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Positive return for subsidies to innovative SMEs

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A recent press release by the European Commission has brought some interesting statistics about the effectiveness of subsidies to SMEs.

More specifically the European Commission measured a series of performance indicators in eco-innovation SME which had received funding via the the eco-innovation component of the EU’s Competitiveness and Innovation Programme (CIP).

Based on companies funded over the past two years, the study found that recipients saw a 20-fold return on the money received. Every one that obtained funding was able to create additional eight jobs.

 

This result is especially interesting for the positive results but, in my opinion, also for the rationale behind the measurement of those indicators. Too rarely do institutions try to measure their impact and the impact of their projects. To give you one example, the Brussels Region has an amazing series of subsidies available for SMEs and an even richer offer of support to would-be entrepreneurs. Yet, no statistics exist on whether or not these actions make sense and are profitable. The word profitability seems to be itself like a taboo because it would mean that a positive return would be expected from the State’s action.

 

I do believe that this is indeed what should be expected and what would-be entrepreneurs and entrepreneurs demand. The latter come primarily to State-funded institutions to be helped on subjects they don’t master and they want those institutions to make an impact. There is therefore a need to measure this impact and to measure how it contributes to the greater good. A mere satisfaction survey at the end of a meeting is not sufficient to measure this impact. You can very well be satisfied with your encounter with an advisor, but if you don’t implement anything of what he’s said the impact is zero.

 

My take

I had a meeting with Celine Fremault, the Minister of Economy of the Brussels Region, and her staff last week where we discussed exactly this. Measuring the performance of institutions and their impact is a very difficult task.

First it requires that KPI’s be defined that can actually be measured (it may seem obvious but think about what you’d be measuring if asked to evaluate the impact of the advices provided by a State-funded institution to a would-be entrepreneur).

Second it requires that data be collected on a long period of time. The firm-creation process is usually very long from ideation to foundation and longitudinal studies are therefore a perfect instrument to carry out such an assignment. Longitudinal studies are however very time-consuming.

Third, the willingness to measure an impact also requires that one be ready to take action in case the impact is not sufficient. And I think the biggest problem is actually here. The mechanisms to support entrepreneurship have existed for years (subsidies are an emblematic example). How much courage would it take to change radically those mechanisms if they were proved to cost more than what they actually bring?

 

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Author: Pierre-Nicolas Schwab

Dr. Pierre-Nicolas Schwab is the founder of IntoTheMinds. He specializes in e-commerce, retail and logistics. He is also a research fellow in the marketing department of the Free University of Brussels and acts as a coach for several startups and public organizations. He holds a PhD in Marketing, a MBA in Finance, and a MSc in Chemistry. He can be contacted by email, Linkedin or by phone (+32 486 42 79 42)

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