What could your company do with $3 million in research-and-development money?

If you're Paul Wagner, you already know: The cash has helped his company, Minnesota Wire and Cable in St. Paul, develop special stretchy wires and other cutting-edge products that have boosted revenue, created jobs and carved out a niche that's safe, for now, from Chinese competition.

The money has come from the federal Small Business Innovation Research (SBIR) program, which supports R&D efforts at small and medium-size businesses, and similar grantmaking programs.

"It's such a fruitful business model for Minnesota Wire and Cable, I'll never go back," said Wagner, who is chairman and CEO. "I grew up taking after-tax profits and putting those toward R&D, so we didn't do much of anything. That's where it's got to come from if you don't get an angel to give you cash or go after [venture capital] and sell your soul. To have the government pay for it is just such a fantastic opportunity."

The Defense Department and other government agencies that award the grants are ready customers for the products they commission. The agencies also look for companies that have solid plans to commercialize the products, to help bring down prices. Companies get to keep the intellectual property rights to the products they create under the programs.

Minnesota Wire is focusing on commercial development of three products developed with R&D grants: its flexible, durable "Komodo" stretchy wire; fatigue-resistant wire, for likely use in aircraft; and nanocomposite materials for use in shielding material for wires and even for making wires that contain no metal.

Wire that stretches and flexes

The company filed a provisional patent for its stretchy wire in February. Under the grant, the company produced a USB 2.0 cable that can stretch as much as 30 percent without signal degradation.

Could stretch iPod cables be far behind? Maybe, Wagner said, but while the company will continue developing its stretchy wire, it won't overreach in going after new business.

"We're identifying commercialization paths that are primarily in our present customer base, rather than stretching it and forcing us into other marketplaces," said Wagner, whose customers are in the medical, defense and communications fields.

New market niches

One advantage is that Chinese manufacturers don't make stretchy cable or work with some of the specialized materials Minnesota Wire does. In years past, the company had to find new market niches as Chinese competitors moved, for example, into making computer components.

"I'd be going nose-to-nose with China and their labor," Wagner said, if not for the R&D grants. "You can do all the ... things you can to try to compete with China, but not on labor. Having a product or processes that they don't do ... that's the key to long-term success.''

Minnesota Wire has 252 employees, adding 19 last week. To hold down its labor costs, the company three years ago tripled its budget for bonuses, Wagner said. Instead of building in raises, the company evaluates employees every quarter for contributions to growth and profitability.

Those working on successful teams can get checks for several hundred dollars each. "It's a powerful tool," Wagner said. "We give away 20 percent of any kind of profit improvement to that team."

Minnesota Wire applied for its first research grant five years ago, and Wagner said success in capturing those grants created momentum that made 2007 a watershed year.

Revenue expected to grow

Revenue rose by a third last year, to $25 million. The company projects revenue to grow to $30 million this year, Wagner said.

The company, which traces its roots to the family kitchen of Wagner's father in the 1960s, bought a factory in Eau Claire, Wis., last year that doubled its manufacturing capacity, Wagner said.

The new space produces components for a communications cable assembly in the military's new Mine Resistant Ambush Protected (MRAP) vehicles, as well as custom orders from medical suppliers, among other customers.

In St. Paul, Minnesota Wire installed an electromagnetic capabilities chamber to test electronic components, which Wagner said is a rarity among small companies.

Minnesota Wire also moved into nanotechnology. In October, the company's Minnesota Defense division received a first-phase $125,000 SBIR grant from an Army agency to develop a way to use nanotubes -- carbon structures 10,000 times thinner than a human hair -- in shielding material for its stretchy wires.

The company's partners in that project include the University of Minnesota, which helped design its nanotube "recipe," Wagner said. The project is under consideration this year for second-phase grants of $750,000.

Tibbetts Award winner

Minnesota Wire was among 55 winners last year of Tibbetts Awards, named for Roland Tibbetts, a former National Science Foundation official credited with coming up with the SBIR grant concept. The awards recognize the economic contribution of technological innovation, among other achievements. There were about 3,000 applicants.

Hoping to encourage other companies to seek federal research grants, Minnesota Wire also operates the Defense Alliance of Minnesota.

The networking group, founded in 2004, provides information on defense and other government contracting agencies through its website and quarterly events.

In 2007, the alliance was chosen to coordinate the Midwest Center for Defense Sustainment to identify businesses that have technologies or management practices that can help support aging weapons systems and other defense infrastructure.

Todd Nelson is a freelance writer in Woodbury. His e-mail address is todd-nelson@mac.com