Too small to succeed?

The involvement of SMEs in European projects

Summary: The new EU funding programmes are open to innovative SMEs with a certain size and liquidity reserves allowing them to integrate EU-funded project opportunities successfully into their business strategy. The support of specialists and the creation of clusters are usually required to establish a sound funding strategy.

SMEs in the public discourse

Policy-makers and officials in Brussels traditionally groom European SMEs. In an attempt to copy the successful small business act, which created tens of thousands of jobs in America after the Second World War, the European Commission has created a network of SME envoys, holds round-tables with SME organizations on various topics and supports SMEs’ involvement in European projects and programmes, often times with specific slots dedicated to SMEs.

On a political level, initiatives to reduce red tape on SMEs, the existence of an intergroup and different spin-offs of political parties focused on SMEs in the European Parliament as well as the representation of SMEs by different social partners and independent associations demonstrate the involvement of SME stakeholders.

Since EU funding programmes reflect the political guidelines set in Brussels, SMEs naturally occupy a preponderant position regarding funding policy – this is at least what you would expect. The present article focuses on practical experiences by the authors.

 SME definition

The current SME definition is based on the number of employees on the one hand and the balance sheet total or the turnover on the other. To be considered an SME, a company cannot employ more than 250 employees and have a turnover greater than 50 million euros or a balance sheet total of more than 43 million euros.

The numerous attempts to discuss the validity of the SME concept have so far stumbled over the highly diverse nature of SMEs. Can you compare a hairdresser with three employees and, say, a turnover of 150.000 euros with a high-tech start-up with millions in seed money or a globally operating producer of specialized packaging material exporting to China, Brazil and Australia?

This is not to say that you should not have a European SME policy or cannot target funding programmes at SMEs. The observation is merely that SMEs and small midcaps are so diverse and heterogeneous that it seems appropriate to differentiate and look at specific types of such companies when designing policy and funding initiatives. The authors contend that the funding rules favour innovative SMEs in the field of production and services with a certain size (at least medium-sized companies) to take part in projects successfully. Smaller companies are likely to be successful if they have a more consultative of facilitating role in the project or if they are extremely innovative.

 Involvement of SMEs in European programmes and projects

The funding period 2014-2020 brought about long-sought change for SMEs and small midcaps through changes in the research and innovation field, the European Social Fund and regional funding. Through a stronger focus on innovation and larger types of projects SMEs and small midcaps were supposed to be able to integrate opportunities offered by European funding programmes into their business strategy. So far, these opportunities could not always be reaped due to a funding environment that made it hard for SMEs to comply with expectations, the need to get invested in consortia that lasted only a few months in some cases, the financial imbroglio generated by high adaptation costs and the risk to be sapped by larger organizations with a greater ability to dash forward.

In terms of regional funding SMEs and small midcaps should benefit from their local and regional expertise. Most SMEs are indeed rooted in their communities, know the commercial and administrative environment and can therefore more easily adapt to the requirements of the operational programmes. In Horizon 2020 (research and innovation) and the ESF funding scheme SMEs undoubtedly face the challenge to integrate larger projects with fewer partners over longer periods, but once they are in such consortia, they are able to stay in longer, get their staff involved more deeply and efficiently and use the benefits more durably (exploitation).

Note that for Horizon 2020 the Commission points out that the specific “SME instrument is competitive, business-oriented and focused on creating impact, bringing high-potential innovations closer to the market”. This is a general trend in the author’s opinion. SMEs and small midcaps need to be more alert and flexible. It will not be enough to “just be an SME”, the management of such companies needs to adopt a more far-sighted approach, integrating the opportunities offered by EU-funding into their business plan, forming cross-border consortia (research and innovation networks, partnerships with suppliers asf.) before the calls for proposals are published and make investments in this respect – such as attending trainings or hiring experts. Just waiting for funding to come will become increasingly difficult.

 Benefits of EU-funded projects

 The benefits from participating in EU projects are:

  • Thinking out of the box: develop ideas that would “rot in the drawer” otherwise.
  • Form coalitions with companies, R&I institutes and public authorities across borders, which allow you to find new partners and distribution channels.
  • Get your brand and name known on the EU-level, you will thus increase your chances for further projects.
  • If you do it right, you will have a reasonable upfront investment but later benefit from substantial EU-funding support which, on top of the financial utility for your investment strategy, you can openly advertise as a quality factor.

 A recipe for success?

There is no recipe to be successful in applying for European projects. You can have the best of ideas but they might not match what the donor expects. You can develop a great concept and an excellent proposal but lack the appropriate partners. That said, you can strongly increase your chances by following the ensuing recommendations:

  • Make EU-funding opportunities an essential part of your business plan. Therefore look out early for programmes that could suit your business idea and keep updated on the calls for proposals, which are being published regularly.
  • Form clusters with all kinds of partners that suit your concept. Be not afraid of trust issued, in the early stages, you will not to have to disclose confidential information. If you wish to take a more straightforward route, you can create more formalized partnerships.
  • Keep being innovative. The upcoming EU-funding opportunities will benefit innovative SMEs and midcaps looking beyond their everyday business.
  • Have some cash at hand. EU-projects are no subsidies in the classic sense. You need to develop a suitable project plan and implement it, this requires commitment and upfront investments, there is no cow to be milked, disregard these fairy tales.
  • Look for professional support early on. Do not take chances, have your opportunities and ideas checked by experienced and seasoned experts and get support for writing the project proposals if you have little experience or if your daily business does not allow you to dedicate enough time. You will thereby avoid formal mistakes (which cause disqualification) and have professionals write your proposal. This allows you to focus on your idea and delegate the formal and writing part to experts.

Small is beautiful but when it comes to EU-projects being small is not enough. Increase your chances by joining forces and get that funding for your ideas.

© European Project Funding (Frederic Maas, Caroline Mair, updated in December 2017)

Forming consortia in EU projects: Beware of the pitfalls

EU project management differs from the usual “project management” in larger groups regarding one fundamental point:

Calls for proposal by the European Commission usually require forming consortia of independent organisations in view of assuming only one particular project with each other under the authority and control of a public body.

Such consortia often involve at least three entities from three different Member States. Forming such consortia requires experience and skilfulness by the coordinator, paired with hard and soft management skills, which are not always foreseeable in the application phase.

This article is not aimed at elucidating the legal background, nor listing all pitfalls resulting from a cross-border cooperation within European projects. It rather seeks to highlight pathways to effectively mitigate risks and steer successfully through the “troubled waters” of project management. The examples provided herein stem from personal experience of the authors and can only be perceived as practical suggestions, not intending to provide a guideline of any sort. The article is designed for both aspiring coordinators and project participants seeking advice and ideas.

We focus on the initiation phase, i.e. the application process and measures that can be taken a priori to enable a smooth project management in case of a successful project award. The idea is to show both risks and opportunities connected with this initiation phase, in other words looking at the famous “DOs” and DON’Ts”.

  1. Risks related to cross-border cooperation in European projects

The initiation phase is composed of the partner search, project design and proposal writing. Mistakes arising in this phase can cost the whole consortium dearly and might even lead to an early project termination.

Mistakes to avoid when forming consortia: DON’Ts

In several cases the consortium must be composed of at least three entities from three different Member States. While composing your consortium you should at least have one or two additional partners in order to avoid uncomfortable situations in case a partner has suddenly to drop out of the consortium. In order for the consortium to cooperate successfully, you should be sure that every partner agrees to an exchange of information and solid non-disclosure agreements should be signed.

Furthermore for the application for a call for proposals consortium partners will have to prove their financial viability. It is in your interest to increase your chances during the evaluation phase to run a check on each partner in order to examine if this partner has financial viability (financial capacity check). In special cases, such as newly created entities, there are a number of options for you to check (e.g. a letter of support from a supporting entity) but you need to carefully examine these cases in order to avoid losing crucial points in the evaluation.

A final point is the project management itself. During the whole application period roles should clearly be defined. Within a consortium there is a leading beneficiary (the “coordinator”) – whose role is broad but whose prerogatives tend not to be, legally speaking. While building a consortium, roles should be allocated and it should be verified that the consortium leader has the resources and the capacities to carry out all tasks relative to its coordination role. The budget of the project should also include the costs related to project management and, if applicable, the costs of subcontractors. The budget should be as precise as possible in order to avoid uncomfortable situations during the whole duration of the potential project. Within the consortium should also be defined for all beneficiaries and consortium partners one contact person in order to avoid communication blunders. All those elements ought to be taken into account during the application period already.

Consequences during the project phase: the infamous “you should have known”

The consequences stemming from voluntary vagueness, misunderstandings or simply bad project management during the initiation phase will prove to be dire. Frictions amongst consortium partners will ensue and severe issues with the funding authority will almost be inevitable. Do not forget that we are talking about human beings assuming the different positions in the project and that a lack of clarity and structures almost always leads to personal frustrations and tensions.

The coordinator usually faces most of the blame since he or she is the interface between the consortium and the funding authority (such as the European Commission or an Agency). The coordinator, usually a physical person working for an organisation with a management function but not a top-manager, might even run the risk of being held personally accountable if no proper consortium agreement has been put into place. The risk of partners leaving the project because they felt badly informed during the initiation phase, because they are financially not viable or because they dislike consortium decisions, will ultimately weigh on the coordinator, as the consortium will turn to him or her to find replacements.

The other consortium members will particularly be affected by a badly designed consortium agreement, which leaves the door open for tensions in terms of financial issues, the level of involvement and output validation. The smaller the individual partner’s contribution, the more important and adequate are the levels of legal and structural protection through a professional consortium agreement. The consortium agreement must foresee foreground and background protection, rules for the management and steering of the project, all responsibilities that are not stipulated in the contract with the Commission, and issues such as the voting rights in the steering group, partners leaving the project, and early warning systems in case of issues with financials and results.

The project budget is always a tricky subject. During the initiation phase, partners tend to be overly optimistic regarding their budget share and capacity of self-financing, often because the person writing the partner contribution is not the only one in charge in the respective entity and does not sufficiently involve the top management and other departments. In other cases it happens that the coordinator or another leading partner make promises that they cannot keep or do not wish to keep (“don’t worry, we will give you a part of our budget if you come on board” is a classic). During the project phase budgetary issues can paralyze a project or even lead to its complete failure and shut-down. In most programmes budget shifts between partners and lines are possible to an extent but this should not be a dim-witted excuse for sloppy budget planning.

What matters most in an EU-funded project are the project results. The technical description which is subject to a through evaluation process having been approved by the Commission does not mean that each partner or smaller groups of partners should work on their own and then compile everything in a report at the end. The project officers within the Commission being overloaded with work, one should not wait for their assessment either. It is paramount that the project management is structured in such a way that all partners are always involved in the whole process and all project phases and regularly approve of all results, which also applies to smaller partners such as pilot users and the like. Otherwise the risk is that some partners object to some or all of the results at the end of the project (non-disclosure issues, diverging opinions on what the results should be, changes in opinion due to staff changes within the partner organisations…), which will be difficult to address.

Worst of all, however, a strained relationship to the funding authority will necessarily damage the effectiveness of the project management. The risk is that this relationship deteriorates due to the non-respect of communication channels, late notifications, delayed deliverables, and, ultimately a total lack of trust in the coordinator’s ability to keep things smooth and under control.

Afterwards everyone “would have known better” but the question is: How can we make sure beforehand that things fall in line?

  1. Opportunities arising from a sound initiation phase

A simple advice: Think things through before initiating cooperation: Can we trust the other consortium members, which are their interests in the project, do they have the adequate financial capacity and management capacity, do they have the human and technical resources, do they have project experience? The coordinator is the party that needs to ask these questions but this does not exempt other consortium members from the same kind of responsibility.

Added value of consortia in European projects

Why then take part in European projects if things are so gloomy and if risks await participants everywhere? This is a question that concerns “novices” to European projects but also “veterans” in case of a strategy or management overhaul. The added value and the reason why organisations of any kind should take part in European projects are evident: Such projects allow you to push projects which you would like to execute but which would have to wait – for financial and resource-related reasons – for some time if there was no EU co-funding.

The real added value however often lies with cooperation across sectors and borders. In European projects participants tend to get to know each other well – across sectors and borders – and engage in a long-lasting cooperation, whether unilateral or multilateral, which is being developed out of the project. Successful project management enables partners to find similarities, build trust and create value mutually, which is especially true for SMEs and midcaps.

SMEs tend to be cautious at the beginning of projects because they are afraid to “reveal their business secrets” or “have others benefit from their ideas”. There is plenty of evidence showing that this is usually not the case and that these fears have little or no foundation after all. First, to avoid this a well-designed consortium agreement should foresee corresponding clauses, including ways of legally enforcing ownership and patent rights. It is the experience of the authors that, usually, all participants tend to benefit from project implementation mechanisms and results – according to their level of involvement. Those who are truly afraid of “foreign influence” and “theft of ideas” should probably not get involved in European projects at all.

In many cases it is possible to combine EU and national/regional funding or different types of EU-funding for related activities, which encourages “project veterans” to develop a factual “addiction” to European projects. The authors know a few examples in which project participants learned to appreciate the EU project environment to such an extent that they developed own business lines to support projects by creating value.

All these tangible and intangible values can nonetheless only be generated based on an effective and efficient project management.

Set-up of a coherent project management

Once a project has been approved and before kick-off, roles need to be clearly defined. Within its team the coordinator should clearly define who is responsible for which tasks. The coordinating entity must therefore appoint a staff member as the “physical” coordinator. It needs to be crystal-clear who is responsible for collecting administrative information and who is in charge of the content – there is no golden rule but there should ideally be one person overseeing all activities. Basically within each entity of the consortium it ought to be defined who are the project managers. Not to forget the assignments of subcontractors and how they are related to the consortium or specific partners. Parts of the project management can be delegated to an external subcontractor, provided that the coordinator maintains a strict oversight.

Besides the Grant Agreement (Commission Decision) and its annexes, which is the official document, to which you have to refer to in case of litigation, a second Consortium Agreement is key, which lies down important rules on the steering committee, the management description, technical issues such as the delivery of technical reports, for example.

To conclude: how to do it right?

There is no miracle recipe to successfully manage a European project. However if the consortium is balanced, financially viable, well-coordinated and if budgetary and legal issues are honestly and faithfully addressed from the beginning, there is a good chance that it will succeed if positively evaluated and awarded. Transparency and honesty being the cornerstones of such a success, it is paramount to write a technical project description with clearly measurable deliverables and results, implement a consortium agreement covering all multilateral details between the partners, and, setting up a viable and credible project management structure with clear responsibilities.

Creating a consortium is like any relationship: There is a time for flirting but from a certain point onwards you need to take it a step further and ask yourself seriously: Is this the right relationship, is it viable, does my organisation reap the benefits as it should, is the EU-funding used reasonably? If these questions are answered positively, you are on the right track!

© European Project Funding (Frederic Maas, Caroline Mair, updated in August 2017)