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How Ottawa Can Start an Innovation Revolution in Canada

“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 question was 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 can the government actually do this?

Are there mechanisms which could make government procurement an enabler of innovation? The Liberals believe Canada needs its own Small Business Innovation Research (SBIR) program.

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The Liberals propelled the idea of SBIR during the election campaign, but the media took notice. The SBIR can be used as a very powerful catalyst for innovation, and many agree that this idea must be kept away from the policy back burner.

SBIR was introduced by the U.S. in 1982 to stimulate commercialization and technical innovations by small business. The program is a huge success and it even got a nickname “America’s seed fund” and credited as the foundation for corporations such as FedEx, Qualcomm, Amgen, and Symantec, providing startup funding support when they were small businesses.

It requires government departments and agencies to set aside a small portion of their R&D budgets for competition-based awards to small business. The program is implemented and lead by individual government agencies to address their particular innovation challenges. And it has set-asides that restrict a portion of competitive public 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.

An SBIR program tailored to the Canadian context 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 secure up-front working capital as they launch their innovations. Additionally, it would provide the government with made-in-Canada solutions that meet its own needs for innovative products and services. Most importantly, a multi-stage 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. Perhaps most importantly, SBIR would have its objectives firmly set on commercialization as the outcome of a multi-stage innovation process.

Implemented effectively, a Canadian SBIR program has the potential to stimulate early-stage innovation and R&D in small business, increase market-oriented, commercialize 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 SBIR as a demand-pull 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.