Micheal Kelly, dean of the Lazaridis School of Business and Economics at Laurier University, delivered a keynote speech at CATA’s 31st annual awards gala on Thursday night.
If that name sounds familiar, it should. Kelly guided the Telfer School of Management at UOttawa for a pivotal decade-long term.
He used his keynote to deliver a contrarian view to the new Liberal government on what needs to get done to push Canada’s technology sector to the next level.
What follows is an edited advance version of Kelly’s speech provided to TECHOPIA.
I am sure Minister Bains is being deluged with advice from a number of different sectors. A lot of people have views on what the goal of innovation policy should be and which policy levers are involved in achieving it. Just about every week in the Globe and Mail there is an article offering advice on what the government needs to do to improve Canada’s innovation performance.
I plead guilty to being one of these unsolicited advisors.
My concern, based on what I have seen over the decades, is that the new innovation policy will just be more of the same: tinkering with the same policy tools, moving the yard sticks and focusing on the ranking – as opposed to achieving real and long-term success.
There is no doubt the next innovation policy will focus on familiar policy areas: R&D, research infrastructure, science and engineering talent, tax, regulatory, immigration, procurement policy, and venture capital financing. It will focus on enhancing commercialization of scientific discoveries, supporting start-ups, and entrepreneurship.
And there is nothing inherently wrong with this. Over the years, the investments made have resulted in a research and education infrastructure in Canada that is arguably the best in the world. This infrastructure, combined with significant investments in entrepreneurship education, incubators, accelerators, and venture capital, has created a number of vibrant start-up communities across the country. For example: Compass has ranked Waterloo second only to Silicon Valley in start-up intensity. And of course there are vibrant start up communities here in Ottawa, in Vancouver and, literally, from coast to coast. Overall, Canada performs extremely well and is ranked very highly in the production of start-up companies. The Global Entrepreneurship Monitor rates us as virtually tied with the US in the production of start-ups.
But is that it? Is this the end goal of innovation policy? Thousands of start-ups?
We know what the start-up failure rate is. We know that in terms of employment, start-ups churn jobs rather than contribute to long-term sustainable employment growth. Where are the world-beating Canadian technology companies? How many of these vibrant start-up clusters have developed the capability to support the scaling of their tech start-ups?
Are we content to be, as one person has suggested, “A tech start-up shopping mall for foreign companies,” or as another has argued “A farm team for Silicon Valley”? Are we content to see the value of our investments continually captured elsewhere? Is this what we want from our innovation policy – vibrant tech start-up clusters that don’t actually grow their companies?
While we may match the U.S. in start-up activity we have had very little success in turning start-ups into larger firms relative to our American counterparts. While Canada hosts over 36,000 technology companies, just a fraction, fewer than five percent, are the type of high-growth companies that lead to 50 percent of net job growth. These companies – scale-ups – are the key to unlocking greater economic prosperity for Canadians.
But over the past decade, the Canadian economy has seen virtually no growth in our cohort of tech companies at global scale. In fact, over the past decade, despite all the attention on the tech sector, we haven’t had any new billion dollar revenue tech companies emerge. And while newcomers such as Shopify, Desire2Learn and Hootsuite certainly have the potential to be billion-dollar revenue firms, they have long runways ahead before they reach that level.
Unless something changes, we will continue to struggle to produce the type of sustainable high growth firms that policy makers identify as crucial to the country’s economic future.
This is where I disagree with what to date has passed for innovation policy in this country. From my perspective, the ultimate goal of our innovation policy should be to build globally competitive technology companies in Canada . To build companies that do R&D and innovate – not because this will qualify them for government programs and government dollars, but – because they want to compete, they need to compete and they are able to compete on a global level. The goal must be to build companies that will aggressively go after international markets and will create employment and wealth in Canada.
This is where the Lazaridis Institute for the Management of Technology Enterprises comes in. The Lazaridis Institute was created last fall to focus on a long neglected part of the Canadian technology ecosystem – providing start-ups with the tools and knowledge to scale, grow and compete at a global level.
The Institute reflects my long held view – a view which is fortunately shared by Mike Lazaridis and an increasing number of other people – that you can’t build a vibrant tech industry on start-ups alone. We have not paid sufficient attention to what it takes to scale and grow our most promising start-ups and help them to compete in global markets.
In recognition of this Mike Lazaridis invested $20 million, supported by another $15 million from the Province of Ontario, to establish the Lazaridis Institute for the Management of Technology Enterprises.
The Institute’s mandate is to support the development of the management and leadership talent required to direct the growth of current and emerging companies in Canada’s technology sector.
Building a globally competitive tech company requires more than just good technology, good engineers and good coders; it also requires a high level of management sophistication to deal with the myriad of business and organizational challenges that companies will face as they scale and try to penetrate international markets.
I know that many of you in this room understand will agree: you can’t grow your revenues and customer base without understanding how to scale your organization.
Hence, we need to develop an understanding of the managerial competencies required to grow an organization to a global scale.
To assess the key challenges and competencies required to scale tech start-ups, we interviewed 125 Canadian and international tech CEOs and investors. In addition, working with CATA we conducted an online survey of another 100 Canadian technology executives.
For some of us, the results were not that surprising.
Sixty percent of the company executives interviewed responded that the key challenge was insufficient executive and managerial talent.
A similar view was reflected in the CATA survey where a third indicated that access to qualified management was the key barrier to ongoing growth.
The executives interviewed felt the key competencies in short supply were
- Sales and Marketing
- Organizational design and execution
- Product Management
- Operational finance
This is difficult for some company founders to digest.
Some tech entrepreneurs view formal managerial and organizational processes as bureaucratic threats to their very entrepreneurial souls. Which is fine if your intention is to stay small. However, scaling and growing in dynamic, global technology markets requires a measure of order, discipline and management sophistication. Without it, you can pretty much guarantee chaotic operations and unpredictable performance.
Scaling requires functional expertise in a number of business areas. It requires management structure, planning and forecasting capabilities, sophisticated analytics to help you understand your industry and your customers and markets, the ability to manage teams and partners, an understanding of complicated finance issues knowledge of international markets and market entry strategies – and more.
Organizational design was one of the issues that kept coming up in the interviews. Companies struggle with structure as they grow. Title-free, flat organizations can work very well at the start-up stage, but once the number of employees grows beyond a certain point, informal processes begin to fail. There are ways to retain the benefits of a small, fast-moving firm. There are more sophisticated approaches to design – unfortunately, we’re not born knowing what these look like and how to make them work.
So how do we address the shortage of management talent needed to scale our tech companies? Today, unfortunately, many companies – frequently encouraged by their investors – solve this problem by migrating key head office functions to the U.S. where they can access a deeper pool of experienced management.
Having spent many years working with and being on the boards of start-ups, I have had a chance to witness and sometimes – sadly – to advocate for this migration. Because, when this happens, the economic value of these companies – the jobs and wealth that they generate – tends to be captured elsewhere.
To be successful in scaling our technology companies, we need to focus our energies on ensuring that we build the management talent and knowledge to support their growth and their ability to compete at a global level from Canada.
Again, this is a particular challenge for us in Canada. We don’t have the hundreds of enterprise level companies that recycle talent as we see happening in Silicon Valley. In California start-ups have access to a highly experienced talent pool coming out of large tech enterprises like Cisco, Intel, Oracle, and a host of others. It’s a quandary: we have a hard time growing tech companies beyond a certain size because we have too few tech companies at a certain size.
Importing management talent from outside seems an obvious solution, but it’s problematic.
This isn’t just a problem in Canada. Other jurisdictions have begun to identify many of the same issues – the UK scale-up report, for example, is an excellent piece of work (authored, just so you know, by a Canadian). It addresses many of the issues we’re talking about tonight. In the UK, they’re looking at the same recruitment strategies, and finding the same problems. We’re in a global competition for the best talent and can’t rely solely on imported talent to solve our challenges.
We need to find a way to develop the necessary skills in the current generation of Canadian tech executives and to start preparing the next generation for industry leadership.
The vision that Mike Lazaridis has for the Lazaridis Institute is that it will become a leading global centre for management expertise and knowledge production to support the growth of Canadian technology companies and their efforts to create jobs and wealth here, at home.
The Institute has as its mandate to provide support in the form of collaborative networks, customized assessment and feedback, management education and research.
The Institute will focus on creating a global network of experts and mentors who can lend their experience to current CEOs in order to help them understand and overcome the barriers to scaling their firms.