, Mass.

I would like to say to both of you that we are delighted to welcome you here. You were both very, very helpful to us over the last couple of years to get this program going and we are delighted to have you back as witnesses now that it is going.

We do have some time constraints. However, I do not want you to feel that should limit anything important that you want to say or show us. Of course, your entire statements will appear in the record of this hearing, and to the extent that you are able to summarize, I would appreciate that.

So, if you would like to proceed.

STATEMENT OF PHILIP SPESER, J.D., PH. D., EXECUTIVE DIRECTOR, NATIONAL INSTITUTE FOR ENTREPRENEURIAL TECHNOLOGY

Dr. SPESER. Thank you. I would like to begin by saying that no testimony I have ever presented, Mr. Chairman, has given me as much pleasure as today's. Putting this bill in place was a long, hard fight, as you well know.

On the part of the Institute and its members I am very grateful to you personally; to people like Roland Tibbits at the NSF, who worked very hard to get this program established in the first place over at NSF.

The National Institute for Entrepreneurial Technology is a pro bono publicum group within Foresight Science & Technology. Its members comprise a number of small businesses, State organizations, and universities.

Mr. Chairman, one of the projects that my company does is a conference called Federal High Tech. We have been doing this 2 years for the NSF and the SBA. At this conference, we bring together all of the major Federal R&D agencies as well as a number of the Nation's largest R&D prime contractors. This year we had 15 of them.

We have done some preliminary analysis on the conference evaluation. I think it is instructive, given the program. A preliminary analysis indicates that over 30 percent of the companies in attendance were formed since this bill was enacted. That means that there are approximately 400 new companies that we know of this year that came to these conferences because of their interest in this program.

As the founder and president of my own small business, I know you have to be crazy to start a small business. That is because there are long hours; there is an immense pressure that comes from relying upon your own wits, talents, and expertise rather than on the inertia of a large bureaucratic organization for your economic survival.

I think the important point is that this bill gives companies a chance to form and to grow and, in so doing, it gives the country a chance for innovation, for jobs, for taxes, for increased exports and increased productivity.

I would ask that the Federal High Tech 84 brochure from this year be included in the record to give you an example of the kinds of outreach occurring.

Senator RUDMAN. It will be included in the record.

Dr. SPESER. I would also mention that the NSF and SBA are planning next year on going to Denver and Philadelphia to continue this kind of outreach effort.

The key point I want to make is very simple, Public Law 97-219 is accomplishing its intended objectives. Federal agencies have found that the program stimulates a wealth of new ideas and projects. They are uniformly impressed with the overall quality of the proposals emerging from small high technology firms. Indeed, the agencies have found that they are receiving more good proposals than they can fund.

I might add here, when I was talking with the representative of education at the conference, he mentioned that the Department of Education had actually put more money into the program than the set-aside requires because they were so impressed with it.

Large firms and venture capitalists have become active participants in the program as sponsors for small firms entering the competitions and as sources for phase III funding. Universities have come around to being supporters of the program now that they have discovered that the 33-percent subcontracting rule opens up new sources of income for their faculty and for their students.

Despite the broad publicity that the program has received, it is important that outreach efforts continue. Because of our work in the conferences or through the Institute, we are constantly contacted by researchers who say, "If I had only known about this program earlier, I would have had time to submit a proposal."

One thing we would urge you, accordingly, is to press for adequate funding for SBA and agency outreach efforts.

Because the program is working, we do not believe that legislative modification of the law is advisable at this time. However, there are some administrative fine tuning measures which_would increase the efficiency of the program, and I would just briefly like to indicate where we see these. I do want to emphasize that these are minor points. We are very pleased with the way the program is working.

Three adjustments would be beneficial for small firms:
Reduced lead times between phase I and phase II;

Greater agency sensitivity to proposal pressure in the allocation of awards between topics, and

More frequent solicitations.

Small firms frequently suffer from cash shortages, thus any funding gap between phase I and phase II acts as a disincentive for small firms considering submitting SBIR proposals.

I believe in the Departments of Energy and Defense you can start a phase II evaluation prior to the completion of phase I, and we would urge that language similar to that which these Departments have in their solicitations be adopted Government-wide and appropriate procedures be implemented in all of the agencies.

Another major objective of the law, of course, is to encourage commercial spinoff benefits from federally funded R&D. At the same time, it is inappropriate for SBIR or other Federal R&D man