According to a recent report by the Brookfield Institute for Innovation and Entrepreneurship, Canada’s tech sector contributed $117 billion to the country’s economy and employed 864,000 Canadians in 2015 – approximately the same as Canada’s finance and insurance sector. The authors also predict that the Canadian tech sector can continue to expand and will not be nearly as subject to the booms and busts that the resource or real estate industries face. The question is whether these firms will have the talent, financing and support needed to continue and scale.
In a recent Globe & Mail article, Gerry Remers, recently retired president and chief operating officer at Christie Digital Systems Canada in Kitchener, Ontario, described the huge scale-up problem faced by Canadian start-ups. Similarly, Micheal Kelly, Dean of Laurier University’s School of Business and Economics in a recent CATA speech took a shot at Canadian innovation policy designed to create vibrant tech startup clusters which then simply become “a farm team for Silicon Valley”. Their message to Canadian policy-makers and business executives is that we’re not paying enough attention to what it takes to grow our most promising startups to become global competitors. To use an agricultural analogy, we’re planting the seeds and fertilizing the soil – but our crop of start-ups is getting wiped out by inclement weather or harvested by the farmers south of the border!
Despite all the fuss over starting and growing we’ve forgotten about scaling our small and mid-sized businesses. Seeding innovative ideas then investing in headlong growth, rather than sustainable, profitable business models, is what often leads to flame-outs and buy-outs within the Canadian tech sector. In 2013, the latest year that the government reported statistics, the total number of SME deaths in Canada was 83,240 across all industry sectors, resulting in a net decrease of 4,810 businesses. While there are many factors contributing to this disheartening statistic, confusing growth with scaling is certainly one of them.
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”. If a business is a race car, scale is about having the right sized engine. The 4 cylinder engine that propels a small business forward earlier in the race quickly red lines and burns out when loaded with more organizational passengers and more operational baggage in the trunk. Carucci exhorts leaders to shift from working in their company to working on their company to secure scalable growth.
Scaling a business refers to growing, particularly in global markets, while simultaneously evolving the business model to enable more efficient and profitable operations. This means:
Scale isn’t just about selling more, it’s about progressively increasing the profitability resulting from this growth (even if those profits are reinvested in the business). This is what enables small and mid-sized businesses to surge past their competition to become global powerhouses.
We can certainly encourage government to apply more economic development dollars to support early-stage scaling, but the responsibility ultimately rests with business owners and managers. 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 in order to drive growth, means that “working smarter” isn’t always a priority around the management table. Who has time?
As Micheal Kelly argues, “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 partners, an understanding of complicated finance issues knowledge of international markets and market entry strategies – and more. “
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 that, is an excellent way to accelerate 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.