← Back to Blog

June 6, 2015

Lagging data: Is good news around the corner?

The DEEP Centre got its start in part as a result of a desire to answer one far-from-simple question – why do we see less high-growth firms in Canada than in other comparable economies?  Answering this has taken us on a variety of routes, including studying Canada’s biggest firms and now studying the business accelerators and incubators that are meant to help promote the growth of startups into our next high-growth firms. High-growth firms (defined as those that grow 20 per cent yearly for a minimum of 3 years) represent less than five per cent of all Canadian firms but account for just about 50 per cent of all job growth.

Progress, however, is slow when it comes to the development of these companies and, eventually, our next billion-dollar revenue companies. Shopify’s recent ascent is a great news story based on its IPO but the jury’s still out on revenue. And how many else can you name in the same league? Our work on billion dollar firms found that over the past decade the Canadian tech industry had seen churn as opposed to growth in the number of mega-large firms. And as my colleague Kirill Savine’s work on the Canadian innovation ecosystem finds, while business creation in the tech industry is healthy, survival is far from it.

Jim Balsillie’s piece in the Globe and Mail a few weeks back catalyzed a conversation about the outputs of our spending and attention to startups. While there are elements of his piece I don’t agree with, his focus on productivity, and by extension, the development of competitive, high-growth firms is the right one.

However it’s possible that we’re underestimating the life-cycle of an idea, and the time necessary to take that idea and transform into a sustainable, competitive business. So while we expect a rapid ROI on our investments into accelerators and tech ecosystems, the reality is that high-growth status doesn’t happen overnight. Look at Blackberry/RIM and OpenText as two good examples. RIM was founded in 1984 and didn’t IPO until 1997. It didn’t hit real takeoff until 2002 or so. OpenText’s history is similar. Founded in 1991, it IPO’d in ’96 and didn’t hit $100million in revenue until 2000.

Moving beyond those two, and assuming a 5-10 year period before real revenue takeoff, it seems accurate to say that in our tech sector we’ve seen a dearth of new mega-large firms post these two. However that may be about to change.

The more we study the startup ecosystem in Canada, the more our focus moves from startups to late-stage startups/new SMEs whose customer growth rates are extremely impressive. Young companies like Miovision, Vidyard, eSentire, Magnet Forensics, Axonify, Desire2Learn, Clearpath Robotics are just a few that are hitting significant recurring revenue targets that have them on the ladder for long-term growth. Others like Wealth Simple and Nymi offer potentially industry disrupting technologies that are attracting major funding.

To be fair I’ve cherry picked a group of mostly local, Kitchener-Waterloo companies that I spend time around but this is the centre of the universe, after all… And more seriously, their early growth rates are potentially deceptive given modest baselines. That caveat aside, look across the country and the cohort of similar companies isn’t huge but it’s also not barren. So while there’s lots of depressing data on Canada’s tech sector and our general innovation-related performance, the lagging nature of this data may mean there’s a far more positive story about to be told.

Interested in becoming a DEEP Centre member?

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