Wednesday 23 October 2019

Startup diary: the dos and don'ts of getting a grant for your business

Getting state funding for your company can be frustrating. In the latest instalment of his startup diary, Waterford-based Metsitaba founder Richard Rodger shares the things he has learned from the confusing world of applying for grant aid

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Richard Rodger

It is a truth universally acknowledged that an Irish entrepreneur in possession of a good idea must be in want of state aid. However little known the business plans of such a person, this truth is so well fixed in the minds of friends and family, that he or she is told to consider any and all available grants to be their rightful property.

If you will forgive my inelegant homage to one of the greatest book openings of all time (matched perhaps only by 'Moby Dick'), let me bend your ear this week on the subject of grants for your business.

We are lucky, in Ireland, to live in a country that is friendlier to business than most, and whose leadership has, over the years, despite many other failings, put in place a comprehensive and robust system of support for new businesses.

If you are starting a technology business, you are even more blessed, as you are the darling of all potential state suitors.

Not only that, but we have set of local, regional and state organisations that employ a highly professional workforce, many of whom have direct former experience in industry.

As a technology writer and blogger I speak at many conferences abroad, meet many tech startups from other countries, and I can tell you that things are not so easy in other countries.

It's not for nothing that the World Bank rates us as the 17th best country (out of 190) to do business in in the world.

I have been rejected for far more grant proposals that I have been approved. The ones that I have been given have not been because of 'connections'.

I am programmer and a nerd and it's taken me 20 years to learn basic business networking skills. My experience with state agencies in Ireland has been that aid is awarded very much on merit. If my first business in 2004 had been given a grant, it would have been an utter waste of money. At the time I was furious and railed against the injustice. How could 'they' not see that my business plan was obviously going to be successful!

What was obvious, was that I had a lot to learn.

I'm writing on this topic because I have recently gone through the state aid process again, and had more success this time around (20 years of failure will do that to you.)

I'm not comfortable giving you specific advice on particular funding schemes or details about individual organisations. I'm not an expert.

This startup diary is all about openness, and I can tell you all I want about my own company, but when third parties are involved, that's another matter.

What I will say is to start local. Local agencies are best-placed to help and advise you in the early days. All you have to do is listen.

I will give you my take on writing grant proposals. This is where the universal truth that you are your own worst enemy is most clearly revealed. Many entrepreneurs, even experienced ones, get very emotional about their ideas, and strangely resistant to doing the homework needed to justify and communicate them to others.

I remember a former boss of mine losing it completely with his accountant on the phone (I was in the next room, coding) because a grant application had been rejected. The accountant was one of his childhood friends. As an entrepreneur it's easy to get very emotionally attached to your idea. You do it despite knowing that you should not.

So when you get a 20-page grant proposal form that asks you to describe and justify your business in depth, you should not weep tears of frustration (you will anyway), rather you should weep tears of joy, because if you take the questions seriously, you will make more money in the end.

That's why you're doing this, right?

Grant proposals are most valuable, not for the money you get, but because they are forcing function that makes you think hard about your business.

You are forced to describe and quantify your market. You are forced to make it very clear who will give you money and why. You are forced to plan your revenue and expense numbers.

If you are technical founder, you'll be put off by the business and marketing terminology. Your view of marketing and sales people might be a little … colourful. Get over yourself. There's a lot more to convincing people to give you money than you think. It's just as hard as coding. You need to take it seriously.

Those of you who read this diary on a regular basis will know that I took the decision to start a newsletter before building software (615 subscribers this week! Another small step towards our goal of 40,000 by year end).

And it is only now, four months in, after getting reasonable market validation from the newsletter, that we are starting serious software development.

The newsletter is inbound marketing and a sales channel. We generated credibility and interest by providing real value to people in our target market.

There is an honest exchange of value. That is the cornerstone of business. You need to design a business model that can generate revenue with defensible margins.

A startup is risky precisely because you could be wrong about your model (you probably are). But it's pretty much a guaranteed failure if you have no model.

(Don't mistake other factors as evidence that you don't need to do your homework - that's called survivorship bias.

Facebook got lucky with 'mobile ads in the newsfeed' and figured out a revenue model after the fact. You don't know about all the other social networking startups that failed because … they failed.)

If you ask why I did things this way, with the newsletter, you have to understand that is because I knew I would need to answer the sales and marketing questions that I would get on grant forms.

And not just grant forms. Good senior staff will ask them too - I wouldn't join a startup that did not have a good business model - my share options would be worthless!

Investors will also want answers to these questions, of course. And by investors, I mean investors at all levels, from the local authority that gives you a mentor, to Enterprise Ireland (when you're big enough), to Sequoia Capital (the most eligible funding partner of them all) when it's clear you're a going to be a billion-dollar company (a 'unicorn').

And at the end of it all, if you go public, and float your company on the stock exchange, well, you'll have to explain your sales and marketing every quarter.

When your grant application is successful, you may still baulk at the paperwork.

For example, it's very common for you to have to get three separate quotes for external work. You'll also need to use a scoring system to select your vendor from those quotes. Most small businesses would never bother doing this.

There will be record-keeping requirements. You need to document what you did, and what the results were. You'll need to submit a final report. There will be things you can spend the money on, and things you can't. Often you have to provide 50pc of the cost yourself. Why do they make it so difficult? You're creating jobs after all!

I want you to put on a different hat. As a taxpayer, do you want your taxes to be wasted? It was your hard-earned wages before you handed it over to the Revenue Commissioners.

My former CFO (Chief Financial Officer) had a great saying: "It's not illegal to make bad business decisions." Most companies waste money to some degree with inefficient spending.

But it most certainly is illegal to waste public money, through negligence.

The State agencies have a duty of care to the citizens of Ireland to make sure it is well spent.

They approve grants even though they know that most startups will fail. But is it our money, collectively, all the same, and we need to be sure we're getting value from it.

Just as the grant applications make you uncomfortable because they force you to think, the paperwork required to spend the grant money also forces you to up your game as a professional manager of a business.

You need to put in place the processes and systems that keep things under control.

You're not entitled to grants. You have to earn them.

That's a good thing for your business. Don't be cynical. Business is all about turning roadblocks into advantages.

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