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Using small business to turn science into EU growth

EU politicians get to grips with the latest science. European Union, 2013

When we think of cutting-edge innovation, we tend to think of big corporations and their latest wheezes: Google Glass, Sony flat screens or Airbus’s newest plane. But small businesses play key roles in science and innovation too. So much so in fact, that European policymakers have set aside tens of billions of euros to link up boffins and small businesses.

Small businesses account for 99% of all European firms by number, providing over two-thirds of all jobs in the private sector. Perhaps most interestingly, some 92% of those small businesses are “micro-enterprises”, defined as those with fewer than 10 employees and a turnover of less than €2 million. These small teams and start-ups are often daring and agile as they attempt to establish new niches for themselves. Hidden among them are innovation leaders of tomorrow.

Although the combined bulk of small to medium enterprises (SMEs) represents a colossal part of the economy, individually they are usually fragile entities. They are sensitive to cash-flow problems, often naïve about business management and markets, under-networked and easily hobbled by bureaucracy.

What’s getting in the way for Europe?

The situation may be worse in the EU. European small businesses grow more slowly than their US counterparts, largely thanks to bureaucratic shackling, a more fragmented market and reduced access to venture capital and loans. In public science and innovation too, Europe does not seize market opportunities at the same pace as the US, where universities generates 2-3 times more of their research expenditure from licence income. Yet overall, Europe’s academic science and technology output is strong, being larger than that of the US.

For these reasons, the European Commission is taking a new stance on science, innovation and economic growth. Claiming to “think small first”, it wants to free up the potential of small innovative businesses by reducing bureaucracy, providing more access to capital and stimulating better networking - particularly with public research.

The European Commission reducing bureaucracy? Yes, really. In fact, they have already taken a series of actions to remove unnecessary processes and open channels to money. There is new assistance in the public procurement market, worth approximately one-sixth of European GDP, where it has been shown that SMEs tend to under-perform. There have been actions to remove unnecessary and costly Apostille stamps and certified translations. Then there have been efforts to find regulatory exemptions for micro-enterprises and to facilitate microloans by having the EU provide guarantees to intermediaries who can then lend to small businesses.

Public science as a nest

But perhaps the most exciting development is that the Commission is looking to get SMEs much more deeply embedded in its new €70 billion science & innovation funding program called Horizon 2020. The program is due to run from 2014 to 2020 and the commission is making every effort to put small, innovative businesses at the core of this funding programme. So much so that it has worked hard to strip out the painful bureaucracy of previous science-funding programmes (FP6 and FP7) predominantly in order to lower barriers for SME participation. It is hoping that better links between academia and industry will get some economic traction out of the European scientific engine.

This marks a shift in European research priorities. The focus is no longer on “excellence” in science only. Now, this “excellence” is being used to underpin money making and money saving drives. Most of the 20-25% of the €70 billion budget that will be ring-fenced for business will be used to encourage collaboration between public research institutions and SMEs.

However, there will also be funds dedicated to rapidly developing exciting new products and bringing them to market. The EC is also adding a new spin on the kind of research it will fund. A large chunk will now be dedicated to “top down” quality of life challenges for Europe, such as health, society, environment and sustainability. This often means addressing needs where there is already a pressing market demand.

Such partnerships could be ideal for small businesses and start-ups. Public money and the public research community can provide something of a nest for fledgling companies. Growing their operations on grant money is more preferable to the scenario of gambling on their future using precarious bank loans while trying to convince potential clients to part with their own money. Working in collaboration with universities and research institutions (which have the grant-getting experience and administrative capacity) helps forge relationships, encourages transfer of people and ideas, and helps identify research and market niches.

Finding the pot of gold

The burning question now is how to raise awareness of this new opportunity for small businesses? A pot of gold awaits, but how do start-ups find out? Good communications and collaborations with national government schemes and networks are the keys to reaching the right people.

In 2008, the Commission launched the Enterprise Europe Network (EEN), which is now the largest information and consultancy network in Europe. Other networks are beginning to self-organise. In January 2013, a new initiative called Vision2020: The Horizon Network was launched. A collaboration between European universities, research institutes, leading companies and a growing number of small businesses, Vision2020 aims to build collaborations to target EU funding and also influence European policy around the academia-business interface.

Whether or not they ultimately cure Europe’s current economic woes, small European businesses with an appetite for research may soon find themselves as key players in an ambitious new drive.

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