Within the space of a month, we saw a new “Innovation and Skills” budget as well as a bill to legalize the recreational use of marijuana. Stimulation and scale seem to be at the heart of the government’s agenda, but to stimulate the economy while simultaneously stimulating our senses, the companies involved must be able to scale up.
To satisfy the demands of recreational users, pot producers will have to scale their production and distribution processes. Depending on the regulator regime, price pressures will demand constant improvements in efficiency and the need to differentiate products through branding and consumer marketing. There will be a battle for talent in research, production, finance, supply chain management, marketing and business management. If you’ll pardon the pun, it will be heady times in the Canadian pot industry.
The Innovation and Skills budget, will create similar opportunities for growth in technology-based businesses if entrepreneurs, business leaders and investors are also prepared to invest in achieving scale. Canadian engineers, researchers and entrepreneurs have proven that Canada doesn’t have an innovation problem. While we don’t have trouble inventing products, we do have trouble building and scaling businesses. That’s one of the reasons we see Canadian start-ups snapped up by US firms often before they’ve hit the $100M revenue mark (sometimes much earlier). As Micheal Kelly, Dean of Laurier University’s School of Business and Economics observed in a recent CATA speech, Canadian innovation policy has been designed to create vibrant tech startup clusters which then simply become “a farm team for Silicon Valley”.
Venture capitalist and the managing directors of incubators will argue that the buyout of Canadian start-ups creates experienced and well-funded entrepreneurs. Entrepreneurs who become angel investors in other start-ups and are themselves prepared to swing for the fences to create a global success story the next time around. While there may be some truth to this, we’re still waiting for the next new Nortel or RIM to anchor the tech community in Canada. In the meantime, plenty of wealth and employment would be created by business leaders who develop the mindset that winning means building a business not just selling it.
Building a sustainable business refers to growing, particularly in global markets, while simultaneously evolving the business model to enable more efficient and profitable operations by:
- Lowering the cost to acquire new customers
- Increasing the efficiency of delivering products/services
- Streamlining the effort to support customers
- Reducing cost of goods sold (COGS)
- Accelerating the ability to recruit and retain talent
- Reducing development and engineering costs as a percentage of sales
- Maximizing synergies from well chosen and effectively integrated acquisitions
- Implementing business process that support delegated but aligned decision-making across a larger organization
Funds generated in this way can be returned to investors and reinvested in the business to fuel further growth.
Progress depends on continuously improving inter-departmental processes and connections so companies need managers possessing broad, integrated knowledge of the functional areas essential for a successful business. As Micheal Kelly explains, “Scaling requires functional expertise in a number of business areas. It requires management structure, planning and forecasting capabilities, sophisticated analytics to help you understand your industry and your customers and markets, the ability to manage teams and Parners, an understanding of complicated finance issues, knowledge of international markets and market entry strategies – and more.”
Crossing the chasms that prevent companies from scaling up requires replacing ad hoc, brute-force business practices with new processes in five categories:
- Sales and Marketing: lead generation, professional sales processes or account based selling (the ability to delegate sales and marketing techniques to new people within the organization rather than the relying on the founders for business development)
- Product Management: shifting to a more formal product management process that uses business planning, financial analysis and product roadmaps to prioritize and manage investments rather than ad-hoc /agile engineering driven decisions
- Business Operations: putting in place sales and operations planning, offshore manufacturing, intentional cost reduction programs, viable repair and return processes, etc.
- Human Resources: investing explicitly in the employee value proposition and employer branding as the foundation of a continuous talent management process
- Finance and Planning: introducing business planning, quarterly business reviews, executive dashboards, commercial approval processes and formal budgets to keep the organization focused on strategic priorities
If these things sound familiar to you, it’s probably because you’ve worked at a larger company or one that eschewed venture capital to self-fund its expansion. Many of the continuous improvement disciplines traditionally found in well-established or boot-strapped businesses (ones that internally fund their growth) are those that are scalable. Unfortunately, many entrepreneurs have been trained in the pressure-cooker of growth-oriented, pump-up and sell, VC and private equity investing. Many have never run a larger business themselves so don’t have the experience to recognize scale opportunities or the skills to implement scale initiatives. This, combined with a “#hustle” mentality that drives leaders and their employees to work ever harder to deliver growth, means that “working smarter” isn’t always a priority around the management table.
The problem isn’t limited to start-ups. Ron Carucci in the Harvard Business Review points out that even for mid-cap firms, “the stall point . . . is when they find themselves a $100 million organization trapped in the body of a $30 million company”. Carucci exhorts leaders to shift from working in their company to working on their company to secure scalable growth. This point was reinforced by some of Ottawa’s top business leaders at a recent Stratford Managers panel discussion on Achieving Scale.
Ironically, in this age of millennial entrepreneurs and GenX workforces, the answer to achieving sustainable growth through scale may be in the knowledge and experience of more mature workers. It’s the grey-haired “entrepreneurs in residence” at incubators, the ex-C-suite executives on advisory boards and the seasoned consultants who have the necessary expertise, along with the scars on their backs to prove it. Retaining or hiring talent with longer resumes, people who have been there and done it, is an excellent way to accelerated the path towards scale.
There’s no doubt that Canada needs more entrepreneurs who dream big. These entrepreneurs need access to more venture capital and government seed money. But to create the next big, Canadian success stories, the ones that employee thousands of people, build communities and grow economies, entrepreneurs must become business scalers, not just business creators. And they must tap into the right talent to help them scale their dreams.