Are grants bad for business?

Grants: A road to nowhere?

Public money and business are often uneasy bedfellows.  Stimulating a healthy economy is a core function for government as no-one can prosper without a sound business base, at least in a capitalist society (I’ll leave the debate about whether we should be capitalists to those far more knowledgeable than me).  Governments use legislation and the tax system to promote activity they believe will contribute to a healthy society (such as job creation), and to discourage activity they consider unhealthy (such as making people redundant or polluting the environment).  The public purse spends billions of pounds each year acquiring products and services from the private sector, and can use this spending to promote positive business behaviour too, although in practice this seldom seems to happen.  In comparison with legislation, taxation, and public spending, grants represent a minuscule amount of money.

Yet I believe that grants can have an incredibly toxic effect on businesses – especially small and startup businesses.  If small businesses were irrelevant to the economy as a whole then perhaps this wouldn’t matter, but small businesses are not irrelevant.  Small businesses (collectively) employ a huge number of people, contribute a massive proportion of job creation, and are the big businesses of tomorrow.  Governments claim to have support for small business right at the forefront of their agenda.

Here are some of the dangers of grants for businesses – and I believe I have seen businesses fail as a result of these.  My comments come largely from my perspective as a someone working mostly with Scottish technology companies, however I believe many of my observations have wider applicability.

Businesses become addicted to grants.  Grant support tends to diminish at least in terms of the proportion of project costs available as time goes by.   Too many companies never transition from the world of grant support to self-sufficiency.

Winning grants is not the same as winning business.  Business plans that attract grant funding will not necessarily attract investment, and the mindset needed to successfully apply for grants is not the same as that needed to sell to customers or investors.

Grants don’t add value.  Winning a grant does not bring new skills to the team or give a company experience of what customers want.  It is cash, with little or no additional support.

Grants are too focussed.  Most grants focus on limited areas of company development, and especially on innovation and R&D.  The activities carried out on these grant funded projects are not driven by the needs of customers or investors, but by the restrictions on the utilisation of the grant.

Grant expectation kills opportunities.  Too many companies rely on getting a grant to develop, and take failure to get a grant as a sign that they can’t become a great business.  Often companies that fail to attract grants do so because they are not good at attracting grants or are simply not eligible for them – they may have great potential if they took their ideas to customers or investors.

Grants limit thinking.  Some areas like training, consultancy and international development are now driven extensively by the availability of grants rather than the needs of the company or the potential return on investment from the engagement.  This is bad for companies who miss out on needed development simply because it isn’t grant funded, and bad for providers of training and consultancy too!

I sincerely believe that grants are bad for companies in all of the ways I have described above, and more.

I also believe that GRANTS ARE VITAL FOR STIMULATING SMALL BUSINESS.  In many areas, there are simply no other functioning forms of funding, so removing the grants that are in place would create a massive and dangerous hole in our economic activity.  Grants may not be the best or most desirable way of working, but we have evolved our economy, especially north of the border, to be dependent.  Simply removing grant support would be catastrophic.

Grants have their challenges and we should constantly aspire to structure and administer grants more intelligently.  We should seek to reduce beaurocracy, increase private sector involvement in commercialisation of R&D and turn grant funding into something that is a more integrated part of company growth.  Ultimately, we should seek to reduce grant dependence.

In the meantime we need to use the infrastructure we have as effectively as possible, so I will continue to help and encourage companies applying for grants.  I will also continue to push them to look constantly outside and beyond the grant funded world they start in, to ensure they they can grow effectively in the longer term.