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A bi-weekly column with timely, relevant and possibly irreverent insight into the BC technology industry. Something Ventured: October 19th, 2007 By Brent Holliday Greenstone Venture Partners Woe Canada   “Fast lane, High speed, On the grind, 24/7. No time, Always runnin' here and there, Chasin' the money… Where are we runnin' We need some time to clear our heads Where are we runnin' Keep on working 'til we're dead Where are we runnin' Oo wee oo wee oo Where are we runnin' now” – Lenny Kravitz, Where Are We Runnin?   Canada is risk averse, slow to innovate and has no distinct advantage in a world where work will move globally to where it is done best.  Ouch.  This is the thesis of a guy born in Bobby Orr’s hometown, educated in Canada and now a successful entrepreneur… in America.  Double ouch. Here is the whole article from Canadian Business on entrepreneur Michael Treacy. {disclosure: Michael is related to me through marriage although we’ve never met at any family reunions.  I don’t think he gets invited…} The tendency when hearing stories like this is to get all wrapped up in the flag and offer some sort of rebuke, questioning his generalities and offering proof to the contrary.  But haven’t we heard this before?  Ten years ago, the rally cry was that Canada was too risk averse, slow to commercialize and taxed to the hilt.  A lot has changed in a decade ;-).  We are not perceived to be taxed to the hilt anymore, although moving to Alberta would put $10-12,000 extra after-tax dollars in this columnist’s pocket each year (That would easily pay for the block heater and the galoshes).  The biggest change in a decade has been globalization, which leads to Michael’s charge that Canada is in danger of losing its high paying jobs to other locations around the globe. That’s why it has taken over from taxation as a more important criticism of Canada.  But we still have that pesky lack of innovation and risk aversion. To be fair, there has been much hand-wringing about Canadian innovation and competitiveness in the past ten years, leading to many councils, conferences and idea sharing.  Most of these have been led by government with high-profile business leaders in attendance.  In his diatribe, Michael doesn’t chide the Canadian politicians and government to change. He puts the onus on the business leaders, challenging them to be world visionaries and have the cojones to build global businesses.  It is the leadership by action that will lift Canada from its heritage of conservatism brought on by the history of capital-intensive industry (based on our only advantage… resources), which was funded by debt from big banks.  If big bank debt is your overwhelming source of capital, then your economy is risk averse. You have heard me say this before: Toronto business (and by extension the rest of Canada) is driven by a fear of failure while Silicon Valley business (and by extension the US) is driven by fear of a missed opportunity.  Michael puts his spin on the same concept by saying “the rules and laws of the American marketplace are rigged in favour of the consumer.” The harsh reality of the market forces the companies to innovate or die.  This means they are always looking for the next big idea.  If they miss the next opportunity, they are dead.  In Toronto, if the company struggles or God forbid, dies… the entrepreneurs are ostracized and go sell real estate.  Oh, the shame. Sounds like it could be easy to fix Canada with some changes in law, but its not.  Taking just one of the many differences in corporate rules and laws between us and America as an example: We protect our workers like the European countries do.  Imagine the uproar if you had no statutory severance (meaning no notice needed to layoff), no statutory maternity (let alone paternity) benefit and dramatically reduced EI benefits.  In the US, you could lay off a worker who just had a baby three weeks ago and is back at work and pay her nothing.  Canada can’t simply change its culture overnight.  This is why there is no quick fix and Michael is right to not put the onus on governments to change.  There simply would not be the political will to make any meaningful difference. So how do business leaders in Canada break free from the conservatism?  How can the companies in Canada foster innovation?  How do we compete globally in a knowledge economy when it’s so easy to pull hydrocarbons out of the ground or fell a few more trees to make some bucks? Two answers from me.  First, the dollar.  Second, the technology industry. The Canadian dollar over par will force Canadian companies to improve productivity or die.  It is already happening in the manufacturing sector.  There is no help coming from government and any CEO who starts to complain to our governments for help should be publicly flayed (unless they are saying lower taxes to American corporate levels).  This is where the business leaders of Canada have to show that they are not lying on the couch, but are in the game fighting for every scrap of profit.  You can’t lower wages in Canada and you can’t raise your prices in the US.  You have to get more dollars of revenue out of your same employee base.  You have to look at where to outsource parts of your operations.  You have to get your projects done faster, without paying overtime.  It’s all about more worker productivity.  It’s all about better management prioritization.  It’s all about being a leader. We had a good ride with the cheap dollar. It was so easy to make a buck when you sold in the US and made it in Canada.  Personally, I don’t believe that we got too fat and too lazy.  I believe the Canadian companies across all sectors are buckling down and will create the kind of productivity gains that their US brethren made from the early 90’s until 2005, when their dollar was much stronger than all currencies.  There is no other choice.  For a brief shining moment here and now in the Canadian economy, we have to innovate or die.  We have to seek new opportunities.  Feels very American. The dollar will help our economy be “more American” in the short term, but the long term fixes are harder. The technology industry is where the visionary business leaders will come from (all apologies to Chip Wilson and his new Lululemon empire aside) in Canada.  The leaders that will make Canada more competitive are from communications, information technology, digital media, clean tech and biotech.  They are not shackled by huge capital costs and dependence on resources.  They employ higher educated workers.  They must be innovative and they must be risk takers, not risk averse.  As the technology industry grabs more and more share of the country’s GDP, Canada will be forced to be more like the flexible, fast-moving, productive technology industry.  Failures happen and new companies start again.  No hollowed out factories or huge empty mills left behind.  The resources that the technology industry draws from are universities and colleges and other companies because it’s the people that fuel the industry.  You can’t import trees from India, but you can import workers, drawn to higher wages and better living conditions.  You can create centres of innovation that draw the best and brightest minds.  But most importantly, Canada needs to create or import the business minds for the technology industry that have been leaking out of here for 20 years.  That, in my mind, is the biggest challenge.  A related challenge is the dearth of risk capital.  Risk capital chases ideas that have experienced business people ready to commercialize them.  We are perilously low on home grown capital and importing talent will be tough without the cash to start a business. Naturally, over time, if we invest in the technology industry in Canada, then it will give back the comparative advantage that Michael believes we lack.  I agree that the impetus won’t come from Canada’s governments or educational institutions, but from business leaders themselves.  Without being too dramatic, Canada’s future depends on our industry.  Ok, that was dramatic. But so was Michael’s speech.  It’s a wake up call. What Do You Think? Talk Back To Brent Holliday Something Ventured is a bi-weekly column designed to supplement the T-Net British Columbia web site with some timely, relevant and possibly irreverent insight into the industry. I hope to share some of the perspective and trends that I see in my role as a VC. The column is always followed by feedback (if its positive or constructive. I'll keep the flames to myself, thanks). Something Ventured Archive Printable edition