Report cover for GEM Canada 2016

GEM Canada 2016 report summary

25, June, 2017 – BLOG #9

GEM Canada Report 2016

GEM (Global Entrepreneurship Monitor) is the largest study of entrepreneurship in the world.  THECIS manages the GEM project in Canada.  The latest GEM report for Canada has just been issued.  It is available at http://thecis.ca/index.php/gem-2016/       It shows that there is a very strong entrepreneurship culture in Canada, and the rate of early stage entrepreneurship (TEA -Total Early stage Activity) is the highest in the developed world.  GEM data is widely used as evidence for evidence based policy by such groups as the UN, OECD, World Bank and World Economic Forum.

Some of the highlights from the report are:

  • Almost 60% of the adult population see good opportunities to start a business in the next six months;
  • Over 50% also have confidence in their skills and knowledge to start a business;
  • No more than 44% are inhibited by fear of failure.
  • 7% of the adult population is involved in early stage entrepreneurship, the highest rate in the developed world, ahead of Australia and the US.
  • 8% of the adult population in Canada is involved in an established business (one more than 42 months old), a lower rate than in Australia or the US.
  • In terms of intrapreneurship (entrepreneurship in large organizations) Canada’s rate is 6.5%, that ranks us 12th among developed countries.
  • A significant number of startups have major growth plans. Twenty percent expect to create 20 or more jobs within five years.
  • In common with most other developed countries, the largest sector for entrepreneurship (48%) is consumer services, closely followed by business services.
  • A significant minority of startups export. 20% of them project from 25% to 75% of revenue from export, and 13% anticipate more than 75% of revenue from export.
  • A significant minority of startups offer innovative products or services (9%-14% depending upon the questions asked.
  • 17% of startups use technology available only in the least year, an indicator of innovativeness.
  • The age group with the highest TEA was the 25 – 34 age group, at 22.3%.
  • The rates decline sequentially for the 35 – 44 group, the 45 – 54 group, and the 55 – 64 age group. The TEA rates decline reaches 10.7% among the 55 – 64 cohort.
  • Approximately 50% of total startup activity is in the 18-40 age group.
  • The rate of women’s entrepreneurship is about two-thirds the male rate, which is comparable to other comparison countries.
  • The rate of entrepreneurship increase steadily with education, being highest among those with some post graduate experience.
  • The rate of entrepreneurship increases across Canada from east to central Canada, and is similar across the west.
  • The strongest aspect of the Canadian ecosystem is physical infrastructure, commercial infrastructure, and the relevant social and cultural norms.
  • The weakest aspects are the lack of education for entrepreneurship at primary and secondary levels, and availability of finance.

The report made the following recommendations:

  1. Provide more targeted assistance to young and growing firms.
  2. Provide more education and mentoring to potential women entrepreneurs.
  3. Expand entrepreneurship training in entrepreneurship in post-secondary institutions.
  4. Provide targeted resources for senior entrepreneurs.
  5. Support entrepreneurs who want to export.
  6. Encourage firms to develop strategy utilizing more intrapreneurship.

Peter Josty

p.josty@thecis.ca
403-249-0191
www.thecis.ca

 

 


How to get more innovation?

12 June, 2017 – Blog #8

How to get more innovation?

In an earlier blog, I asked if we had too much innovation or not enough.  The answer was that some areas had too much and some too little.  Which raises the question what can be done to increase innovation.  In fact, there are quite a number of proven approaches to increasing innovation.  Here is a short list:

  1. Competition. This is one of the effective ways of getting innovation as it uses the ingenuity of large numbers of people who want to make a profit. The economist Willian J. Baumol captures this well in the title of one of his books – “The free market Innovation Machine.”  Baumol goes on to explain that “the prime weapon of competition is not price but innovation.  As a result, firms cannot afford to leave innovation to chance.  Rather, managements are forced by market pressures to support innovative activities systematically and substantially…  The end result is a ferocious arms race among firms in the most rapidly evolving sectors of the economy.”
  2. Prizes. Cash prizes have a long history of stimulating innovation. One of the earliest examples is the Longitude prize, offered by the British government in 1714 to anyone who could determine longitude accurately.  That prize was eventually won by John Harrison, for an accurate clock.  The XPrize is a more recent example, which was set up to bring about “radical breakthroughs for the benefit of humanity”.  The XPrize has stimulated numerous other prizes, including one in Alberta run by the Climate Change and Emissions Management Corporation (CCEMC) to find commercially viable applications for waste gas.
  3. Military spending. This is a very wasteful way of generating innovations, but it can produce very significant results.  Mariana Mazzucato has shown that many of the technologies in the iPhone were originally developed and used by the US military before being “re-purposed” and incorporated into the iPhone.  The internet is another example, which was originally funded by DARPA (Defense Advanced Research Projects Agency) in the US.
  4. Government funded megaprojects. There are a few examples of megaprojects that have developed significant innovations. One is the man on the moon project in the 1960’s.  This was a political, not scientific project that occurred at the height of the cold war.  NASA considers Landsat satellite imagery to be a direct result of this megaproject.  However this is a very wasteful way of getting innovations.  Another example might be the Chinese government’s initiative – the Belt and Road project – to spend significant resources to enhance trade across Eurasia.

Because of the magnitude of resources required, this will always be a very minor contribution to overall innovation.

  1. Surprisingly, regulation can sometimes stimulate innovation.  A classic example is the role of the California Air Resources Board (CARB), which imposed stringent fuel economy standards for all automobiles sold in California, in 1967.  This led automakers to develop innovations to significantly improve fuel economy, not only for cars sold in California but everywhere else as well.  There have been numerous other similar examples.  Carbon taxes and cap and trade systems are intended to stimulate innovation by the same mechanism.  Nobody wants to pay taxes and people and companies work to reduce emissions and so pay less tax.
  2. Sometimes innovations just happen without any apparent motivation. The “learning by doing”, “experience curve” or “learning curve” effects are based on a series of often very small changes which cumulatively have a powerful effect.  When a routine task is repeated, each cumulative doubling of repetitions typically leads to a reduction of 10-20 % in cost per unit.
  3. New Technology. The classic example of a new technology stimulating innovation in the old technology it aims to replace is the sailing ship. In the 30 years after the introduction of the steam power in the 19th century, sailing technology improved more than it had in the previous 300 years.  This is termed the “Sailing Ship effect”, which has been well documented in numerous other cases.

None of these approaches include current hot topics such as research and development spending, venture capital, crowdfunding, tax credits or other popular ideas.  This is not at all to say that these approached don’t work, but just to remind us that there are many paths to innovation.

 

Peter Josty

p.josty@thecis.ca
403-249-0191
www.thecis.ca

 


Losing jobs to machines: is it different this time?

29 May 2017 – Blog #7

Losing jobs to machines: is it different this time?

A number of recent studies have described the jobs that will be lost to automation in the next few years.  The World Economic Forum estimated that 5 million jobs will be lost to robots in the next five years, globally.  The Brookfield Institute for Innovation and Entrepreneurship at Ryerson University issued a report that found that nearly 42 percent of the Canadian labour force is at a high risk of being affected by automation in the next decade or two.  They found that the top five jobs at risk of automation were: retail salesperson, administrative assistant, food counter attendant, cashiers and transport truck drivers.

This report is consistent with other long-term trends in the economy.  For example, a report in the Economist looked at employment growth in routine vs. non-routine jobs, and found that non-routine tasks grew much faster in the last 30 years.

Blog 7 -think

The impact of automation and artificial intelligence seem so far-reaching that some people suggest it will permanently reduce the number of jobs needed in the economy.  A recent study by the National Bureau of Economic Research in the US found that each new robot added to the workforce meant the loss of between 3 and 5.6 jobs in the local commuting area.

Meanwhile, for each new robot added per 1,000 workers, wages in the surrounding area would fall between 0.25 and 0.5 percent.

Fear of changing technology is noting new.  A hundred years ago the Luddites destroyed weaving machinery they believed was threatening their jobs.

However, there are strong views saying that we shouldn’t worry about automation. In  a poll of Canadians Abacus Research found that 89% of Canadians agreed that technological change has been good for the world. And 76% felt it had been good for their own economic well being. They may be on to something. According to the Global Entrepreneurship Monitor study of  entrepreneurship, Canada is the most entrepreneurial country among the advanced countries.  Entrepreneurship is basically creating new jobs by following opportunities, whatever the rest of the economy is doing.

There is heavy weight evidence to back up this view.  Joel Mokyr, an economic historian, points out : “We can’t predict what jobs will be created in the future, but it’s always been like that.  Imagine trying to tell someone a century ago that her great-grandchildren would be video-game designers or cybersecurity specialists.  These are jobs that nobody in the past would have predicted.”

Carolyn Wilkins from the Bank of Canada points out that technological change has been part of the Canadian economy since Canada was founded 150 years ago.  100 years ago one third of jobs were in agriculture, today fewer than 2% are.

So there are optimists and pessimists. Who is right? And is it different this time?

While history supports the view that new jobs will be created to replace the jobs lost, we can’t be sure of that. So what should we do, given that uncertainty? It seems to me that we need to consider three actions:

  • Expand adult re-training. It is pretty clear that many people are going to loose their jobs, and will need to find new ones.
  • Update the education system to increase the focus on preparing people for the non-routine jobs that seem likely to dominate the economy in the next 50 years.
  • Experiment with novel social programs that may be needed if the pessimists are right. A good example of this is the basic income experiments being carried out in many places round the world, including California, Finland,Italy, the Netherlands and in Ontario.

Peter Josty

p.josty@thecis.ca
403-249-0191
www.thecis.ca


Do we have too much or too little innovation?

4 May 2017 – Blog #6

Do we have too much or too little innovation?

We are surrounded by talk about innovation, in the media and in government pronouncements.  But do we really have too much, or too little of it?  Before we can answer this question, we need to establish a framework:

  1. What is our definition of innovation? There are hundreds if not thousands of definitions to choose from.  One widely used is from the OECD (Organization for Economic Cooperation and Development), which see four different types of innovation: product innovation (e.g. a new iPhone), process innovation (e.g. lean manufacturing), marketing innovation (e.g. Amazon) and organizational innovation (e.g. outsourcing).  This definition is helpful for commercial innovations but does not capture broader aspects of innovation such as social innovation and public sector innovation including regulatory innovation.
  2. What role does innovation play in the economy? The economist William J. Baumol sees innovation as the principal weapon of competition in the free market economy, and entrepreneurship as the vehicle for bring innovations into existence. So innovation is the lifeblood of our economy.  He sees three main roles for entrepreneurship: productive entrepreneurship (a useful new product or service); non-productive entrepreneurship (for example, exploiting a monopoly or a tariff wall) and destructive entrepreneurship (criminal behaviour).
  3. Risk and uncertainty. One aspect of innovation that is not apparent from the definitions above is the inherent risk of an innovation. The whole nature of innovation is to “suck it and see”.  When a new product or process is launched, it faces a whole range of risks some of which can be predicted in advance, but many of which cannot.  So trying new things is inherently risky and uncertain.
  4. Life cycle. Another aspect not apparent from the definitions above is that innovations have a life cycle.  New things get commercialized and are welcomed as innovations;  more and more of them get sold and new competitors entre the market and eventually the “new “ thing becomes communized and is replaced in turn by something else.

 

Having set up a framework, we can see that innovations are just solutions to problems.  Quite often, the problems have not been recognized before the innovation comes along.  Henry Ford is reputed to have said that if he had asked his customers what they wanted they would have said “faster horses”.

 

So we can re-frame the question to ask what are the big problems needing solutions today?  The answer is straightforward, and jumps out from the headlines of the newspapers and TV news:

  • Inequality
  • Global warming
  • Trade protectionism
  • Oil sands emissions and costs
  • Terrorism
  • The impact of automation on jobs

This list can obviously be extended.  However, it does give a clue to where we do not yet have enough innovation.

Where do we have plenty of innovation?  Again, we can look to the headlines:

  • Self driving cars
  • Artificial intelligence
  • Drones
  • Robotics
  • Blockchain
  • Quantum computing

This list can also be extended.  So there are clearly areas where innovation is alive and very well.  This list also include some public sector innovations.  For example, the experiment in Ontario with a Basic Income, to provide a level of income for selected households for a three-year period and evaluate the impact.  This experimental approach to government policy making is a new development that is staring to emerge around the world.

To return to our initial question: do we have too much or too little innovation?  It depends where you look.  We are woefully short of innovations is some areas, while other areas are doing just fine.

Peter Josty

p.josty@thecis.ca
403-249-0191
www.thecis.ca

#innovation  #entrepreneurship  #THECIS


Entrepreneurship at the University of Calgary

24 April 2017 – Blog #5

Entrepreneurship at the University of Calgary

C_Langford;C._Saunders

C. Langford                        C. Saunders

The Centre for Innovation Studies (THECIS) has just completed a report on entrepreneurship at the University of Calgary using the Global Entrepreneurship Monitor methodology. This is the first time the GEM methodology has been used at a university. The report shows very high levels of entrepreneurship and also shows that the startups have significant competitive advantages as measured by their use of up to date technology and the number of competitors they have. The full report is available here.

Peter Josty

www.thecis.ca

403-249-0191
p.josty@thecis.ca


What exactly is a culture of Innovation?

1 March 2017 – Blog #4

What exactly is a culture of Innovation?

The expression “culture of innovation”  is a perennial part of most innovation strategies. But why is it so important?  And what exactly does it mean?

Why is it important?

Mark Pagel in his book “Wired for Culture”  says that for many people one of the most distinctive features of life in human societies is the sense of belonging to a particular cultural group.  He makes a strong case that culture exercises a form of mind control over us.  We willingly accept this mind control – probably without knowing it – in return for the protection and prosperity our cultures provide. Just think of a hockey game or rock concert.

Culture has had a profound effect on the history of innovation.  Joel Mokyr – a historian – in his book “The Culture of Growth” shows how the culture of Europeans changed radically from 1500 to 1700.  In 1500 the culture was very intolerant one where dissent) was harshly criticized, and punished (think the Spanish Inquisition); by 1700 scientific investigation and new scientific theories were everywhere (think Newton) and widely accepted and the stage was set for the Industrial Revolution a few decades later.  If the culture hadn’t changed the Industrial Revolution couldn’t have happened and our world would be vastly different today.

Mokyr shows that the idea of progress is a central aspect of culture, and in particular how each generation sees itself compared with their ancestors – whether we are better or worse than they were.  For almost two thousand years the accepted wisdom in Europe was that the ancient Greek philosophers  (in particular Aristotle) had created a perfect understanding of the world, and that to better understand the world one only had to study the ancient texts.  That is the attitude that gradually eroded from 1500 to 1700.  One key development that caused this change was the voyages of discovery (e.g. Columbus, in 1492) which discovered things the ancients knew nothing about and discredited their claims to universal knowledge.

So clearly, culture is a critical factor to consider in innovation strategy.  If the culture isn’t right, new ideas are stifled.  However, society has limits to what it will accept, often driven by cultural values.  For example, GMOs, which are often opposed despite being proven safe.  So there are culturally imposed limits to what innovations we are prepared to accept, and this is an important aspect of innovation policy.

What does it mean?

Robert Boyd and   Peter Richerson (profs at the University of California) developed this widely accepted definition of culture:  “ Culture is a set of beliefs, values and preferences, capable of affecting behaviour, that are socially (not genetically) transmitted and that are shared by some subset of society.”  This implies that there is not just one culture in Canada, but a multitude of different cultures.  And they all have different attitudes towards innovation.  Just think of differences between provinces, between different age groups and between different companies.

Culture is constantly changing and evolving, although many aspects of culture change very slowly.  Just think how our attitudes towards things like smoking and using seat belts have changed in the last couple of decades. There are also vast differences between countries as well.  In the World Values Survey Canada has strong self-expression values similar to Australia, New Zealand, Britain and Iceland, very different from countries such as Russia and Belarus.

Conclusion

So what exactly is a culture of innovation?  It’s complicated.  It is obviously a vitally important factor that deserves serious attention in any innovation policy.  The writers of innovation strategies probably have in mind a general acceptance of progress and openness to new ideas, a willingness to collaborate and perhaps a willingness to try new things, and to take initiatives.  But if they mean that, it would be better to say that, rather than obscure it with a very loaded term like “culture of innovation.”

 

Peter Josty
403-249-0191
p.josty@thecis.ca


How will Canada grow in the next 50 years?

15 February 2017 – Blog #3

How will Canada grow in the next 50 years?   

Winston Churchill is reputed to have said “The farther back you can look, the farther forward you are likely to see.”  Let’s test that idea by looking at innovation and economic growth.
Robert Gordon, an economist at Northwestern University wrote “The Rise and Fall of American Growth”, which looked at economic growth and innovation over the last  couple of hundred years and included the diagram below for changes in productivity:

From Gordon’s point of view, you can think of the past 150 years unfolding as a series of industrial revolutions.  The first one – based on waterpower, the steam engine and its offshoots – the railways, steamships, and the shift to iron and steel – resulted from inventions made in the period from 1770 to 1820.  This was a big enough revolution to drive economic growth through most of the nineteenth century.

The second industrial revolution resulted from inventions in electricity and the internal combustion engine in the late nineteenth century. This included automobiles, highway construction, and television, and electrification of factories, among many others.  This drove economic growth to around 1970.  The third industrial revolution was associated with information and communications technology and started in the 1960s. This had a profound effect but in a much narrower part of the economy.  That explains the drop off in productivity after 1970.

Through all of this change, however, real gross domestic product (GDP) per capita in Canada just continued growing at a steady 2% a year, on average.  This works out to a doubling every 35 years.  The graph below from the World Bank shows this from 1961.

So what might the future hold?

If you look at the fundamentals, we have a number of radical technologies at an early stage of development.  Examples are robotics, artificial intelligence, and genetic engineering.  These would appear well positioned to drive growth in the next few decades. Offsetting this, however, we have an aging population, but increasing longevity and increasing education.

If you ask the experts, there are several recent reports:

  • PricewaterhouseCoopers, in “The World in 2050” projects that Canada will grow its real (inflation adjusted) GDP per capita at roughly 1.6% annually, on average, to 2050.
  • The OECD in an outlook to 2060 projects that Canada’s GDP per capita between 2011 and 2060 will grow at 1.6% on average (at US PPP).
  • The Conference Board of Canada says that over the long term, potential output will be limited to annual growth below 2 per cent as the aging of the population puts downward pressure on labour force growth.

If you ask me?  I would place a hefty bet that for the next few decades will be in the 1½ – 2% ballpark on average.  Despite what the gloomsayers think, that’s not bad.  It means a doubling of wealth every 35 years or so.  So a doubling every generation, just like the last 50 years.

Peter Josty
403-249-0191
p.josty@thecis.ca


Where are Alberta’s mid-sized companies?

21 November 2016 – Blog #1

Where are Alberta’s mid-sized companies?

Alberta is home to a thriving start up sector.  According to the Global Entrepreneurship Monitor report, it has more start up activity than almost anywhere else does in the developed world, with around 15% of the adult population involved in entrepreneurial startup activity.

Alberta is also home to a significant number of head offices.  A  2014 study shows that of the 234 corporate headquarters of companies listed on the S&P/TSX Composite Index that are based in Canada, 82 or 35% are located in Ontario, 79 or 33.9% are in Alberta, followed by Quebec and British Columbia.

However, Alberta is underrepresented in medium sized firms, according to a recent Business Development Bank report.  In Canada, medium sized businesses (100-499 employees according to Statistics Canada’s definition) contribute only 12% to Gross Domestic Product.  This compares with over 50% in Germany and about one third in the US. So there is plenty of room to grow the medium sized sector in Alberta.

Why is this?
On the face of it, you would expect that the dynamic startup activity should lead to a large number of medium sized companies.  We don’t really know why this doesn’t happen.  However, there are a number of hypotheses:

  • The preferred exit mode for high growth startups is to be acquired by a large company rather than growing in Alberta.
  • The need for capital leads to public share ownership which makes an Alberta company vulnerable to a hostile takeover, and leaves the entrepreneur having a sense of losing control of his or her business.
  • Lack of courage. Deloitte found in a recent study that most Canadian businesses lack courage. They found that only 11 percent of the companies they surveyed could be considered truly courageous.  [ http://tinyurl.com/jbwgvyd]
  • Many startups don’t want to grow and are happy to remain small.
  • Many small firms lack the managerial and marketing skills and expertise to grow.

Why does this matter?
If you look around the world at other thriving jurisdictions, a large population of mid-sized companies is often a sign of economic stability and an engine of economic growth.  In Germany, for example, the Mittelstand – the thousands of mid-sized, usually family owned manufacturing firms –are universally seen as a major economic benefit.  These companies typically are internationally competitive in niche markets using advanced technology, and have revenue in the $50 million -$100 million and up range. The Economist provides a snapshot of the Mittelstand at http://tinyurl.com/kqu2zoz  In his book “Hidden Champions of the 21st Century” Herman Simon says they “innovate constantly in narrow markets, grow through aggressive pursuit of international sales, work closely with customers, design their own machines and processes, and hoard institutional knowledge by hiring people when they’re wet behind the ears and keeping them until they’re graying at the temples.”

What do we know about mid-sized companies in Canada?
A recent Business Development Bank report provides some insights for Canada (http://tinyurl.com/gmm36ac):

  • Almost no small businesses grow to become medium sized business. Only 0.1% of small firms cross the 100-employee threshold each year.
  • Very few medium sized companies become large companies. Only 2% cross the 500-employee threshold each year.
  • Medium sized firms have 78% of the productivity of large firms, and are ahead of small firms.
  • Quite a few medium sized firms shrink to become small firms. Nearly 13% of medium sized firms drop below the 100-employee threshold each year to become small firms.
  • Medium sized firms represent less than 1% of all firms in Canada, and that percentage has shrunk since 2001.

Can we create a Mittelstand in Alberta?
The Mittelstand evolved based on unique German history of laws, labour relations and many other factors that can’t be replicated anywhere else.  Trying to transplant a successful ecosystem model from one place to another is a recipe for failure, as the many attempts to replicate Silicon Valley have shown.  However, creating more mid-sized companies in Alberta is realistic and achievable.  An Alberta “Mittelstand” would likely look very different from the German Mittelstand, possibly with more service companies, and with a focus on the existing industries in Alberta such as energy, agriculture, forestry, health and IT.

A neglected category?
It appears that medium sized firms are a neglected category.  Almost all reports talk about SMEs, and as small firms are the vast majority (over 99%) of these firms they get virtually all the attention.  A huge amount of effort goes to encouraging startups, and recently attention has moved to how to scale up, but the characteristics of medium sized firms are poorly understood.  We do not know what their major challenges are, or what incentives may encourage them to grow more.  Judging from the German experience, medium sized firms behave very differently to small firms.

What would the benefits of an Alberta Mittelstand?
If we could build a strong cohort of mid-sized companies in Alberta it would bring numerous benefits.  For example:

  • Economic stability, as these firms would be less likely to lay off staff in downturns, as they would be insulated from the quarterly to quarter treadmill of public companies.
  • High paying jobs, as they need highly skilled personnel to target niche markets.
  • Investment opportunities for Albertans. Albertans would have the opportunity to invest in the mid-sized firms and share in their growth.
  • Increased exports, as the mid-sized firms punch above their weight in exporting.
  • Economic diversification, as mid-sized firms would target export markets not served by current companies in Alberta.
  • More R&D spending. Larger companies tend to spend more than very small companies, so growing the number of mid-sized companies would increase business R&D in Alberta.

Conclusion.
Alberta has relatively few mid-sized companies.  Having more would create significant benefits.  It is a startling fact that almost no small firms grow to be mid-sized firms, and that the proportion of medium sized firms has declined since 2001.  We currently have very limited knowledge of the particular challenges and opportunities facing medium sized firms, or how they form in the first place. They appear to be a neglected business sector.  Paying more attention to medium sized firms would likely pay large dividends.

Peter Josty
403-249-0191
p.josty@thecis.ca


Unicorns? Be careful what you wish for…

26 January 2017 – Blog #2

Unicorns?  Be careful what you wish for…

Shopify is a Canadian success story.  Founded in 2004 in Ottawa, it provides e-commerce solutions for small and medium sized companies, based on software used in the founders snowboard business.  It’s initial public offering in 2015 valued the company at $1.27 billion, making it a rare “unicorn” in Canada (a start up with valuation of $1 billion).  As of January 2017, it had 325,000 customers in around 150 countries and had sold over $24 billion worth of merchandise.

What’s not to like about Shopify?  Nothing.  It’s a great Canadian success story.  Could we build an industrial growth strategy by aiming to build more unicorns?  That seems to be implicit is some of the talk about supporting startups in Canada.  Not likely.  Consider the following:

  • There are only a tiny number of unicorns. Up to 2015 there had only been a total of either two or five Canadian “unicorns”, depending on who you talk to. That is out of 78,000 startups  across Canada each year.
  • They employs very few people. At the end of 2015 Shopify reported it had 1,048 employees. That compares to a Canadian workforce of about 19 million, according to Statistics Canada.
  • Their business is very risky. Remember Novatel, Nortel Networks, Microsystems International Limited, and Rim? The likelihood of Shopify still being in business  in 10 years is quite low, judged by this history.  Shopify is compelled to write in its annual report “Investing in our shares involves a high degree of risk.”
  • It is vulnerable to foreign takeover. According to a survey by PwC, nearly two-thirds of emerging companies are planning to be acquired in the next three years. Some will be acquired by foreign companies and moved out of Canada.
  • Some companies move out of Canada voluntarily. For instance Slack, once a Canadian unicorn, moved from Vancouver to San Francisco. Another example is Uber.  The co-founder of Uber (a University of Calgary alumnus, Garrett Camp)  started an earlier company (StumbleUpon) in Calgary, but moved to San Francisco to better obtain funding.  That’s where he started Uber.
  • Only a tiny fraction of small companies even become medium sized companies. According to a report by the Business Development bank, only 0.1% of small businesses become medium sized businesses in any given year.

So, should we celebrate Shopify?  Absolutely!  Should we try and use it as a model for an economic growth strategy?  Absolutely not.

Peter Josty
403-249-0191
p.josty@thecis.ca