Concerns about how to grow revenue have replaced talent woes as the biggest worry keeping Canada’s startup CEOs awake at night, according to a new report.
Revenue growth was named the top challenge by 41 per cent of startup CEOs polled in PricewaterhouseCoopers’ (PwC) 11th annual Report on Emerging Canadian Technology Companies. PwC presented preliminary highlights from the forthcoming report during its Vision to Reality conference in Toronto on Thursday.
Funding was cited as a challenge by 19 per cent of startup CEOs, making it their second biggest concern overall. The struggle to find and retain talent – which took top spot last year – came in third with 11 per cent of responses. Concerns about exit and/or merger and acquisition (M&A) strategy were named the fourth biggest challenge. (The exact percentage for the exit/M&A category was not provided in the figures presented on Thursday.)
Do the numbers mean it’s getting easier for Canadian startups to snag financing and talent? Not necessarily, PwC’s Eugene Bomba, senior manager with the audit and assurance group, told the audience. But the data could indicate a big turning point in the evolution of Canada’s startup sector, he suggested.
“(If) building a business is my biggest problem (instead of funding or talent), this says to me Canada is starting to mature,” said Bomba, also leader of PWC’s emerging companies practice.
Though he stressed that he hadn’t seen the survey data yet, keynote speaker Stewart Butterfield – best known as the Canadian co-founder of Flickr – agreed that the new push to drive revenues could indeed point to a coming of age for Canada’s startups.
“That is my first instinct, actually, to see this as a sign of maturation, being as (revenue growth) is an actual business concern,” Butterfield said in an interview at the event. “That’s a business decision: when do you want to switch from product development and growth to revenue generation?”
Then again, maybe startups are honing in on revenues simply because they want to “hunker down” and build some financial cushioning as the forecast for the Canadian economy continues to get rockier, added Butterfield, also a co-founder of Vancouver-based online game developer Tiny Speck.
If Canada’s startup CEOs are now putting more effort into revenue growth, they’ve got quite a bit of work to do collectively. Highlights of the forthcoming PwC report show that 41 per cent of the surveyed startups are still in the pre-revenue stage, 33 per cent have revenue of less than $1 million, and 14 per cent have revenue ranging from $1 million to $3 million.
Canadian CEOs should think globally
The good news is that it’s a lot cheaper to get a Canadian startup off the ground now than it used to be even just a few years ago, mostly due to advances in technology, said Brice Scheschuk, a co-founder of Wind Mobile who spoke at the event.
Though he declined to comment on the up-in-the-air future of Wind (the four-year-old wireless carrier is reportedly up for sale), Scheschuk told ITBusiness.ca that despite the lower costs of startup entry, Canada’s emerging tech sector still suffers from a few key gaps. One gap is a lack of early stage funding beyond the $250,000 level, he says, the other is the ability of Canadian startups to transition effectively from building “a great app” to building a viable business based on acquiring customers.
“That’s the challenge for them, moving it beyond just an app development,” Scheschuk said.
His advice for homegrown startups? Think global.
“On the Canadian startup scene, it’s very easy to start a company. It’s relatively manageable to get an accelerator or incubator to look at you. And the angel community’s not too bad. What Canadian companies need to do is they need to think outside of Canada,” Scheschuk said.
PwC figures indicate there’s quite a bit of room for improvement when it comes to Canadian startups ‘going global.’ Only five per cent of the Canadian startups that raised capital last year obtained it from U.S. VCs (by comparison, 18 per cent raised financing from Canadian VCs). And only nine per cent of the surveyed startups target customers outside North America; 23 per cent target the U.S. market and 68 per cent focus their sales efforts here in Canada.
PwC said a full version of the report will be formally released at a later date.