“Government is a big buyer with many complex challenges. Entrepreneurs with innovative solutions to these problems should have a shot at solving them, don’t you think?”
This was a question asked this fall by federal Minister of Small Business and Tourism Bardish Chagger in a speech she gave to celebrate Small Business Week in Ottawa. But how can the government actually do this? What mechanism could make government procurement an enabler of innovation? We believe Canada needs its own Small Business Innovation Research (SBIR) program.
The Liberals floated the idea of SBIR during the election campaign, but scant notice was taken by the media or the business community. But SBIR can be a very powerful catalyst for innovation and we must not allow this idea to be relegated to the policy back burner.
SBIR was pioneered by the U.S. in 1982 to stimulate technical innovation and commercialization by small business. The program is so successful that it is branded as “America’s seed fund” and credited as the foundation for success of FedEx, Qualcomm, Amgen and Symantec, providing initial funding support when they were small startups.
It requires government departments and agencies to set aside a tiny portion of their R&D budgets for competition-based awards to small business. The program is implemented and managed by individual government departments to address their respective innovation challenges. And it has set-asides that restrict a portion of competitive government procurement to small businesses.
In the United States and other key competitor countries, SBIR-like programs have been shown to help small businesses grow while successfully accelerating innovation and facilitating the transition from product idea to commercialization. A similar SBIR program in Canada would fill a crucial gap in the federal toolkit of supports for small-business innovation.
Canadian small businesses often do not have sufficient working capital required to innovate and current innovation programs such as the National Research Council’s Industrial Research Assistance Program (IRAP) require them to have this type of capital. Also much of Canadian business innovation does not fit into the strict criteria for the government’s Scientific Research and Experimental Development tax credit program. Without working capital, companies will postpone or reduce R&D until they build up sufficient resources, which reduces our rate of business innovation and key opportunities for commercialization success are lost.
Revamping federal procurement processes to include a Canadian SBIR program would address the need of early-stage companies to access up-front working capital. Additionally, it would provide the government with made-in-Canada solutions that meet its needs for innovative products and services. Most importantly, SBIR would enable more Canadian companies to scale-up their innovation capacity from concept through to pre-commercialization.
An SBIR program would be different from the existing suite of federal programs that support business innovation. It would provide 100 per cent up-front funding support directly to small business for R&D without the requirement for industry matching funds. Unlike other programs, SBIR would not be repayable and would not represent a contingent liability on the balance sheet of a small business.
Implemented effectively, a Canadian SBIR program has the potential to stimulate early-stage innovation and R&D in small business, increase market-oriented, commercializable products and technologies, and grow the number of global patents for Canadian techniques and technologies. The government could build in criteria to encourage collaboration with underutilized segments of Canada’s innovation and talent ecosystems, including underrepresented groups, women or even polytechnics and colleges – urging the collective creativity and ingenuity from across a wide spectrum of talent.
Integrating a SBIR program as part of government procurement would increase alignment of Canadian innovation technologies and products with the needs of government, while nurturing a critical mass of capability in areas of strategic importance.
So to answer Minister Chagger’s question, yes, entrepreneurs with innovative solutions should have the opportunity to solve complex challenges facing government and government should use all of Canada’s talent and ingenuity in seeking to solve its own R&D problems. A homemade SBIR program would do just that while also helping Canadian small business to grow and create jobs.