Advertisement

We need your help now

Support from readers like you keeps The Journal open.

You are visiting us because we have something you value. Independent, unbiased news that tells the truth. Advertising revenue goes some way to support our mission, but this year it has not been enough.

If you've seen value in our reporting, please contribute what you can, so we can continue to produce accurate and meaningful journalism. For everyone who needs it.

Norlando Pobre via Flickr/Creative Commons

Column Ireland should buy from start-ups, not just give them cash

The Government invests more than €100m in start-ups every year, writes Paul Quigley, but they should consider buying some of their goods and services if they really want to get them off the ground.

EACH YEAR, IRELAND invests a ton of cash – probably well north of €100 million – into new and emerging companies.

Enterprise Ireland is the main funnel for government funding of companies – each year it invests millions of euro in hundreds of companies it considers High Potential Startups (HPSUs), and later-stage developing companies. This cash – “EI money” – has become a major part of the start-up ecosystem in Ireland, and it’s one expense that isn’t getting the axe in government budgets.

Public investment money flows to Irish start-ups in other ways, too. Much of the private sector money invested in Ireland is in fact government money managed by Irish VCs and other administrators, and blended into seed capital funds. Seed capital funds are administering the investment of at least €124 million of public money. In addition, there’s the competitive start fund, and the innovative High Potential Start Up fund. If you can impress the right people, there’s a lot of cash about.

The government is doubling down on this strategy of growing companies through investment. It recently gave US-based investment firm Sofinnova €30 million to invest in Irish healthcare and life sciences companies, and invited other investment firms to come to Ireland and help invest public money in Irish startups. Plus there’s generous tax relief available for start-up investors – some Dublin accountants boast that between tax relief and government money, they can quadruple the cash value of any investment.

How do all these companies perform afterwards? It’s hard to say – there are fewer press releases about how everyone is doing three years out. The good side is that EI (and Ireland) gets a slice of the cake when there are successful exits – when companies get acquired further down the line. On the other hand, the process feeds the phenomenon of “grantepreneurs”. In Business Plus magazine last year I read an investigative piece about companies that got millions in public investment, and didn’t have much – or anything – to show for it. Some didn’t even seem to have tried.

As new tech companies start to influence more and more of the economy, Ireland wants to support its emerging entrepreneurs. But you know what would be even better than investment? Customers.

Government: Ireland’s biggest customer

Government spending accounted for 47.5 per cent of Irish GDP in 2010. This included everything from social welfare to recreation, defense to education, and thousands of services and products. That money feeds a lot of mouths.

Now imagine if it was possible for startups to compete for a slice of that spending? Traditionally, the public sector has been slow to take on new technology or vendors. Just like no-one ever got fired for buying Microsoft, no-one ever got fired for hiring Accenture, Arthur Cox, Microsoft or PriceWaterhouse Coopers. So any upstart who thinks they can do a better job of helping the department of social welfare manage its data, or the gardai manage their schedules, or Coillte manage its supply chain, or feed children, or help some quango “raise awareness” – well, good luck. You’re facing an uphill battle, and you’ll probably have an easier time selling into the UK or the US.

Many government departments, state companies, and quangos have tried and trusted vendors, relationships. There isn’t the same pressure as the private sector to innovate – the public sector doesn’t have shareholders to account to, or reasons to change. Some public bodies don’t have the expertise to draw up their own procurement terms for major software changes – meaning the big consulting firms draw up the terms of reference, write their bids the next day, and – surprise, surprise – win the contracts.

Of course, sometimes you need the big guns. But sometimes you don’t. Right now, the public purse is open to start-ups in a narrow way – investment. Here’s some cash, Sonny – now go away and leave Daddy alone. See if you can sell your wares abroad. But investment can burn up pretty quick without customers, and new customers are the hardest step for any start-up. So why not start buying our products and services?

The reason is simple: there’s a sea change going on in tech right now, and Ireland needs to build some global companies from it.

Software eating the world

Super-investor Marc Andreessen has predicted that in the coming years, software will eat the world. So what does that mean? In a few years time, web-connected software (apps and websites built into everything from your phone to your fridge) will help you do everything in your life, from locating your friends on Saturday night, ordering the right food, managing your fitness, navigating foreign cities, knowing when to visit the dentist, subletting your spare room, and carpooling. Software will tell farmers when to cut their grass, will tell you where to buy the cheapest gas, and will turn on your heating as you drive home. Software in your phone will help you find the best price for the blender you want to buy, and then you’ll buy it through software in your phone.

All these things will come to pass, and some very big natural monopolies will develop – like Facebook, Google, Amazon, AirBnB, and Apple. We live in the era of a great technology land grab.

If Ireland is to produce software companies that will eat the world, and win some turf in this land grab, sure, they will need investment. But investment tends to follow good ideas anyway, and savvy Irish entrepreneurs are getting good at bringing in the bacon from foreign and domestic VC funds. Ireland has a pretty hopping angel investment scene, too. What software companies need even more is initial customers, who’ll take a risk on the new technology or approach to solving a problem. Having some happy customers who’ll sing your praises to prospective clients is worth far more to a company than a chunk of cash.

So: what if we were to invert the public sector attitude – and turn the Irish public sector into a place where new ideas and processes are embraced, tested, and tried out? The public sector – including government departments, the courts service, universities, and state owned companies – solves thousands of problems each day. It employs hundreds of thousands. It spends a billion or two a week. And it’s reputed to have some inefficiencies.

Many of the things governments pay for – from managing a consultant doctor’s schedule to providing public information – will be eaten by software in the coming years.  If Ireland is at the forefront of this historical change, producing stellar companies in the field by giving them a head start now, we can reap some of the benefits of it.

Plus, on the flipside, this approach would save taxpayers a fortune. If start-ups got their agile, low cost, customer-oriented mentality into some government processes, well, there’s a chance they’d be done better.

Of course, if functions of government are to be trusted to young companies, all existing (logical) safeguards and standards should stay in place. (Personally, I’d like to see the destroyer of critical thinking called “best practices” banished, though.) The best companies should still win. And needless to say, we’d have to prevent any corruption or gombeenism in public contracts. But given how much our government spends on technology, legal, accounting, healthcare, food, security and everything else every year, and given what a deplorable job some existing firms have done, isn’t it worthwhile imagining something new?

So here’s my question to Ireland, Inc.: if you really believe in all these start-ups you’re funding, why don’t you start buying their stuff?

Paul Quigley is co-founder of Newswhip.com, an Irish start-up tracking how news spreads through the social web.

Read previous columns by Paul Quigley on TheJournal.ie>

Readers like you are keeping these stories free for everyone...
A mix of advertising and supporting contributions helps keep paywalls away from valuable information like this article. Over 5,000 readers like you have already stepped up and support us with a monthly payment or a once-off donation.

Close
21 Comments
    Install the app to use these features.
    Mute John Colfer
    Favourite John Colfer
    Report
    May 4th 2012, 6:33 PM

    excellent idea, but unfortunately it won’t work until the tendering process changes. I think its nigh on impossible to tender for such projects unless you’ve done similar work before or know somebody, who knows somebody….

    29
    Install the app to use these features.
    Mute Nucky Thompson
    Favourite Nucky Thompson
    Report
    May 4th 2012, 7:10 PM

    You are wrong.

    The EU procurement public sector directives are based on the pillars of non discrimination, equal treatment, and proportionality.

    The Dept of Finance have made it very clear that SME’s should not be disadvantaged in any way as part of any procurement process. They have in fact issued a Circular (10/10) which has changed public procurement procedures to open up the market to smaller companies.

    This article contains a lot of ‘statements’ with zero proof or evidence of truth to back them up.

    12
    Install the app to use these features.
    Mute censored
    Favourite censored
    Report
    May 4th 2012, 10:39 PM

    He is right. Give examples of successful applicants please.

    Most Irish companies focus on international markets immediately, and for good reason: it’s easier and the potential rewards are greater.

    10
    See 1 more reply ▾
    Install the app to use these features.
    Mute Paul Lanigan
    Favourite Paul Lanigan
    Report
    May 5th 2012, 11:56 AM

    John is correct. The Public Servants making the purchasing decisions are risk adverse in nature and given the choice between an expensive big (secure) company with a track record (low perceived risk) and a smaller indigenous business that has little brand recognition (ass cover) – they will always go with the ‘safe’ option.

    3
    Install the app to use these features.
    Mute Sean Higgins
    Favourite Sean Higgins
    Report
    May 4th 2012, 6:07 PM

    Most small companies don’t see a cent of this money when trying to start up employing staff and paying prsi, paye and vat. So where the hell is it all going………

    27
    Install the app to use these features.
    Mute Sean Higgins
    Favourite Sean Higgins
    Report
    May 4th 2012, 7:49 PM

    Thompson set up your own company and then get bak to me.

    10
    Install the app to use these features.
    Mute Nucky Thompson
    Favourite Nucky Thompson
    Report
    May 4th 2012, 8:44 PM

    No need my friend, I already have my own company and employ 8 full time staff.

    20
    Install the app to use these features.
    Mute David Howard
    Favourite David Howard
    Report
    May 4th 2012, 10:25 PM

    The process has been opened up, but the reality is that if an Irish SME “won” an RFP without reference or ‘form’ in any major contract, a large or multinational company would/will simple go to the eu courts saying the process was non compliant and the Irish gov will capitulate… That of course is if anyone who was in a position to make a decision had a pair and stepped outside the cosy convenience of awarding the contract to the huge company with the huge price tag and cosy side clauses in the first place…

    9
    Install the app to use these features.
    Mute Frank2521
    Favourite Frank2521
    Report
    May 4th 2012, 11:38 PM

    Enterprise Ireland – a better name would be ” Only friends need apply”.

    6
    Install the app to use these features.
    Mute Joe Roddy
    Favourite Joe Roddy
    Report
    May 4th 2012, 11:50 PM

    That’s a nonsense comment. EI do try and help. They don’t like single person companies, they prefer in teams. They also heavily lean on experience, so anyone under 30 would find it more difficult.

    I don’t really agree with government betting tax payers money on start-ups. The only thing start-ups need is customers to generate cash flow.

    6
    Install the app to use these features.
    Mute Niall Dooley
    Favourite Niall Dooley
    Report
    May 4th 2012, 6:56 PM

    Great article and it’s a view |’ve shared for many years. Government contracts should be open to a competitive tender process perhaps not annually but certainly every couple of years. I have no doubt public money is being wasted by companies who have government contracts and who over time become inefficient but at the same time don’t fear losing the contract they may have held for decades. The new startups should be the way to always push for innovation. Surely, there are startups who could revolutionise our health service for example with a clever use of software. The number of areas this would apply to is enormous. We need to be investing more in these science and technology companies as they will drive any economy and improve our standard of living to no end. All we need is someone in government with true vision. I lament at how little consideration science is given in forming public policy. I recommend everyone to read ‘The Geek Manifesto’ by Mark Henderson.

    6
    Install the app to use these features.
    Mute Craig Walters
    Favourite Craig Walters
    Report
    May 4th 2012, 9:12 PM

    Hang on hpsu, so called gazelles, are innovative, manufacturers or internationally traded services, but most importantly have an export focus ! So how can we buy from them if they’ve an export focus ?

    4
    Install the app to use these features.
    Mute Popsicle Pete
    Favourite Popsicle Pete
    Report
    May 4th 2012, 7:20 PM

    What if they have inferior products or services, why buy from them then?

    4
    Install the app to use these features.
    Mute John Fintan Kennedy
    Favourite John Fintan Kennedy
    Report
    May 5th 2012, 7:38 AM

    Good article. As far as I’m aware winning government business is next to impossible for most Irish software firms. Which often puts them in a strange place when competing overseas as their rivals can cite govt business at home. In spite of this many succeed, but little or no thanks to Ireland’s government sector. It will be interesting to see if our govts new interest in cloud computing will result in local software contracts too

    4
    Install the app to use these features.
    Mute RP McMurphy
    Favourite RP McMurphy
    Report
    May 5th 2012, 8:53 AM

    @nucky thompson. Your comments are wildly off the mark judging by the experience of many, myself included, but perhaps one of your gifts is dealing with ps procurement. Does your company have a website perchance? You are very vague in the description of what field you are in.

    1
    Install the app to use these features.
    Mute Nucky Thompson
    Favourite Nucky Thompson
    Report
    May 5th 2012, 9:22 AM

    There are too many companies in Ireland who think they are good enough to win public sector contracts when the reality is that they simply are not good enough.

    3
    Install the app to use these features.
    Mute Peter Faulkner
    Favourite Peter Faulkner
    Report
    May 7th 2012, 11:56 AM

    The main point of the article is quite obviously valid. The state should support its own investments, if the project is good enough to invest in, it should follow it must be good enough to buy from!

    All SMEs should have a fair shot at Government procurement.. They generate employment and tax revenues in this country, it is more than galling to see overseas firms pick off supply contacts and leave nothing here. My own sector, Print and Packaging, is a classic example. We have seen a vast number of closures due to a lack of orders…while government spends overseas, all justified by Euro gobbledygook and an inability of our public servants to innovate in making it happen at home. As usual, if you don’t want to do it, it becomes impossible!

    Peter Faulkner

    1
    Install the app to use these features.
    Mute Funding Enterprise
    Favourite Funding Enterprise
    Report
    May 5th 2012, 4:10 PM

    We know that the key to IT/Digital velocity is early sales connectivity. Even though we are a funding organisation, we seek to drive growth in early stage IT.Digital primarily through minimum viable product and, if necessary, service work. Recently we have effectively seed funded a superb operation in prospect analytics with service work and am now driving it with a tactically assembled sales force. This week we have taken a significant stake in a digital messaging marketing platform in return for accelerating its growth out across our very extensive network.
    Yes, funding is important – but connection to the commercial world and commercial acceleration are often more important again,.

    1
    Install the app to use these features.
    Mute Sean Higgins
    Favourite Sean Higgins
    Report
    May 4th 2012, 9:29 PM

    Did you get help setting up

    1
    Install the app to use these features.
    Mute Nucky Thompson
    Favourite Nucky Thompson
    Report
    May 4th 2012, 9:47 PM

    Other than a great wife and an understanding bank manager I got to where I am now pretty much on my own. We have won a number of public sector contracts over the past 5 years by offering innovative solutions to public sector requirements.

    14
    Install the app to use these features.
    Mute RP McMurphy
    Favourite RP McMurphy
    Report
    May 5th 2012, 11:32 AM

    @nucky. That may indeed be true Nucky so I am even more curious re your company/ website now in order to learn from you.

    1
Submit a report
Please help us understand how this comment violates our community guidelines.
Thank you for the feedback
Your feedback has been sent to our team for review.
JournalTv
News in 60 seconds