Canada reaches for critical mass in creating new companies: Don Pittis

When it comes to creating new companies, Canada has had a dismal record.

Statistics Canada data quoted by the Bank of Canada show "aggregate entry and exit rates of new firms" have been plunging for at least 30 years.

But according to experts who study the entrepreneurial sector, there are signs of a turnaround. And with jobs numbers coming on Friday, Canadians could get a better picture of what effect there might be.

A new mood among young people, growing pools of both talent and capital available to Canadian startups, plus technology that is breaking down the barriers between entrepreneurs and the resources they need, are transforming Canada's firm-creation potential.

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If the statistical data begins to back up that anecdotal optimism there will be no one happier than Bank of Canada governor Stephen Poloz. 

Last week while helping journalists to decode the central bank's latest Monetary Policy Report, the governor said that one of the places the Canadian economy was lagging the most was in rebuilding economic capacity, "the creation of new jobs basically out of thin air."

'A very slow process'

"One of the key indicators of that process would be net firm creation, the population of companies, and you know that's one of my favourite variables," said Poloz in response to a reporter's question. "And it has really not shown what we're looking for yet. It's proving to be a very slow process. Compared to United States and compared to the U.K. we're definitely not producing new companies in the way they are."

As usual with statistics, it depends what you measure and how you measure it. The Global Entrepreneurship Monitor, a consortium of international universities, has ranked Canada near the top in entrepreneurial activity, second only to the U.S., beating most G7 countries and much of the developed world.

Nonetheless, Statistics Canada data shows pretty clearly what Bank of Canada deputy governor Sylvain Leduc has described as "declining dynamism" in new firm creation, a trend shared with other developed countries.

Why the decline? It is hard to be sure said Leduc earlier this month. Among the possible causes are higher wages for educated people that would make them less inclined to take risks and what Leduc refers to as "astonishing" levels of industrial concentration that squeeze out new entrants.

"You must be very optimistic and have a great deal of confidence in your business model to launch a retail business these days, when giants like Walmart and Amazon are making life difficult for established companies," said Leduc.

Stigma of being an entrepreneur is gone

But according to two Canadian entreprenuerial experts young Canadians have begun to demonstrate that they actually do have that kind of optimism and confidence. 

Elspeth Murray is on the board of one small startup, Analytics 4 Life, a medical devices company based on artificial intelligence and one of about 65 small firms currently being incubated out of the Smith School of Business at Ontario's Queen's University.

"There are lots of small companies that are 15,16, 17 people," says Murray, who has worked at IBM and Canadian Tire and is now associate dean at the Smith School, teaching entrepreneurship skills to graduate students.

Whether it's the lack of safe jobs in the gig economy, or just the desire to build something of their own, Murray says there is a wave of young Canadians creating new firms. And if there used to be a stigma against entrepreneurship in Canada, it has now disappeared.  

"All of a sudden it's more than socially acceptable to be an entrepreneur," she says.

And when it comes to going up against Walmart and Amazon, Murray points to Canadian army Capt. Jeff Alpaugh, one of her graduate students who is already operating a successful custom clothing business under the slogan "the world's most dangerous dress shirts."

Murray says that the internet, which has handed so much power to concentrated giants like Amazon, has also been a boon to small startups. For Alpaugh who sells his products around the world from Fredericton, using the Canadian e-commerce platform Shopify, finding a successful fashion niche no longer requires a base in New York or London.

On the opposite coast, Sarah Lubik, agrees, but she says the value of the internet connection goes well beyond retailing the final product.

Money is global

Lubik, who has advised the Canadian government on innovation strategies and is director of entrepreneurship at Simon Fraser University in Burnaby, B.C., says the small world created by internet communication has also filled traditional gaps in funding and specialized personnel.

"While there may be fewer funds here, strong Canadian companies do have the ability to attract money from elsewhere," Lubik says.

She gives many examples, including Vancouver startup Kindred, a company that uses artificial intelligence to sort and select warehouse products and got its funding from San Francisco's Eleven Two Capital.

Lubik says that while the Canadian pool of talent essential to entrepreneurship is reaching a critical mass, globalized communications means specialized talent can be found almost anywhere in the world.

And as to the idea that Canadians start a business and cash out, she says that is changing too. By growing organically and building deep roots in the community, companies like booming Vancouver firm, STEMCELL Technologies, are increasingly likely to create jobs at home.

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