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Do grants stifle innovation?

Give a company a fish and you’ll feed them for a day; teach a company to fish and you’ll feed them for a lifetime.

There’s one twist on a famous proverb which speaks volumes with regard to this question – Give a company a fish and you’ll feed them for a day; teach a company to fish and you’ll feed them for a lifetime.

The question we’re most commonly asked, is what funding is around for innovation. There are so many answers to this question, but ultimately it goes back to why you need funding and what you want it for. It’s easy to slowly drift into opinion at this point, but we’re not going there – we’re going to stick with facts, and these are the hard ones. So, here are a few pointers to maybe raise your eyebrows a little and think about whether chasing funding is right for you.

The first statement we’re going to make is that companies that don’t need funding are a lot more successful at innovating than those that do. This may either sound obvious, or alternatively may stink of the age old “rich getting richer” analogies – but it’s a fact of life, so we need to get our businesses in a position where they’re not grant dependent.

Let’s look at this in a little more depth – what we need to consider here is the portfolio of innovation activities within an organisation. Companies that have a philosophy of growth through continual innovation and can afford to finance and resource this are more likely to have a wider portfolio of innovation projects. Newer companies and those with more limited budgets are more likely to have a very narrow portfolio, often focused on a single activity or project. Putting this as simply as possible, betting on ten horses  is much more likely to present a return that just betting on one.

This is the precise reason that the return on investment on innovation projects from the public sector is low (discussed in our previous blog “Where should the public purse support innovation”, link at bottom of page). Public sector projects either target or naturally tend to attract the smaller and new-start companies, and as such, often don’t break-even when considering the real return on investment. Many would argue this, but having worked on public sector project and audits, I have seen how the figures presented for projects can vary from the real commercial impact. Measures typically tend to address factors such as GVA and jobs created – much of which may well have been achieved without the public investment.

Either way, let’s get back on track. In my personal opinion, the only direct “innovation grant” that has a significant impact on specific and single innovation projects is the InnovateUK Smart grant. The main reason for this, is that it sifts out the stronger projects, by demanding significant match from the applicant. Of the Smart grants we’ve helped secure (approximately 20 in total valuing c. £2.5M) the majority have resulted in significant commercial impact, which wouldn’t have been otherwise achieved. In most cases, it’s also led to the company investing more of it’s own money in R&D and Innovation as a result of the benefits realised.

There are many examples of smaller projects having an impact – including those through ERDF and academic funding sources – but the return on investment is significantly lower. The main reason for this, is that the sum provided tends to range between £3k and £5k, which obviously limited what can be achieved.

So let’s go back to our main question and our fishy proverb. What’s the difference between the InnovateUK grant and the smaller grants – other than the value? The main thing to note here, is that the smaller grants tend to be used to buy something – consultancy, product development, etc. You get this “something”, but you learn little other than whether your idea works. If you’ve needed funding to get this “something”, you’re now needing to access more finance for the next stage. And please don’t think that because you’ve spent a £3k grant on a prototype, the investors will come flocking – based on experience, the chance of that is probably simmering at just under the 2% mark.

The InnovateUK Smart grants though – along with those who spend smaller grants in a smart way – allow you to learn. You’re not just buying the proverbial fish, you’re buying the best rod you can get, with top notch lessons. this is precisely why companies coming off the Smart system tend to invest their own money in more corporate innovation and R&D projects. The same can be said of companies that invest their smaller grants in training to improve their innovation skills, capacity and approach – rather than buying in a specific and singular solution which may only lead to further barriers.

In a nutshell, larger companies like grants, but if they can’t have them, they find another way of doing what they need to do. This is the mentality that the smaller and newer companies need to adopt to become successful in innovation. Investing in innovation skills development is often a much more robust investment than investing in third party support for a specific innovation project, and can help organisations become innovative about how they approach problems and opportunities in general – the rest will follow.

Ultimately, innovation isn’t just about making things. In addition, we must stop confusing the terms “invention” and “innovation” – the former is about making something, the latter is about turning something new into benefit. Innovation is really about learning – so you can improve everything you do on a continual basis. This is precisely why investing in innovation skills is much more important than providing grant funding for innovation – or as it’s spent in most cases, invention.

If you want to continually grow your business through innovation, call us for a chat – if you still want that fish, we can recommend a good market.

Richard Harrison