The Rideau Hall Foundation recently released a survey of 2,000 Canadians on matters such as what they think innovation is and their personal risk-taking tolerance.
Media reports about the study linked the respondents’ aversion to personal risk-taking to Canada’s productivity challenges, which have been well documented. Former Governor General and current Chair of the Rideau Hall Foundation, David Johnston, stoked that sentiment upon the release of the report where he said “Most Canadians understand the benefits of taking risks and becoming more efficient,” but “when we get to execution, we have some challenges. Life has been very comfortable in Canada.”
Such rhetoric is not new for the former Governor General. During his time at Rideau Hall, Mr. Johnston attributed Canada’s weak innovation record to the idea that its residents are complacent. He suggested that the country should become more “adventuresome” and exhibit a more “muscular” entrepreneurial spirit if it is going to correct its course.
Mr. Johnston is not alone. For years, media, pundits and policy makers have used cultural theories to explain a dearth of innovation, even as many acknowledge that there is no hard data to support such assertions.
According to the OECD, Canada ranks near the top for entrepreneurial ambition
But those interested in understanding the root causes may have identified different challenges had they focused on data that already exists: The Global Entrepreneurship Monitor’s annual survey of 100 countries, which showed that Canada ranks at the top on entrepreneurial ambition, essentially tied with the United States and ahead of Finland, Germany and Israel. A report by Industry Canada confirms that Canadians create new firms at a higher rate per capita than Americans.
Entrepreneurs tend to cringe at the non-scientific notions that Canada doesn’t have any risk takers and that culture is to blame. This attitude has distracted policy makers from addressing the structural issues facing companies and the economy.
According to the Organization for Economic Co-operation and Development (OECD), Canada ranks near the top for entrepreneurial ambition and for public spending in research and development. Yet, we’re at the bottom of the rankings when it comes to scaling businesses from startup to high-growth and ultimately to the large enterprise phase.
Statistics Canada data underscores this reality. In a 2019 report, it reported that of the 1.18-million small-and-medium sized businesses in Canada, only 3,000 have more than 500 employees. The majority of businesses — more than a million of them — are small, with between 1 and 99 employees. High-growth firms only represent 3.2 per cent of all businesses.
The Council of Canadian Innovators (CCI) was founded in 2015 to bring together Canada’s fastest growing technology intensive businesses from coast to coast to identify structural barriers to scaling their businesses and propose solutions that would ultimately help their companies and the economy grow. Culture has not been a theme that has emerged.
What has become clear is that while there are specific impediments in the scaling phase of a business, there are broad and common structural themes that emerge: Access to capital, including debt and equity financing; customers, including strategic public and private procurement; and talent, including technical, non-technical and executive talent. A final theme is a regulatory ecosystem to sustain high-growth businesses, including intellectual property management and the development of standards.
Governments at all levels now use the rhetoric of scale-ups in their innovation policy frameworks. However, much of the actual policy resembles that of the previous generation aiming to solve the entrepreneurship issue, via funding for incubators, accelerators and university research. They have also focused on luring foreign multinational technology companies to establish branch plants and on preserving jobs in declining industries with public funds. This may prove to be counterproductive to Canada’s prosperity in the long run.
Canadian pre-revenue technology start-ups have become a target rich environment for early acquisitions of their valuable, and publicly funded, intellectual property as well as talent by global tech giants. Our publicly funded university research partnerships are also a favourite among foreign multinationals to develop IP with little-to-no oversight on its transfer for commercialization in other jurisdictions. These dynamics should be of concern to all Canadians.
Government, working with industry, has demonstrated the ability to create structural conditions to incentivize risk-taking and create globally competitive companies. The ecosystem crafted for our resource sectors manifested globally competitive companies. The development of our natural resource and agriculture sectors was the result of sustained consultation and concerted public policy that created the right economic and legal conditions to generate prosperity.
This country must thrive in the digital economy if it is to maintain its high standard of living
Governments that have embraced innovation elsewhere have addressed the productivity gap by supporting home-grown technology intensive businesses.
They know that they need to not only create great ideas, but they need to commercialize them to reap the benefits of public and private investments. The relationships are tight and feedback loops are becoming more frequent.
There has never been a more urgent need to create such an environment in Canada. Economic growth has shifted away from tangible commodities to intangible ideas. This country must thrive in the digital economy if it is to maintain its high standard of living.
The first step in this process is abandoning unsubstantiated theories of cultural inferiority and properly identifying and addressing the structural barriers facing the knowledge economy. What we need now is an ecosystem where innovative technology businesses can thrive.
The Rideau Hall Foundation may want to think about how they can be proponents of accelerating this needed transformation. One place to start may be the evolution of its report to focus on the structural barriers to innovation, focusing on bringing together risk-taking entrepreneurs with economic and political leaders.
Armen Bakirtzian, Adam Belsher, Adam Froman, Hongwei Liu and Carol Leaman are CEOs of scaling Canadian technology companies and founding members of the Council of Canadian Innovators