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Governments offer a wide variety of funding for entrepreneurs. There are reasons to question how effective these programs are. What does government funding mean for entrepreneurs?
Whether it is seed money to get started or funds to scale up the promising startup is a common issue for entrepreneurs. The concept of venture capital and angel investing is based on the lack of investment capital to support riskier phases of entrepreneurship. It's a necessity for many entrepreneurs to bootstrap rather than a strategy.
Governments have tried to help alleviate the burden. They started with a wide variety of support to help entrepreneurs get off the ground. Governments at all levels spend a lot of money trying to support entrepreneurs. Their rationale is political. The goal is to help create jobs.
What do the money and effort accomplish? The funding and support of the government is being used. There is more funding and support for the activity that is being supported. Are these programs successful? There is no obvious answer to this question.
The track record is rather dismal according to Josh Lerner of Harvard University. We don't understand how to boost entrepreneurship, help entrepreneurs succeed or create for economic growth, despite all of the government's programs. These public programs look nice, but they have little effect.
If not the very opposite, the argument is different to others. A professor at University College London believes that government is a path to entrepreneurship. In her book The Entrepreneurial State, she argues that government support is important to drive economic growth. There would be little or no growth if it weren't for the government's investment in innovation.
Is government support to entrepreneurs a waste or necessity? 32 renowned scholars on entrepreneurship, innovation and policy address the effectiveness of these programs in a recently published book. Questioning the Entrepreneurial State analyzes and scrutinizes the thesis. Her conclusion is thought to be premature and misleading by the combined contribution of 17 chapters. Government funding is fraught with politics, bureaucracy and consequences. It isn't an effective means for the ends sought. To put it differently, there is little bang for the buck.
This doesn't tell us much about how entrepreneurs can use these programs. Political funding that is not a good idea from the taxpayers perspective can be put to good use by anentrepreneur in search of funding to create or scale up their business.
There is a myth about government grants.
The question is not if the money can be used for good, but if it is worth considering a government program for support in your startup. There are four things to consider.
Figuring out how to best provide consumers with value is your job as an entrepreneur. Whenever you make consumers better off, there is value in your startup. It is easy to lose track of this when trying to make ends meet and put out fires. One solution to the money-in problem is to change the business idea or value proposition to fit the funding call of a support program. My advice is not to do that. If you don't create value, your business won't work. It can become dependent on that type of funding.
Too much of a good thing can happen. Being protected from the brutal reality of the market can cause lethargy and inefficiency. It also means that you make decisions that are not in line with your budget. It is the same problem as bootstrapping, but it is different. You become less focused on cutting costs and more focused on making the most of the expenses that are necessary. This can affect the profitability of your business. Make sure you don't fall prey to the false sense of security offered by funding programs.
Accepting a Helping Hand: How to fund your business.
There is no such thing as a free lunch. This is also true with government support. Before applying, make sure you understand the requirements. The application process may take a long time. Public insight and influence into the business can be required by government funding. It's possible that support comes with reporting requirements that you wouldn't choose. Entrepreneurs choose their costs. Choose wisely.
External funding comes with strings. This is true for public sector support as well. Before you apply for or accept support, make sure you know the expectations of the program. You might not want to give up your independence for funding.
What you need to know about grants is related.
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