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.