Why Canadian Tech Companies are Disappearing

Canada's Commerce Competence Gap

TORONTO , Oct. 14 /CNW/ - We are wasting the productive lives of many brilliant and courageous knowledge workers and losing large sums of money doing it. This is the stark conclusion of a new study, released today by The Impact Group. Understanding the Disappearance of Early-stage and Start-up R&D Performing Firms is the fourth in a series of white papers by H. Douglas Barber and Jeffrey Crelinsten examining Canada's innovation performance and culture. Through interviews with former CEOs and investors from 18 R&D performing companies that are no longer part of Canada's business landscape, the authors discovered that of these 18 firms 10 became insolvent with the remainder disappearing through merger or sale, in five cases profitably. On average the events took over seven years to unfold.

The interviews revealed that the "disappeared" firms shared a number of characteristics that can be summarized in three main points:

    
    -   Lack of commerce competence that showed itself through poor customer
        engagement. As a result more than a third of these companies had no
        sales or customers and demonstrated no urgency to find customers or
        achieve sales. Their primary foci on R&D and markets, rather than
        customers, led to difficulties in funding, leadership and governance.

    -   Preoccupation with technology and idea-driven R&D often resulted in a
        large R&D team with a diffuse mandate and an unsustainable "burn
        rate"

    -   Dysfunctional governance, including lack of shared goals between
        management and Board, lack of diversity and experience on the Board,
        lack of enterprise expertise amongst investors, and general lack of
        enterprise competence and experience
    

"While Canada is second to none in technology, there is a significant lack of commerce skills among our technology entrepreneurs", says Douglas Barber , a founder and former CEO of Gennum Corporation, now Distinguished Professor-in-Residence at McMaster University. "Companies often find themselves dependent on U.S. and other foreign nationals for executive talent especially for customer-facing experience and skills. If we are to succeed, the notion that technology coupled with sufficient venture capital will lead to success in the knowledge economy must be complemented by a deeper understanding of the human dimensions of enterprise and of the value exchange that is commerce."

The paper also identified a number of key areas where small changes can have a significant impact.

"The disappearance of the firms was not due uniquely to the inexperience of the technology-focused founders", says Jeffrey Crelinsten, co-founder and President of The Impact Group. "The suppliers, supporters and specialized partners in the financial, legal and public sectors also lacked the essential commerce skills, experience and enterprise savvy to contribute to success. Developing enterprise competence in these groups would substantially improve Canada's success in knowledge-based commerce."

Based on their interviews, the authors recommend changes in three areas, involving educators at the K-12 and post-secondary levels, governments at the provincial and federal level, and the financial community and businesses.

    
    -   Provide much needed enhanced entrepreneurial and commerce learning by
        putting commerce and enterprise on the school curriculum early, and
        by establishing mentoring programs that connect leaders of existing
        firms, would-be entrepreneurs and students with commerce-experienced
        people in Canada and with experienced Canadian expatriates living
        abroad.

    -   Increase the understanding that customers are the ultimate source of
        money for successful firms. While funding for businesses can include
        family and friends, angel investors, venture capital and financial
        institutions it is not sustainable and needs to be entertained with
        great care. This understanding of the role of customers is
        foundational for success in the knowledge economy.

    -   While governments already play a strong role in R&D and funding, they
        must also play a strong role in enterprise and commerce learning for
        entrepreneurs and the citizens of Canada. This role must include
        education and learning for civil servants to improve their
        understanding of enterprise and commerce and their role in the value
        exchange.
    

A full version of this paper as well as the earlier ones in the series can be found at www.impactg.com. The authors would like to thank Statistics Canada , the Atlantic Canada Opportunities Agency, Western Economic Diversification Canada , the Information Technology Association of Canada (ITAC), Industry Canada and the National Angel Capital Organization (NACO) for their assistance.

For further information: Janet Sandor, Director of Communications, The Impact Group, [phone] ext. 25