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For some entrepreneurs, the prospect of investing in innovation may seem daunting or even unaffordable at first glance. But BDC Consulting Senior Manager Guy Champagne would like to reassure readers that there are basic, practical ways to manage costs and optimize your innovation strategy.
"Put simply, innovation is really about responding to change in a creative way. It could be a larger-scale venture such as commercializing a new product or a low-cost initiative such as changing a process in your company that helps you work more efficiently," he says. "Ultimately, innovation is key to how you increase your company's value in the marketplace."
Diversify your projects
Champagne refers to a company's depository of innovation ideas as an "innovation portfolio." In this portfolio, a business could have any number of possible projects, whether it's a new way to market a product online, setting up systematic employee brainstorming sessions or investing substantially in Research & Development (R&D). "In the end, it's not about throwing money at one innovative idea and hoping it works. It's much better to have several projects in the pipeline. Not all of these initiatives will be on the same scale or give you the same return. But by investing in multiple projects, you avoid the risk of putting all of your eggs in one basket and becoming disheartened when the one big idea doesn't pan out," he says.
Invest in the basics first
Champagne suggests that entrepreneurs first conduct a diagnosis in order to take stock of their company's innovation capabilities and get a handle on what it would take for them to become more innovative. "Creativity is essentially a mindset or attitude. One of the first things that many entrepreneurs may need to develop is a company culture of innovation. If your employees don't buy into thinking in an innovative way then you won't likely succeed with your initiatives. Everybody in your business needs to be on the same page with this," he stresses.
Companies could consider investing in basics such as appointing an "innovation champion" who spearheads projects and is accountable for their success. "That's a wise investment, for example, because it formalizes the commitment to innovation and ensures follow-up," he says. Entrepreneurs might also invest in effective communications to get the innovation message out to employees, or organize company forums that stimulate creativity in their companies.
Financing innovation
Once business owners have scoped out their innovation initiatives, they are better equipped to determine where they need to spend and how much. "The first dollar inevitably has to come from your business but there are ways to leverage your investment," he says. Entrepreneurs can consider seeking financing for innovation projects. "Generally speaking, you need to show that your investment will have a positive effect on your bottom line or help your company grow over a longer period. Once you build a strong business case, you're more likely to get the capital you need."
Entrepreneurs can also strike up alliances or partnerships with other organizations to develop innovative projects involving R&D. "There may be industry grants that you can access, provided your project has a research component," says Champagne. For example, the National Research Council has an Industrial Research Assistance Program (IRAP) which provides advisory service and technological expertise and funds innovative research and development for SMEs. "This enables you to leverage your investment and possibly reduce your costs as well," he says.
Choose your consultant wisely
For François Viau, Partner BDC Consulting, one of the smartest investments in innovation for SMEs is choosing to work closely with the right consultant.
"Innovation is the lifeblood of any organization today. It's a question of surviving in a competitive environment, so getting the help of specialists with something so vital is par for the course," he believes. For example, seeking a third-party point of view can help business owners ascertain the viability of their projects right from the get-go. "It's common for entrepreneurs to become too emotionally attached to an idea and sometimes lose sight of what the market is telling them. We've got the objective, hands-on experience to better benchmark your projects and to assess what's realistic and attainable," he adds.
For Viau, an objective perspective simply helps entrepreneurs better invest their time and money and avoid lost time. "A consultant can help you develop a methodology to assess the payback on each of your innovation projects. You benefit from a systematic method to manage your initiatives and get the most bang for every dollar spent," he says.
Are you eligible for tax credits?
Government financing such as Investment Tax Credits (ITC) can also be used to offset the costs of innovation and reduce your risks, says Viau. For example, the Canada Revenue Agency's (CRA) Scientific Research and Experimental Development program, commonly known as SR&ED, provides ITCs amounting to 35% of qualifying expenditures, including salaries, capital, consulting fees and materials. For most SMEs, these ITCs take the form of a cash refund. Some provinces have complementary programs as well.
The scoop on SR&ED
"There's a myth out there about SR&ED," says Viau. "Many entrepreneurs think that a company has to have a lab and scientists in white coats to benefit from these tax credits. However, in reality, your business just has to show evidence of experimental development, which could be an advancement on your shop floor or generated by the key people on your team," he says. "Eligible companies often show that they're taking technological leaps in uncharted territory. ITCs are offered to businesses that develop or improve new products in different industry verticals such as manufacturing, software, prototypes, custom machinery, Internet access, manufacturing processes and automated tracking methods. Viau gives a concrete example of a bakery that makes flat bread and finds an innovative way to improve the product's shelf-life. "That same company was able to re-invest that ITC refund in other valuable initiatives such as developing other recipes and marketing," he says.
Get outside help
Key to success in accessing these tax incentives, says Viau, is working with consultants who have a high success rate with SR&ED applications. A BDC consultant, for example, can help you identify eligible projects, prepare technical project descriptions and accelerate the process with CRA. "SR&ED can be very time-consuming and requires knowledge of tax laws and the ability to convey information about the project in layman's terms. Entrepreneurs may want to invest their valuable time in other areas of their business where they excel. Outsourcing also ensures the process will not disrupt your day-to-day operations. It just makes good business sense," he says.
Clearly another advantage of working with BDC Consulting is that business owners can seek related innovation project financing from BDC. "When you've got a tax credit refund coming up, it may be easier to obtain additional working capital to help ramp up the innovation initiative," he says. "Getting those services all under one roof is clearly advantageous for SMEs," he concludes.
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