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Turning Swords Into Plowshares
But when the ax falls, Nobles will be more prepared than most defense workers: A year ago, she and two anesthesiologists started their own company, Shark Medical Inc., in St. Petersburg. Using sophisticated technology that was developed to measure nuclear fusion reactions, Nobles and her partners have developed a monitor that, among other things, can be used to detect the onset of conditions such as sudden infant death syndrome (SIDS). Shark Medical also is developing other non-invasive products for the home healthcare market.
Nobles, a biomedical and industrial engineer working on her Ph.D., has raised close to $1 million in grants and private funds for the start-up. The money includes a $100,000 defense conversion award from Enterprise Florida's Technology Investment Fund. A single mother of two, she admits the venture is risky, but quips that the name Shark Medical reflects her philosophy. "We don't hesitate to tell investors that we want to be an aggressive company. Our projections are that in five years we could employ a couple hundred people."
From the Panhandle to South Florida, defense technology companies and skilled professionals like Dawn Nobles are making the shift to the commercial arena. They're transforming defense-spawned technologies such as lasers, electro-optics and simulation technology into commercial applications for medicine, transportation, entertainment and education. A few lucky companies, such as Nobles' venture, have gotten a boost from Enterprise Florida's limited funds or federal defense conversion programs. Those funds have almost dried up, so most companies and entrepreneurs today must rely on inventiveness, investor capital and sheer determination to make it in the commercial marketplace.
Indeed, it's no secret that U.S. defense spending cuts have hit Florida contractors hard in recent years. When Lockheed merged with Martin Marietta, the new company closed its more than 1,000-worker Daytona Beach plant. And last year McDonnell Douglas shuttered its 1,200-worker missile production plant in Brevard County when it failed to get a U.S. Navy contract to build the Tomahawk cruise missile. Florida still gets close to $6 billion in big-ticket defense contracts, but that's 25% less than what the government spent in Florida in 1987, according to Enterprise Florida. "A lot of businesses were married very heavily to the defense business," says Bill Jenner, business development manager of Palm Beach County's Defense Transition Assistance Center (DTAC), one of three centers started this year by Enterprise Florida and the state's Small Business Development Centers to help commercialize defense technology. "All of a sudden when it disappeared, their whole world dropped in front of them."
For companies addicted to defense contracts, going cold turkey into private enterprise is no easy task. "My personal opinion is it's virtually impossible for those who understand how to do business with the Defense Department (DOD) to suddenly make the transition to commercial business," says Verney Vehlewald, program manager for Orlando's DTAC, which provides companies with management and marketing assistance but not money.
Florida's defense contractors often have technology with commercial applications. What they often don't have is the marketing know-how, accounting systems, cost-effective production and investment capital to enter commercial markets. "The psychology of people who work in defense is completely different," says Mike Buffa, business development manager for the Central Florida Innovation Corporation. He explains that contractors have been able to count on government funding for everything from research and development (R&D) to proposal writing. "It's no risk," says Buffa.
In the commercial arena, on the other hand, companies must fund their own R&D, identify a market, cut costs to the bone to produce a product that will be attractive to price-conscious customers, and find buyers. When Robert E. McKinney, president of Advanced Laser Systems Technology in Orlando, moved from defense projects to commercial products, he got a wake-up call on the importance of pricing in the private sector. "You had to do cost engineering," says McKinney. "The military didn't care how much it cost. They cared about performance."
Although the move into the commercial arena involves a culture shock, many companies are making it work. At Melbourne-based Harris Corp., management decided more than a decade ago to begin weaning the company from defense contracts. In 1991, 25% of sales was defense-related. Today, 19% of Harris' $3.6 billion in sales comes from defense.
Harris is working on projects such as a live television system for airliners that uses a special antenna developed for military communications. DIRECTV will deliver more than 20 channels of satellite-delivered programming, and In-Flight Phone Corp. of Chicago will market the product. Continental Airlines expects to begin installing the system in 300 planes next summer.
On a smaller scale than Harris is Mainstream Engineering Corp., a thermal-science company in nearby Rockledge, Florida. Since he founded the company in 1986, Robert P. Scaringe has focused on so-called "dual use" technology with both military and commercial applications. At first, he relied heavily on NASA and DOD projects, such as a cooling vest for the Army, heat pumps and refrigeration fluids. In 1994, 10% of his company's sales came from the commercial sector; this year, it will be 60%. Scaringe, a Ph.D. in mechanical engineering and former professor at Florida Institute of Technology, leverages government money, such as Small Business Innovation Research (SBIR) grants, with his own investment. The SBIR program, set up in 1982, is a highly competitive federal program that provides R&D contracts, in part based on the market potential of the research. Companies with 500 or fewer employees compete for start-up money (up to $100,000) and R&D awards (up to $750,000).
Scaringe says the key to commercialization is to focus on unique products that can be patented. He will license an environmentally friendly fluid used to put out fires on Air Force aircraft for use in commercial ships, airplanes and computer rooms. And he is developing a high-efficiency, lubricant-free "chiller" ? sort of a huge air conditioner ? that can be used in spacecraft and nuclear submarines as well as large commercial office buildings.
This year, Mainstream expects to introduce eight new commercial products, up from three in 1995. Scaringe holds more than 45 patents or patents pending and employs 40 people at his 37,000-square-foot facility. While commercial products now drive his business's growth, Scaringe won't give up his defense and space work entirely.
Partnerships
Because the economics, logistics and psychology of commercial projects are so different from government work, defense contractors often form joint ventures or alliances with companies that can provide an entree into new commercial markets. "Companies that are defense-dependent have little marketing expertise," says M. Scott Faris, president of Tampa's Enterprise Corp., which runs the Tampa Bay DTAC. Lockheed Martin's 150-worker simulation company, Real 3D, signed an agreement with video-game giant Sega Enterprises a year ago. Using technology originally developed for military training simulation systems, Real 3D created hardware used to generate three-dimensional graphics for Sega's Daytona USA and Desert Tank arcade games. This spring, Real 3D signed a deal with Intel to develop a 3D graphics chip to produce near-photographic quality images for personal computers by late next year.
Real 3D's video-game venture is just one commercial application of simulation and training technology being adapted for use in medicine, education, disaster planning and industrial assembly. More than 140 simulation and training companies in Orlando have technology ? ripe for commercialization ? adapted from projects at the Army Simulation, Training and Instrumentation Command (STRICOM), Naval Air Warfare Center Training Systems Division and University of Central Florida Institute for Simulation and Training.
"The more we get into the commercial side, the more we'll grow," says Don Campbell, executive director of the Training & Simulation Technology Consortium, a non-profit group formed in 1994 and comprised of government agencies, educational institutions and private companies.
At Lockheed's Electronics & Missiles unit in Orlando, commercialization and non-defense government work also revolve around alliances. One key marketing partner is the Enterprise Florida Central Florida Innovation Corporation (CFIC). The lead player is Business Development Manager Mike Buffa, an electrical engineer/MBA who has made a career of forming and running technology companies in the U.S. and Europe.
Buffa, working with Lockheed Martin's Tom Radovich, helped the company identify technology that has commercial applications. The goal is to set up two new companies that will be independent of Lockheed: One will use Lockheed's wireless communications technology for cellular and personal communications system products. CFIC and Rollins College's Crummer School of Business did a marketing study, and CFIC is assisting with a business plan. Buffa says the next step is to look for investors, likely a venture capital firm and a company already in the commercial market for wireless communications products. "This could be a $100 million company in five years," he declares.
The second venture will adapt image processing technology that was developed to recognize and track military targets. Commercial applications likely will include high-speed image enhancement of mammograms and detection of manufacturing defects in industrial materials. Buffa expects this spin-off to produce several hundred jobs in the next five years.
Finding a market niche
Tallahassee physicist David O'Hara didn't have financial backing from a large company like Lockheed when he founded Parallax Research Inc. in January 1995. Instead, he tapped his life savings, including a pension fund, to finance the start-up. O'Hara, who previously worked for a Huntsville, Ala., defense contractor, also has an SBIR contract with the Ballistic Missile Defense Organization, an agency which sets rigorous criteria in awarding SBIR money.
Parallax's two products, which are based on a technology developed for use in underground nuclear tests, use parallel X-ray beams to detect defects in manufactured products such as semiconductors and steel. O'Hara is working with a large X-ray instrument company to begin marketing one product in March. "Find little tiny niches you can do," he advises others seeking to turn government research into private gain.
Companies that want help with pricing and productivity can get it from the DTACs and from Enterprise Florida's Manufacturing Technology Centers. Finding capital is another matter. Since the demise last year of the Department of Defense's multimillion-dollar Technology Reinvestment Project, there's neither federal nor state money to help most companies and entrepreneurs with commercialization of defense technology.
Enterprise Florida's Technology Investment Fund recently invested $1.2 million of state money in 10 companies likely to have commercial products ready within a year. And separately, four companies received a total of $750,000 in Department of Energy funds, also distributed by Enterprise Florida. That's it for state funding, at least for now.
So what's the future for companies that can't or won't commercialize? Some will survive. But Vehlewald, the Orlando DTAC manager, says the prospects aren't good for firms that gamble that the defense market will sustain them forever. "They're running fast and they're going to run off a cliff."
