Canada is cramming years worth of modernization into months, but experts say the country’s scale-up problem lingers

While the pandemic led to thousands of businesses in Canada experiencing the fast track to digital transformation, industry leaders remain concerned about Canada’s ongoing inability to generate unicorns and lead the world’s digital transformation with its own proprietary assets.

“The absence of organized Canadian priorities, guiding critical standards and regulations preamps our growth prospects erodes our sovereignty and compromises our ability to address the myriad of non-economic issues raised by digital transformation,” Jim Balsillie, chair of the Council of Canadian Innovators and former Chairman of Research In Motion (BlackBerry) explained at ITWC’s recent DTAwards.

Canada has not been able to produce a single unicorn company (businesses with a valuation that’s $1 billion or greater) since 2015. That’s when messaging company Kik earned its horn. Also, Canada ranks 20 in the Bloomberg 2019 innovation index (behind Finland, Sweden, Israel, Norway, Singapore, Belgium and Ireland) – all of which have smaller populations than Ontario. 

ITWC’s recent four-day virtual conference brought together national and international thought leaders in a series of presentations and panels focused tightly on digital workspaces, artificial intelligence, emerging tech and security and digital transformation from the CIO perspective. It served as an opportunity to recognize leaders and digital transformation, and “those that are playing a critical role in shaping Canada’s digital future.”

Jim Balsillie while speaking at ITWC’s DTAwards July 16. Screenshot.

“Crises always clarify priorities. The COVID-19 crisis generates an ironic opportunity for Canada because it induced structural changes normally spread over years into a few months which should compel our policymakers to update their strategies. We can use this moment to start building an innovative, sustainable, inclusive, and resilient national economy,” Balsillie emphasized. 

It’s a fight Balsillie has been leading for months. In late May, while speaking with the Standing Committee on Industry, Science and Technology (INDU) about Canada’s reaction to COVID, Balsillie noted Canada’s inability to make money off of its innovations and suggested that Canada develop a Digital Policy Infrastructure to facilitate productivity, prosperity, and security via global value chains. Governments that adapt quickly, invest in the right institutions, sectors, and regulatory frameworks to generate the proper incentive and support, he says will have a significant advantage in the post-COVID economy.

At ITWC’s DTAwards, Balsillie said policy strategies rooted in 19th and 20th century economic thinking applied to the 21st century knowledge and data-driven economy have resulted in a “25-year slide in our national productivity, record household, corporate and government debt.”

A whole-of-government approach and expert hands-on leadership is needed to succeed in the technically complex economy of IP and data, he explained. “We will only get better prosperity outcomes if our public investments help generate greater intangible assets that can be commercialized for the benefit of Canada’s economy.”

Business and technology columnist David Crane says that most companies that start in Canada never scale-up. A lot of these companies sell themselves because they can’t raise capital in Canada and the only way they can grow is by being sold. They seem attractive to buyers because of their IP and for the talent that they have. 

Business and technology columnist David Crane. Source: archives.

“Takeovers are an issue because of the brain drain that they have been causing and also a major challenge to scaling up. The majority of these companies get taken over by big companies like Apple, Microsoft and Google that are on the prowl to acquire promising startups and are scouring the landscape in Canada to buy companies before they can reach the scale-up stage,” Crane told the publication in an interview. 

What Canada doesn’t have is very good case studies. Canadian success stories like Constellation Software and Shopify have grown from startups to enterprises making millions, are so few it’s tough to understand what enabled them to scale-up an and what barriers they had to overcome. A lot more research is needed in this area, he said.

There is a need for Canada to think much harder about the scale-up challenge. There would be no scale-up companies if the flow of start-ups in the country is not constant, he added, and while university research is crucial for modernization, Canada’s innovation policy moving forward has to be focused on commercial success

“The goal has to be to enable the start-ups with the greatest growth potential to scale-up. Start-ups are the seed corn of the economy, but scale-ups are the enterprises that build the scale and scope for ongoing commercial success and the jobs and productivity that can result. While university research spending can have a variety of goals, innovation policy has to be focussed on commercial success,” Crane explained in an article. 

The public sector hasn’t been entirely deaf about the topic. A day after Balsillie spoke at the DTAwards, Ontario announced a new governance framework and team that’s focused on the generation of intellectual property (IP) in the province. Ford told reporters during the announcement that Ontario government will work with post-secondary and research organizations in the province to revise the mandates of provincial commercialization entities, such as startup hubs and accelerators. New educational curriculums will also be created in an attempt to strengthen Ontario’s IP literacy.

It’s a strong step in the right direction, Crane says. But it’s not enough.

“However, a lot more could be done. Canada needs to think much harder about the scale-up challenge. Otherwise, the country will create a lot of start-ups that will become seed corn for foreign multinationals, contributing to good jobs and wealth creation in other countries.”

Scaling up is possible only if effective public policies that allow for growth around the world are in place, according to Benjamin Bergen, executive director of the Council of Canadian Innovators.

“Given the winner-take-all nature of high-tech growth and Canada’s proximity to a large concentration of IP heavyweights south of the border, for Canada to succeed in the innovation economy it needs the government to implement an approach similar to that of the United States in order to help grow and protect Canada’s homegrown innovative sectors,” Bergen said in an article recently.

Can’t overlook procurement policies either

Angela Mondou, president and CEO of Technation says scale-ups face other challenges that are often overlooked.

Angela Mondou, president and CEO of Technation Source: LinkedIn

“One is that the RFP process takes a really long time for the government to try and prescribe what it is they think they need for technology, which is the wrong way to go about it,” she said. “The second thing is that the current process is also inaccessible to the small and medium enterprises because only bigger companies with the right kind of bench strength and resources can really tap into applying for government procurement opportunities.

“What we usually end up with is that government procurement, which is one of the biggest levers for the government to act as a customer, can only really tap into the certain partners of Canadian industry through the RFP process. So they miss out on a lot of innovation with the smaller tech sector.”

Geoff Baum, an executive fellow of the Lazaridis Institute’s ScaleUp Program, told the publication that most of the Canadian companies that he works with do not have the government as a big customer. “There are lots of government grants like research grants and SR&ED financing, and the CEWS in the current situation, but I don’t hear or talk to many companies that refer to the government as a customer, or deal with the government in the procurement process,”

Most of the activity is happening at the company level, and most of the scale-ups don’t have the resources or the capabilities to sell effectively – against the big companies – with the government, either at the federal or provincial level, being a customer, Baum elaborated.

“Canadian technology firms have long struggled to scale-up globally without the kind of strong relationship with the government that is needed to build a dynamic environment for domestic technology companies to thrive. Canada does not have a start-up problem, but rather a global scale-up problem,” Bergen concluded.

Looking at more numbers …

The Canadian Chamber of Commerce noted in a report that more than 50 per cent of independent businesses in Canada don’t believe they’re getting the help they need to survive. Google Searches for business loans went up by 317 per cent amid the pandemic, according to data gathered from Learnbonds. 

The government has been putting in place different relief programs for small Canadian businesses in an attempt to help them navigate the ongoing crisis. It’s increasingly imperative for many businesses’ survival that they get relief quickly and with no strings attached. Hence, the Canadian Chamber of Commerce and Salesforce announced the launch of the Canadian Business Resilience Network Small Business Relief Fund in May, a partnership that provides small businesses across the country with $10,000 grants to help their recovery efforts during these unprecedented times. 

Some other government relief programs include Canada Emergency Commercial Rent Assistance (CECRA); Canada Emergency Business Account (CEBA) interest-free loans, a program which provides interest-free loans of up to $40,000 to small businesses and not-for-profits, to help cover their operating costs during a period where their revenues have been temporarily reduced; and Canada Emergency Wage Subsidy (CEWS) wherein the government is covering a portion of an employee’s wages for eligible employers. 

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Pragya Sehgal
Pragya Sehgal
Born and raised in the capital city of India - Delhi - bounded by the river Yamuna on the west, Pragya has climbed the Himalayas, and survived medical professional stream in high school without becoming a patient or a doctor. Pragya now makes her home in Canada with her husband - a digital/online marketing fanatic who also loves to prepare beautiful, healthy and delicious meals for her. When she isn’t working or writing around tech, she’s probably watching art films on Netflix, or wondering whether she should cut her hair short or not. Can be contacted at [email protected] or 647.695.3494.

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