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July 8, 2014

From zero to a billion: What Canadian entrepreneurs need to succeed

How are Canadian entrepreneurs positioning their companies for growth? What are their most significant challenges as founders? Are they struggling to secure financing for growth, or to bring in seasoned management talent, or maintain their innovative culture as their employee head counts grow? And what can various levels of government do to help Canada’s high-growth firms continue to achieve success in the global economy?

To answer these questions, the DEEP Centre spoke to founders and executives at a cross-section of Canada’s fastest growing small firms. The results — featured in our report on Canada’s Billion Dollar Firms — spoke volumes about what Canadian entrepreneurs need to do to succeed in a challenging landscape and how they plan to take their firms to the billion dollar level. We also learned a lot about what Canada’s start-up community would like to see governments do to help more small firms grow into large-scale global competitors.

I’m offering a few highlights from these conversations below. You’ll need to read the report for the full picture.

So what did executive at high-growth firms say about growing their firms to a billion dollars in annual revenues? Truthfully, most of the firms we spoke to were aiming for a more modest $100 million target, and they were forthcoming about the opportunities and challenges in front of them. A few things stand-out from the many observations documented in our research:

World-class products and services. Successful Canadian start-ups catalyze growth by identifying innovative niche opportunities where they can offer world-class products and services. Many of the small firms we spoke to have carved out unique niches in technologically driven fields, such as wireless pressure and heat-sensing systems for industrial applications, application development for mobile computing, and traffic data and signal automation systems for municipalities. The upshot is that all of the fast-growing, small Canadian firms interviewed shared a general sense of optimism that exciting growth opportunities are within reach.

Going global from day one. Successful high-growth firms also prioritize international growth early. The founders we spoke to share an intensely global outlook and feel strongly about the importance of internationalizing their firms. Having enjoyed some initial domestic successes, the challenges ahead boil down to each firm’s capacity to execute a plan for scaling their company on a global basis. In fact, a couple of executives described having their first major successes internationally, which subsequently parlayed into domestic opportunities. Others foresee tough decisions ahead with respect to whether or not they choose to remain in Canada or shift their operations closer to the primary sources of venture financing, customers and talent in their particular fields.

The right venture capital partners. Of course, financing is also a critical part of growing a small firm into a world-class global competitor. Surprisingly, the cross-section of founders we interviewed did not identify access to finance as a primary barrier to expansion or growth. The main issue identified was not a general shortage of capital, but a lack of the “right kind” of venture capital investors within Canada. Venture talent in Canada was described as less aggressive than U.S.-based investors and less willing to entertain higher company valuations. One executive noted that Canadian investors often only entertain investment opportunities after a U.S. lead investor has undertaken a major investment.

As for recommendations for government, our research identified over a dozen priorities for boosting the success of Canadian start-ups. Of those, I’ve singled out four big ones here:

Facilitate access to experienced management talent. There is a widely shared perception that Canada’s pool of seasoned management executives is very small and in high demand, which presents a significant challenge for fast growing small firms searching for the talent required to execute their growth strategies.. A number of firms noted trouble recruiting seasoned management talent with deep experience in implementing “go-to-market” strategies. Others identified challenges in competing with established firms for high-end engineering talent and some noted that specific skill sets (e.g., finding a CFO that understands software financing and monetization strategies) are hard to find within Canada. Targeted immigration policies could help attract the “go-to-market” talent that start-ups desperately need. Another suggestion is to provide short-term “experienced executives” grants to provide high-growth start-ups with funds to compete for high-end executive talent. Australia’s experienced executives grants may serve as a model for such a program.

Assist early-stage companies in securing anchor customers, particularly through public procurement. More than access to finance, executives at numerous firms talked about the importance of anchor customers and suggested that both the government and Canada’s business community could be more supportive of Canadian SMEs. Several firms lamented the fact that public agencies outside Canada were initially more willing to adopt their technology solutions than agencies within Canada. As for solutions, Sweden’s policy of “development pairs” between public and private bodies demonstrates a viable model for the use of public procurement as a means to facilitate the development and application of new domestic products and services and is worthy of additional study. While Canada’s ability to use such tools is limited by agreements such as NAFTA, policymakers should examine all available options within this context and remain aware of the strategies currently being adopted by other countries.

Reduce the fragmentation government support functions and increase business input. While small firms in Canada have welcomed the support they receive from various levels of government, many have noted that its takes considerable time and resources to identify sources of support and to navigate application processes. Several entrepreneurs called for a cross-jurisdictional interface to government for small businesses and for streamlined processes that soak up fewer resources. Executives at larger firms also called for reduced institutional fragmentation, less bureaucracy and a better two-way dialogue with business, and not just through the usual taskforces and roundtables. It would be better, it was suggested, if there was one “go-to” place that provided a central hub for ongoing business support, policy development and business engagement.

Rethink how Canada prepares young people for the economy of the future. One of critical ingredients for success in any economy is a highly skilled pool of young people who can be leaders in shaping and participating in the industries of the future. There are several different facets to this problem and many potential solutions. Numerous executives championed the need for educators to encourage young Canadians to think globally and entrepreneurially by using foreign exchange programs and overseas work placements as a means to foster a global outlook and provide young Canadians with more international experience. International experience, in turn, is viewed as an important in fostering the confidence and personal networks to run a global business.

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The Centre for Digital Entrepreneurship and Economic Performance turns research findings into practical insights and tools for stimulating innovation, entrepreneurship and job creation.