What SME management should know before investing in chasing government grants

What SME management should know before investing in chasing government grants

 

 

Most SME’s I meet have at one time or another contemplated, and often invested considerable resources in the quest to obtain public grant funds.

Rarely do they approach this exercise with any understanding of the disconnect between the way the commercial world, and the bureaucratic one work. They assume that what to them is normal and obvious is reflected in the bureaucratic processes.

Wrong.

For context, 25 years ago I ran a small grant-funding outfit called Agri Chain Solutions that had been outsourced from the then Department of Forestry, Fisheries and Agriculture at the express direction of the then newly elected Prime Minister Howard.  ACS was a Company, limited by guarantee with a largely commercial, board with two members from the senior ranks of AFFA and Austrade. The chairman had been a very successful MD of a very large business in the food industry. I was recruited as a senior manager with extensive experience in FMCG and agriculture.

Following are some relevant observations from that time about how the bureaucracies operate, which from what I can see, remain accurate.

  • Departmental budgets are set annually in line with the governments policies and priorities. While program budgets are often spread over a number of years, they are reviewed and changed as necessary, or for a hundred other reasons, annually.
  • Departments put in their ‘bids’ in the pre-budget preparation, which includes the costs of running the department, as well as the cost of the programs for which they are arguing.
        • Departmental overheads have been progressively cut over years by shedding heads, which are then contracted back as an ‘off the books’ expenditure, usually netted off against program costs, or just classified as an unavoidable cost overrun.
        • The status of public servants is measured by the number of reports, direct and indirect (i.e., reporting to someone who reports to them) they have, and the size of the budgets they manage. This leads to an ongoing turf war between departments, and sections within departments for status, and public service grades that determine pay and advancement.
  • Public servants are typically held loosely accountable for the expenditure of money compared to the budget allocated. This has absolutely no relationship to the outcome generated by the programs they manage. To my mind, this mismatch of expenditure and accountability is at the core of much of the waste that occurs. It is also the factor that leads to the mad rush to ensure that budgets are all spent before June 30. An underspend will be seen as a sign that a cut is possible, while an overspend is seen as bad luck, with no recriminations, or understanding of the drivers of the overspend.
  • Program reviews done by an ‘outside’ neutral agency are built into the program costs, but neutrality is a joke, as the current PWC fiasco demonstrates. In ACS’s case, the review was done by KPMG, who had to do three revisions to get to a program report AFFA was happy with, in order to get paid. As you might guess, draft 1 was OK by me, draft 2 was nonsense, and draft 3 was total bullshit that bore no relationship to the success, or otherwise of ACS expenditure. I was bitterly and noisily opposed to the final report submitted, but was advised that my disagreement while noted informally, was not relevant. I could not change the world, so I should just get on with life.
  • Grant program budgets allow a percentage of the total program to be held back for ‘Administration’. In the case of ACS, that amount was 20%, a laughable amount, as the total expenditure on all ACS overheads and project management was around 6% of the program budget. All AFFA did was use the withheld amount as a slush fund.
  • Program budgets are broken up to make keeping track easy, bearing no relationship to the way money should be spent to optimise the outcomes. In ACS’s case, we had $9 million over 3 years, minus the withheld admin cost. The department broke the total into 12 equal quarterly amounts and insisted that was the budget. Pointing out that it took 18 months to get good projects up and running, during which time little grant money would be allocated had little effect. In the last 18 months more than the quarterly ‘budget’ amount was to be allocated, which caused great angst in the department. I also pointed out that at the original sunset of 3 years, there would be projects that had not been completed, that ACS and AFFA had a moral if not contractual obligation to see through. After much discussion, we negotiated a 12-month extension for nominated projects that were then shuffled into the follow up program, the National Food Industry Strategy, with a contractor to administer them.
  • Senior public servants speak about accrual accounting as being the base of their accounting processes. ‘Nonsense. It is cash accounting, there are no accruals involved, anywhere.
  • There is a myriad of ‘allowances’ that foster rorting and destroy accountability. I came into contact mostly with those relating to travel. The intent is sensible: make the management simple. However, the effect is to enable officials travelling to rort the system. E.g. A level X official is allowed an amount/day for meals and accommodation, without any paperwork showing expenses incurred. Predictably, they travel as much as possible to places where they have friends and families, claim the whole amount, and pocket the lot, or stay in a cheap hotel, eat as cheaply as possible, and pocket the difference.
  • Finally, for all the babbling about innovation that goes on, it represents the antithesis of the cultural abhorrence bureaucracies have with risk. Innovation is impossible without risk, and risk seen in hindsight is always weaponised as a mistake by those who oppose. As was once said to me by a senior bureaucrat in a well lubricated social setting “my job is to ensure my minister is never seen as stupid, and you know who my minister is, so you know how hard my job is’.

None of this is to denigrate public servants, quite the contrary. As individuals, they are generally a well-educated and potentially powerful force for good, frustrated by the constraints of the culture within which they work. The challenge is changing the culture that has been encouraged to grow around them, a task belonging to those with the power to do so, the politicians.

 

 

The biggest challenge for every dreamer who aspires to be an entrepreneur.

The biggest challenge for every dreamer who aspires to be an entrepreneur.

 

 

Many of the impediments to starting a new business have been removed over the last 20 years.

You no longer have to hire an accountant to register the business, hunt around for premises, hire a bookkeeper, find an advertising agency, build a product prototype, spend days designing the letterhead, understanding the regulations and weaving your way through them, and doing the hundreds of other tasks necessary to start a business.

They can all be done with digital tools from your kitchen table, or outsourced to someone who has the specific expertise necessary, from their kitchen table.

What used to take time, money and most importantly the energy of budding entrepreneurs can no longer be used as an excuse for not moving forward.

The wheat has been sifted from the chaff by the digital winds.

That just leaves the toughest challenge, the one that in most cases motivated the thinking in the first place, the one that separates the dreamers from the ‘doers’.

How do you identify and generate traction with those prepared to part with their money to buy your product or service?

When they have bought from you once, how do you keep them coming back, or better still, turning your product into a subscription service?

This always was the hardest part of the entrepreneurial journey.

It always will be.

However, these days there are far less excuses not to have a go than there were 20 years ago.

 

 

My website ‘Vegemite’ test

My website ‘Vegemite’ test

 

 

When my kids dropped a piece of toast, or bread on the floor (almost always spread side down) we used to invoke the ‘3 second test’. This was simply that the bugs took three seconds to wake up and realise there was a feed nearby, so if it was retrieved inside that time, it was OK to eat.

Same with a website, almost.

We are all busy, our attention is stretched beyond reasonable limits, and we have no time to waste. So, when your potential customer is researching, or just loitering on the web, you have perhaps 3 seconds to engage them, such that they have a closer look.

In those 3 seconds, you must communicate three things if you are to get them to pay you any of their scarce attention:

  • What problem you solve.
  • Who do you solve it for.  In effect, a written ‘elevator speech’, what you do and why they should listen.
  • Call to action. What you want them to do next.

Pretty obvious?

Give yourself 3 seconds to look at most websites, and ask yourself those three simple questions.

How does yours fare?

PS. For my readers outside Australia, ‘Vegemite’ is a spread for bread and toast we Aussies are brought up on, which the rest of the world thinks looks and tastes like old axle grease.

I bet every ‘Matilda’ has it almost every day!

 

 

The rule of the niche

The rule of the niche

 

 

Standard marketing advice in this day of homogeneity, and certainly my advice for SME’s, is to ‘find a niche and own it’.

Be the only one that competes in a market niche that you define.

The deeper, darker and more remote the niche the better, because when you get engagement there, you will be alone, you alone will be able to address the needs of those few who inhabit the niche with you.

Kevin Kelly’s now famous quip from his 2008 essay:  ‘to be successful you do  not need millions of followers, you need only a thousand true fans’ remains as accurate today as it was then.

A true fan is one who will buy anything you produce, they will drive 200kms to see you in a bookstore signing, then buy a bunch of signed books to give away to friends.

The challenge of course is to find those true fans, or more accurately, create the circumstances where they find you, and move through the now standard journey of Awareness, Knowledge, Liking, Preference, Conviction, and Purchase, to Advocacy.

Marketing plays a role in each step of the journey, but the starting point must be ‘macro’. If you start at the niche end of the cycle, too few will be able to find you. There needs to be a filtering process from the macro to the micro for there to be sufficient opportunity for those in the niche who may become true fans to find you in the first place.

It also pays to consider the paradox: There may be a niche in the market, but is there a market in the niche? For you as an SME, the niche may be ideal, but too small for a larger competitor to bother with, or even see.

,Niches can be global, local, and everything in between. To some they represent a ‘Blue Ocean’, a market without competitors. The question now is whether there is a market in the niche, wherever it hides, that will generate an ROI on the resources you allocate towards owning it.

 

 

 

8 sources of competitive advantage SME’s have over larger rivals

8 sources of competitive advantage SME’s have over larger rivals

 

SME’s suffer in many ways from the lack of scale when competing against much larger enterprises. However, if you look hard enough, there are always benefits to be found that may outweigh the costs.

  • Small budgets mean reliance on qualitative rather than quantitative research and market intelligence, which require deeper pockets. Go out and talk to a few customers, ex customers, and non-customers in your market, you will learn more in a couple of afternoons than the spreadsheet jockeys in the larger companies will learn in a year.
  • Make niche choices early. Rather than scanning the horizons for opportunities, pick a niche and own it. Chances are it will be something that the larger companies have overlooked, or is too small for them to allocate resources, but for an SME, they can be a great stepping-stone to profitability and growth.
  • Revel in being the underdog.  Avis Vs Hertz.: ‘We try harder’ the line Hertz used is the standard bearer for this battle of the underdog. We humans love to support the underdog against the impersonal giants.
  • Be very price sensitive. Pricing high is always a good strategy, as it is easier to come down than to go up, and avoid predictable and regular discounting like the plague. Your larger competitor is unlikely to be as sensitive to the difficult task of optimising price as you are, working off price lists that are updated in total, from time to time.
  • Pareto the pareto. Focus, focus. Bring all your resource’s to bear on a point of value you can deliver, don’t dissipate them by being all things to all people. This applies to customers, service offerings, communications, everything, focus on the points that will deliver the most bang for the buck. Be the king of ‘No’.  Warren Buffet noted that the one common feature of successful people is that they say no a lot. The larger your competitor is, the easier it is for them to be distracted, and gummed up by bureaucracy.
  • This point will seem inconsistent with the point above, but watch for anomalies. While focus is essential the risk is that you are so focused that you do not see things that will make an impact when they are just small points on the horizon. These small anomalies are the things that generate change. Large businesses tend to ignore them, or they get lost in the bureaucracy, SME’s have the opportunity to move quickly and decisively.
  • Balance the tactical and strategic. Small businesses tend to be seduced by the tactical stuff. Short term this is OK but not a good long-term recipe. Both are necessary, but you must resist the temptation to worry about the future when it comes, as it is already here in some form, so you have to build for it before it gets to you. Be specific about the breakup you deploy, knowing the big blokes are stuck deploying changes in either.
  • Be flexible and agile. They are different, flexibility enables you to move with the changes in the market, agility is more short term, enabling you to make choices that are outside the ‘brand architecture’ as they emerge. Pivot in the jargon, your larger competitors will find it hard to get out of their own way.

What have I missed?

 

 

The start-up’s 3 card cash challenge.

The start-up’s 3 card cash challenge.

 

A start-up funded with a cash stake from family, friends, and fools, supplemented by available savings has in its future one of only three options.

  • It runs out of cash before the end of the ‘runway’. Crash and burn.
  • It extends the runway by finding more cash, usually from equity injections. This generally requires that an MVP (Minimum Viable Product) has been produced. MVP is a term usually associated with a tech start-up, but is just as applicable to a local accountant or plumber hanging out their shingle.
  • It achieves ‘lift-off’ before the end of the cash runway. This makes it easier to attract the necessary second round funding to scale from further equity or loan funds based on the expected cash flow from the expanded enterprise.

Assuming the start-up succeeds at option three, it is no longer a ‘start-up’, it has become a business.

These are very different beasts.

The start-up by necessity is acting to attract further investment. This is available from funding institutions of various kinds, and from those very early adopters of a new product or service who value the buzz of being early adopters, the risk takers. Those running ‘start-ups’ need to be highly ambidextrous, as they must work on the ‘product-market fit’ as well as continually chasing the next round of finance.

Once it has become a business, ‘lift-off’ has been achieved, the focus must be wholly on serving the chosen customer set, or the pack of cards will fall, eventually.