6 reasons why entrepreneurs won’t profit from more subsidies

Entrepreneurs always need money, on the other hand the availability of public funded money might kill the real entrepreneurship as well. Real entrepreneurship starts in “survival mode”, having just enough money to build your solution and not to starve. Anyhow, the European Union tries to stimulate clever investments. But the whole system to manage this is becoming rather inefficient. Have you heard of a Project “Intelligent development of Poland 2014-2020”? We’d rather call it, “Lets add layers and layers of regulations on top of old regulations in order to spend more money on the same inefficient things as in the past”. The questions is to what extend this will really support the entrepreneurs who could really use this money.

Money alone not sufficient to stimulate public/private cooperation

On the 23rd of May 2013, a consulting conference took place in the Mercure hotel in Gdańsk. Its purpose was to enlighten people about the miracles that will happen thanks to the new “intelligent development”. There will be a lot of funds to distribute on Education, R&D and development of business in general.

The main issue is, however, that companies do not want to cooperate with research institutions (mostly universities and colleges). The government’s solution? Let’s throw more money at the problem, hoping that with enough funds, things will just mend themselves. But wait, just in case people try to cheat us lets add more regulations on top of the existing programs and rules.

Things will not fix themselves.

Without several fundamental changes in the Polish and maybe even in the European society this won’t work. Why? Let’s dig into the six main blockers.

1. Intellectual Property

Would you like to invest your precious time and effort only to see a subsidized idea slip out of your hands? With the current regulations the IP stays with the University if you cooperate in a so much advertised science cluster. Surprised that businesses will not want to do this? I’m not.

This is one of the main fundaments necessary to build a healthy entrepreneurial eco-system. This has to change soon!

2. High cost of cooperation

If you are willing to sacrifice the IP just to get your hands on this solution or benefit from the experience your company or team gets from creating it, there is another hurdle. Horrendous costs of University administration and management. Some say this is around 60-70% of the total project cost. American University of Stanford takes 20% of the total project equity for everything! In Poland you do most of the work, they get most of the money.

It’s indeed a huge surprise that entrepreneurs aren’t storming the doors!

3. Subsidy amounts

Even yet, when the R&D actually finally takes place there is more R than D. Everyone is worried sick about this! Why don’t companies develop bright ideas in Poland? Why do they take them abroad? Well, if you subsidize primary research 100% and development 50% or so, you shouldn’t be surprised. Especially not with reason numbers 1 and 2 included.

4. Project Flexibility

Ok, but let’s say you got through all of that. You planned your primary research and proposed to build a prototype, or design the development of a product. Your project has been accepted and granted funds.

Some weeks later, BOOM! A breakthrough occurs and you need to redesign your product in order to stay competitive.

If you do, you will lose your funds because you did not follow the governmentally accepted project scope. If you don’t, the work will be outdated and the solution simply bad or at least worse than it could have been and a lot of public money will be wasted.

Pivoting is probably the most mentioned word in for example Silicon Valley. It means that based on customer feedback, based on market validation, you conclude how to adjust your product to the real needs. But you cannot do this within the rigid system of EU-subsidies, you will be punished for developing a more valuable solution than you initially intended to do.

5. Stimulate supply of R&D with funds, what about demand?

Basic economics states that when the demand stays the same and the supply increases the price will fall. So, will we end up with a lot of cheap research? Will this research be cheap, as in widely available or cheap, as in really crappy?

The simple solution is internal and external promotion of R&D, and yes there are funds for that! But will this work? Will the intelligent guys in charge be able to balance the demand and supply well? I think not.

6. Innovation European Ranking

The final nail to the coffin of Polish, or probably even European, R&D. Politicians have correctly noticed that Poland is in the far back of all European Innovation Rankings. With just 0.7% of yearly GDP going that direction we are among the least R&D focused countries in Europe. Germany with its 2.82% invested into that area is among the world’s giants.

RADICAL CHANGES ARE NEEDED!

With this financing program that enhances the current state of things through artificial pumping of funds we can count on hitting 1.7% in 2020. The fact is, if we want our economy to be innovative we need 5% and we need it in 2-3 years, so that we can count on catching up to the leaders by 2030 or even later. Otherwise, when we have a 1.7% slice of a small pie, Germany will have a 3.5% slice of a gigantic pie.

We do not want to bash the government and complain that they are doing a lousy job. That would be too easy. But without risky and drastic changes in 2020 Poland will still be a country where in order to fund your ideas you have to beg institutions and fight bureaucracy to get something done, and at the end of the day they will take away your IP to leave you with nothing. Of course some entrepreneurs will succeed, because they are so damn stubborn that they will manage on their own. But with the right support they might have been a lot more successful. Nobody should be surprised that today people are leaving Poland to be innovative in places where others beg them to fulfill their ideas, and investors fight over the most promising initiatives.  If we don’t fix this, we will forever stay behind, forced to copy and steal advanced solutions from abroad. Fundamental changes in our society will be needed.