What's your idea worth? Ask the matrix

Planet Eureka founder Doug Hall

Quick Vote

How has Wall Street responded to last year's collapse of Lehman Brothers?

• Made significant changes
• Some reform, but more needed
• Business as usual
• It's gotten worse

or View results

Six steps to creative breakthroughs

Innovation is a process. Follow our road map to generate game-changing ideas for your business.

View photos

57%: Six in 10 owners who have a budget for research and development say they have cut it back within the past year. Source:Source: FSB/Zogby International poll, July 2009

(Fortune Small Business) -- Process Equipment Co. had a fine history of innovation. Founded in 1946 by Emmert Studebaker, a member of the famous car-making family, PECo sold laser welders and other specialized equipment to GM and other manufacturers. That brought in dependable revenues of $40 million a year.

But demand for PECo's products dropped as GM declined, and last year the Tipp City, Ohio-based firm was forced to lay off a third of its employees. More cuts would come unless PECo could figure out how to adapt its machines to other industries.

Hiring a research firm to do the job would cost $100,000 -- way out of PECo's price range. Now, for just $2,000, PECo can turn to the USA National Innovation Marketplace. In May the Department of Commerce's Manufacturing Extension Partnership teamed up with entrepreneur Doug Hall to offer the service to small businesses. Hosted at Hall's Web site, Planet Eureka, the marketplace matches inventors with manufacturers.

Hall's secret sauce is a business simulator known as Merwyn. Originally developed for giant companies such as Nike (NKE, Fortune 500) and Lockheed Martin (LMT, Fortune 500), Merwyn uses algorithms and human analysts to estimate the business potential of new product designs.

Hall claims his system overcomes the geekspeak used by many inventors. Dozens of Web sites offer searchable lists of patents, but their arcane language hampers their value.

"The only thing a businessperson wants to know is how much product this will let them sell," observes Hall, a former marketing executive at Procter & Gamble (PG, Fortune 500). His forecasting matrix calculates "a fair, right price" for a technology, he says. "It allows us to get a sense of the risk and opportunity at an early stage."

It's too soon to say whether such matchmaking will work in the small company world. But the National Innovation Marketplace has no shortage of ideas waiting to be picked up. Among them: a food packaging film made from edible soy protein, said to help protect ready-to-eat food from dangerous bacteria; a drug designed to prevent and cure osteoporosis in a single dose (the research predicts that commercialization will take up to 10 years); and a "supersaver dream sander" that eliminates dust when sanding drywall.

PECo's Merwyn search turned up a complex piece of nanotechnology that could be used to adapt PECo machines for use in medical laboratories -- and increase annual revenue by at least 7% starting in the second year of use. PECo would hire up to 15 new employees to handle the expansion. "It could really put us into the nanotech market," says Jason Woolley, head of PECo's design and engineering unit.

Patent holders seem equally excited about finding manufacturing outlets. Mary Pruitt, CEO of Emission Control Solutions in Pomona Lake, Kans., used Merwyn to locate factories interested in an automotive ozone generator invented by her business partner, David Clack. By oxidizing gas more quickly, Pruitt says, the generator can reduce auto emissions by 40% and raise fuel economy by up to 30%.

"I brought in some wonderful investors, but manufacturing is not our strength," Pruitt says.

The marketplace represents a shift in government policy. "For years we've focused on a defensive strategy" of cutting costs and increasing productivity, says Michael Simpson, acting director of the Manufacturing Extension Partnership. But as factories in China left their U.S. rivals in the dust, the MEP shifted to helping manufacturers create new products and open new markets.

Experts say making innovation understandable is a big help. "Businesses are always putting out fires and worrying about today's little problems," says Richard Daugherty, director of the Business Technology Center at Virginia Tech University. "Getting their attention is a major issue."