Taking it to the next level. There’s likely never been a more used sports euphemism when describing how a team needs to improve its game—more determination, better focus combined with filling a few talent gaps with skilled players.
Scaling up to that next level is an elusive dream for the majority of Canadian start-up tech companies, namely due to inexperience, a growing management talent gap, access to capital and living up to the risk-averse perception of the Canadian entrepreneur.
A snapshot: small companies
Cutean’s comments are reinforced by Wilfrid Laurier University’s Lazaridis Institute in its 2016 report, Scaling Success: Tackling the Management Gap in Canada’s Technology Sector. The report, designed to shed light on the “relative scarcity of high-growth technology firms,” is based on the survey of more than 100 top-notch industry stakeholders. Lack of experienced management/executive talent is identified as the primary challenge to scaling up. That was followed by access to capital and ecosystem dynamics.
“Across interviews, the gap was focused on the limited availability of repeat entrepreneurs and experienced executives who had seen companies scale, managed growth on an international level and could provide scale-ups much-needed management depth by putting that experience to work,” the report states.
“The development of a cadre of technology executives who possess both technological and operational expertise thus becomes imperative to the development of an effective high-growth ecosystem. Here, even aside from the shortage of experienced executives, the Canadian talent pool is perceived as missing a key element.
In particular, across interviewee-types, a strong narrative emerged that while Canadian companies develop transformational technologies, their technology-focused founding teams’ lack, more often than not, the business acumen necessary to navigate growth challenges."
Victoria Lennox, Co-Founder and CEO of StartUp Canada, a cross-country network of entrepreneurs with a mission to build an environment for entrepreneurial momentum and success, agrees.
“Entrepreneurs don’t know what they don’t know,” she says. “It’s the same with high-growth companies, they just don’t know how to scale. It’s a skills gap, but you don’t learn these types of skills in a textbook or in school – you learn by doing.”
That’s exactly what Ottawa tech darling Shopify did. It started out as a team of five working out of a Bridgehead coffee shop in the national capital’s downtown core in 2006. Today, it’s grown to 2,000 employees with five offices across North America.
“We’re really proud of our success and growth and we’ve worked hard to nurture our company values and culture. We encourage everyone to experiment, take risks, and push the envelope,” the company website proudly states.
“That would have been the leadership team at Shopify’s first experience in scaling that company,” Lennox adds. “That’s the exact type of leaders we need scaling more companies and helping support the next-generation of sales and marketing leaders in Canada.”
For Kanata’s Fusebill, managing triple-digit growth since its inception six years ago has been challenging. It’s also been a labour of love for the cloud-based, subscription billing company.
“I’m going to let the cat out of the bag — it’s not easy to scale a company from a small startup to where we are today,” says CEO Tyler Eyamie. “It’s a lot of hard work and you have to sacrifice a lot — you must love what you do. Where it gets tricky is finding the people to work with you who will share that passion and level of engagement. When you have that across your organization you’ve got something special.”
Growing Canadian tech talent to meet the ever-changing demands of a growing company, is also an obstacle.
“Each time the company looks to get to another level, there are new skills and expertise required to get us there. At Fusebill, we’ve built a culture of in-person collaboration and engagement across the organization,” Eamie adds. “That means our preference is to hire locally in Ottawa. It’s a skilled but small market and there’s plenty of competition for top talent across the board – and for positions for which Ottawa is not a hotbed of talent – it can be tough to find the right fit.”
Access to capital
The lack of executive talent is not the lone barrier to scaling a company. Access to capital can also be an obstacle. Compared to Canada’s international peers, the domestic venture capital environment is significantly underfunded.
Similarly to the Lazaridis Report, the World Economic Forum’s (WEF) Global Competitiveness 2015 Report identified access to financing as the second largest challenge to doing business.
Part of the challenge is that Canada is a small country. It’s also because Canadian companies are too Canadian.
“The financing pool in Canada is not that large because we are a relatively small country,” says Cutean. “And it’s also as a result of the business culture in Canada where companies tend to be more risk averse. That’s playing an inhibiting role for companies going to the next level.”
Another interesting statistic is that when Canadian tech companies do access financing such as venture capital, it is predominantly earmarked for early-stage development.
According to ICTC’s 2016 report authored by Cutean, Presenting Canada to the World, less than 45 per cent of all venture capital funding in Canada goes towards later-stage development, compared to 52 per cent in the UK and France and more than 65 per cent in the U.S.
Eamie admits finding capital can be complex.
“It can be tough to find capital to fuel growth, but you also have to ensure it’s the right type of capital as well,” he says. “A scaling business needs to have enough capital to accommodate its growth objectives, but you need to acquire that capital with terms that are favourable to the business and its growth, making sure that the capital is coming from sources that also feel personally invested and are committed to helping the organization achieve its growth objectives. This takes time and careful planning.”
Incubators and accelerators
While Canadian tech companies may be hesitant to take risks, they do have robust support networks in the forms of accelerators and incubators that Lennox describes as launch platforms that provide growth and scaling support, tools and mentors.
“Most (tech company) founders are young and inexperienced, it’s a way for them to plug into a network,” she says. “They can be fantastic vehicles for evening the playing field in an entrepreneurship ecosystem. Given that it’s usually public funds that go in accelerators and incubators, it’s a great way to encourage more female founders, more entrepreneurs with disabilities or with diverse backgrounds.”
Adding to the support network are a few competitive advantages Canada has over other international jurisdictions, namely the U.S.