Get All Access for $5/mo

Considering a Government Program to Support Your Startup? Here's What You Need to Know First. Be aware of any expectations -- you may not want to give up your independence and autonomy for funding.

By Per Bylund Edited by Russell Sicklick

Opinions expressed by Entrepreneur contributors are their own.

Governments offer a wide variety of support and funding for entrepreneurs starting or growing their businesses. There is reason to question how effective these programs are to create economic growth and jobs. But what does government funding mean for the individual entrepreneur?

Whether it is seed money to get started or funds to scale up the promising startup, funding and fundraising is a common issue for entrepreneurs. After all, the concepts of venture capital, or VC for short, and angel investing are based on the typical lack of investment capital to support the riskier phases of entrepreneurship. Bootstrapping is to many entrepreneurs a necessity rather than a strategy: they have to make do with very little — not by choice.

Naturally, governments have sought to help alleviate this burden. They started by offering a wide variety of support to help entrepreneurs get off the ground or grow. From SBA loans and grants to incubators and accelerators, governments at all levels spend a substantial amount of money and effort to try to support entrepreneurs. Their rationale is political. The goal is to boost economic growth and to thereby help create jobs.

But what do the money and effort accomplish? There is no doubt that the government's funding and support is being used. And that as a result there is more of the activity that is being funded and supported. But the real question is: are these programs successful? The answer to this question is not obvious.

Josh Lerner of Harvard University argues in Boulevard of Broken Dreams that the track record is rather dismal. Despite all of the government's programs and all the money invested, we still do not quite understand how to boost entrepreneurship, help entrepreneurs succeed or create for economic growth. As a result, these public programs look nice but have little actual effect.

To others, the argument is different, if not the very opposite. Mariana Mazzucato, a professor at University College London, sees government as all but a precursor of entrepreneurship. As she argues in her highly acclaimed book The Entrepreneurial State, government support is critical to drive economic growth. Were it not for government investment in innovation, there would be little or no growth.

So which is it — is government support to entrepreneurs a waste or necessity? In a recently published book, 32 internationally-renowned scholars on entrepreneurship, innovation and policy address the effectiveness of these programs. Specifically, Questioning the Entrepreneurial State analyzes and scrutinizes Mazzucato's thesis both empirically and theoretically. The combined contribution of the 17 chapters suggest that her conclusion is premature and misleading. Government funding is a blunt tool that is fraught with politicking, bureaucracy and unintended consequences. It is also an ineffective means for the ends sought. There is, to put it differently, little bang for the buck.

But this tells us little about how and whether entrepreneurs can use these programs productively. Even ineffective political funding, which may not be a good idea from the taxpayers' perspective, can be put to good use by an entrepreneur in search of funding to create or scale up their business.

Related: The Myth of Government Grants

The question for the individual entrepreneur is not whether the money could be put to good use, but is it worth considering a government program for support in your startup? Here are four things to consider:

1. Value

Your job as an entrepreneur is to figure out how to best provide consumers with value. Wherever and whenever you make consumers better off, there is value in your startup. But it is easy to lose track of this when trying to figure out how to make ends meet and putting out everyday fires. One apparent solution to the money-in problem is to tweak the business idea or value proposition to fit the funding call of a support program. My advice is: don't. If you do not stay true to creating value, your business cannot be successful. Instead, it can become dependent on that type of funding.

2. Lethargy

There can be too much of a good thing. Having more funding than necessary or being protected from the brutal reality of the market can cause lethargy and inefficiency. It also means you make suboptimal decisions, perhaps thinking that you can afford to take on extra cost. It's the very opposite of bootstrapping, but it is equally a problem. You become less diligent in cutting costs and making the most out of the expenses that are necessary. This can severely affect the profitability or even survivability of your business. Make sure you do not fall victim to the false sense of security offered by incubators, accelerators or funding programs.

Related: Accepting a Helping Hand: How to Fund Your Business with ...

3. Cost

Economists remind us that there ain't no such thing as a free lunch (TANSTAAFL). This is true also with government support. Make sure you understand the expectations and requirements before applying. The application process itself may be burdensome and time-consuming. Government funding can also require public insight and influence into the business beyond what you are comfortable with. It may also be that support comes with extensive reporting requirements and bureaucracies that you would not otherwise choose. Remember, entrepreneurs choose their costs. Choose them wisely.

4. Independence

All external funding comes with strings. This is true also of public sector support. Make sure you are aware of the program's, government authority's or agency's expectations before you apply for and accept support. You may not want to give up your independence and autonomy for funding.

Related: What You Need to Know About Government Small-Business Grants ...

Per Bylund

Associate Professor of Entrepreneurship

Per Bylund, PhD, is associate professor of entrepreneurship and Johnny D Pope Chair and Records-Johnston professor in the School of Entrepreneurship at Oklahoma State University. His areas of research are entrepreneurship, management and economic organization. He is author and editor of six books.

Want to be an Entrepreneur Leadership Network contributor? Apply now to join.

Editor's Pick

Business News

'Let It Go': A Couple Has Spent $400K Suing Disney After Being Banned From the Park's Exclusive 33 Club. Social Media Reactions Have Not Been G-Rated.

After getting banned from the exclusive members-only club for alleged bad behavior, a California couple has spent a fortune trying to get back to paling around with Mickey.

Side Hustle

How a History Student Turned Her Side Hustle Into a Startup That's Raised $7 Million: "People Always Tell Me, 'I Thought I Had to Major In Computer Science to Be an Entrepreneur'"

Audrey Wisch never imagined she'd be one of those kids who dropped out of college to grow her side hustle into a startup. But with the help of AI, her "human-centric" service is scaling up.

Science & Technology

The 7-Step ChatGPT Formula for Peak Productivity and Profit

With this powerful solution, you can take your productivity and profitability to new heights with ease.

Franchise

Taco Bell's New Mountain Dew Baja Blast Gelato Is Causing a Frenzy — But Fans Have One Big Complaint

The company released the dessert to mark the 20th anniversary of the iconic Mountain Dew Baja Blast, which has garnered a cult-like following since its debut in 2004.

Marketing

5 Strategies That Helped Me Achieve 10x Returns on My Marketing Efforts

These five marketing tactics have delivered remarkable returns for my business.