Knowledge-based information and the effectiveness of R&D in small firms

This paper explores the impact that external sources of information have on the effectiveness of R&D in small, entrepreneurial firms. The effectiveness of R&D is measured in terms of two probabilities: the probability that a firm that received and completed a Phase I SBIR-funded research project is invited to submit a proposal for a Phase II award, and given such an invitation, the probability that a firm receives the Phase II award. Information from competitors is an important, in a statistical sense, covariate with the probability of being asked to submit a Phase II proposal, whereas information from suppliers and customers is an important covariate with the probability of receiving a Phase II award. Plain English Summary Tweetable headline: Market information, especially from suppliers, customers, and competitors, increases the effectiveness of publicly funded R&D among small, entrepreneurial firms. The R&D considered in this paper came from research awards from the National Institutes of Health's Small Business Innovation Research (SBIR) program. The analysis presented shows a relationship between the effective use of the SBIR research awards and the use of several external sources of information-namely, suppliers, customers, and competitors-related to the market demand for the technology resulting from the funded research. This finding has a policy implication. For government agencies that participate in the SBIR program to be diligent stewards of public resources, small, entrepreneurial firms who receive such funding should be advised on how to identify and use relevant external source of market information.