15, March 2022
Why are mid-sized companies so important in Alberta?
Mid-sized companies play a key role in the Alberta economy due to their stability, innovation, their exporting, and contribution to the community.
In December 2021 the size distribution of firms in Alberta is shown in the table below1:
Mid-sized companies employ about 20% of the workforce in Alberta. Mid-sized firms are active in most areas of the Alberta economy. The Table below shows the percentage active in the most frequent areas1:
But the main reason they are important is because of their characteristics. Several years ago we interviewed the CEOs of mid-sized firms in Alberta. A large majority of the firms interviewed displayed the following key characteristics:
- They are very stable. We found most medium sized companies have been in existence for 10 years and many were 50 and 60 years old and more. They are almost always privately owned so are not subject to the influence of stock markets and the pressure to produce quarter to quarter improvements, and therefore can think much longer term
- They have deep expertise. Frequently the founders had gained industry experience in a big company before branching out by themselves. This is a common but not universal experience. Almost all CEOs interviewed had a university education and many had graduate degrees.
They respond positively to the challenges of finding skilled people. A frequently expressed barrier to growth was lack of qualified people. Alberta MSEs have responded in various ways. One found an Alberta Innovates program very valuable. It helped to subsidize new hires (engineers) for a year or two while they learned the business and could become productive.
There is huge attention to employee wellbeing. Likely related to the challenges of finding qualified workers, most MSEs interviewed go to great lengths to keep employees happy. This results in employee loyalty and very low attrition rates. One company had a retention rate of 99%. Another was proud to be the recipient of many “Best Place to work in Alberta” awards. Most go to great lengths not to lay off employees in a downturn.
- They focus. Most medium sized companies have a quite a narrow and sharp business focus. They know their niche very well and don’t want to stray outside it. They tend to be deep rather than broad.
- They innovate. Although some of the MSEs interviewed were reluctant to describe themselves as ‘innovators’, most were observed to have made significant innovations in terms of new products, new processes or new business models.
- Access to capital is not a huge issue. MSEs are stable, profitable businesses with good prospects, so many are prime candidates for accessing normal banking instruments – loans and lines of credit. None mentioned venture capital funding.
- Growth is not in itself a high priority. Many MSEs see themselves as being an appropriate size to serve their niche; growing beyond that would be problematic. Some saw a tradeoff between high growth and survival. Many regarded aiming for high growth as a risky strategy.
- Use of contractors is widespread. Many of the MSEs interviewed used contractors to supplement their workforce. One design firm employed hundreds of extra people for large projects. Others contracted with software developers abroad, where costs were lower than in Alberta. However, it was often stressed that this did not reduce employment in Canada as all the core personnel remained in Alberta.
- Many export. One firm had no customers at all in Canada for the first eight years it existed. But some served local markets and did not export at all. A majority of the firms we interviewed exported more than 30% of their sales revenue.
- They contribute to the community. Many companies are deeply involved in community affairs, supporting local cultural institutions, charities and industrial organizations. Such involvement was often described as a defining element of the company culture.
- MSEs operate largely outside the milieu of targeted industry supports. Use of government support programs varied considerably, but no firm interviewed was dependent on such programs. Most expressed the view that MSEs were generally not on the radar of most of these programs.
- Flight risks are mounting. Most MSEs seem happily embedded in Alberta, and have no plans to consider moving to another jurisdiction. However several expressed concern about increasing regulation and taxes compared with the US and were starting to look at relocating their business.
- The overall business environment is critical. SMEs have structural relationships with many sectors throughout the Alberta economy, especially but not exclusively with the resource sector. They tend to thrive best when overall conditions are favorable for the economy as a whole and can be severely affected when legislation and regulation is not synchronous with up or downturns.
We need more medium sized businesses in Alberta,
- Statistics Canada. Table 33-10-0493-01 Canadian Business Counts, with employees, December 2021
- Businesses are counted according to the number of “statistical locations” they have. For example, a retail business with 10 stores and a head office is counted 11 times in the Canadian business counts.