On the same day that BDC president and CEO Jean-René Halde appeared at C2MTL to deliver a talk called “Fueling Canada’s Competitiveness Through Its High Impact Firms”, BDC released a paper on that subject and also announced the creation of BDC Advantage, a program designed to identify and help those “high impact” firms.
These are companies that, according to the BDC report, have a disproportionate impact on the Canadian economy given their size relative to their competitors. Halde describes high-impact firms as either start-ups or mid-sized companies that are outperforming comparable companies in their vertical.
Following a week in which Shopify dual-listed on the NYSE and TSX, to apparently massive success, the tech sector at least is feeling that impact.
The BDC report surveys over 1,000 firms with a focus on presidents and CEOs (over 60% of the sample), as well as general managers and other executives. A secondary survey was conducted of approximately 200 American firms, for comparison with the U.S. market.
These mid-sized high-impact companies contribute disproportionately to GDP, because they’re hiring at a faster rate than their competitors, as well as generating exports and penetrating foreign markets.
Perhaps more intriguing than defining high-impact companies by straight numerical benchmarks like size and growth, the BDC report also uses a criteria it refers to as “mindset”, which is probably most key to determining whether a company of any size will thrive or fail, depending on its willingness to innovate, experiment, take risks and to use technology effectively.
Talking to an audience at C2MTL, Halde made clear that the role of BDC is to think big picture while keeping a very close eye on specifics, with the ultimate goal of helping high-impact firms improve Canada’s bottom line.
“For the entrepreneurs in the room, let me just say something. Your limitations as an entrepreneur are going to be the limitations of your business. And collectively, the limitations of all of our entrepreneurs will obviously be the limitations of our country,” he said.
Halde points out that, in general, he’s not worried so much about the tech sector or start-ups as such. These are companies for whom thinking globally and going out into international markets already comes naturally.
It’s the vast belt of mid-size firms that Halde feels are going to need a shot in the arm, not only through investment from BDC but also through their transformation into companies that value innovation over adequate performance, in order to keep Canada competitive.
One of the results of the report will be the creation of a new business unit called BDC Advantage, which will focus on providing services to high-impact firms. As many others have pointed out, one thing that small Canadian companies don’t have trouble getting is access to money. Their challenges lie elsewhere, like in knowing the importance of having an advisory board or figuring out how to grow internationally.
The report identifies four key areas of challenge for high-impact firms. 1) management 2) new markets 3) financing and 4) labour, given the state of the Canadian labour force.
Shortly following his appearance at C2MTL, Jean-René Halde sat down with Cantech Letter.
Tell us about this new BDC Advantage program.
Sure. Right now, what we have is a consulting business, about 150 people. And they do consulting. But that usually means coming in, someone has a particular issue, we go in, we fix the problem and we get out. So with Advantage, we’re going to have consulting, but besides that we’re putting in this team of very experienced advisors, and the relationship that we want to build with these companies are long-term. We want to invest in this relationship, because we’re going to have to learn your business and understand it and find ways of helping you. In a lot of cases, it’s just a case of introducing you to the right people. So it’s a relationship with very senior executives that have been there and done it. In consulting, there are relationships that are long-term that we develop with clients, but it’s not the nature of the beast. So BDC Advantage will have two mandates. One is to keep doing consulting, but equally importantly is developing these long-term relationships with high-impact firms to get them to grow.
In the report, you talk about the metrics that you use to identify these high-impact firms. A lot of companies that seem very promising, particularly when you’re dealing in the start-up scene, are sometimes not that solid when you drill down. What are some of the less obvious signs you look for when evaluating a company?
If you look at younger firms, we ask how long have they been at this? And how successful have they been over the course of time? BDC has a large place in the venture capital community. We have close to $1 billion invested in venture capital. But the companies we invest in, usually we’ll give them the help we think they need. We’ll appoint board members, experts in the field that we think are going going to help these companies. In these cases, we’re actually doing what we say we should be doing, which is to spend a lot of time with and understand the company, open doors for them, provide them with good board members that know their industry.
One of the recurring themes that come up with smaller companies is that they don’t so much have problems finding money. What they have a problem finding are adopters of their solutions in Canada. They can sell abroad, but not here. The realities between Canada’s start-up culture and the more conservative business climate are very different from each other.
Correct. I think the large corporates should play a bigger role in helping the small start-ups. And also government procurement, whether provincial or federal, could do a much better job of helping start-ups. Canadians are generally more risk-averse than Americans. And I think one of the many ways that it expresses itself is in the more conservative choices we make when we look for a supplier. The joke 20 years ago was, you’ll never get fired for using IBM. In many ways, that still kind of prevails, unfortunately. So it is unfortunate that early buyers of our technology, in a lot of cases, have to be American or European. But I think there’s a recognition now by the large corporates that if we’re going to create a good ecosystem in this country, they’ve got to get with the program and help out. The Canadian Council of Chief Executives, headed by John Manley, is onto that. He’s slowly prodding his membership to look at that.
In your talk this morning, you said that you’re not so much worried about the mentality of start-ups because they already think globally. So the companies that you’re identifying helping out are really the small-to-medium enterprises. Start-ups are already ahead of that curve in terms of mentality. So it’s really the relative health of SMEs that worry you.
You might even want to differentiate technology start-ups from other start-ups. The tech start-ups have to think about how they’re going to sell around the planet. They think globally. They’re younger and they have a better understanding of the world. The medium size firms have usually been around for a while and have been successful in a lot of cases, but we don’t have enough mid-size firms that are gung-ho for growth, willing to take on the world.
“Innovation, in that sense, is behind the success of these high-impact firms. They keep reinventing what they offer, the keep reinventing how they sell it, how they reach the market. Technology allows you to redefine an industry.”
For people who pay attention to the tech sector, there’s a sense of optimism about where things are now. Things have been coming along very encouragingly, Shopify IPO’d last Thursday, things are looking up. Do you put people’s reluctance to fully embrace innovation and the tech sector down to jitters over the popping of the tech bubble in the year 2000?
I think the tech sector is doing okay. I mean, look at what’s happening in Waterloo. Everyone thought the whole city would be a disaster area after RIM started letting people go. And yet, it’s still very vibrant. I’m not personally over-worried about the tech sector. I’m more worried about the manufacturer that’s got 200 employees, generating a bit of profit, and how the world is changing for them and they may not be changing fast enough. We lost a lot of mid-size firms in Canada, post the recession in ’08. Even between ’09 and ’11, we lost another 3% or 4%. And by the way, it’s not because they became large, because the number of large firms has not moved. So sitting in my chair at the development bank, the tech sector is doing okay.
Maybe I’m phrasing it in a false adversarial, zero-sum game kind of way. It’s not either the resource sector or the tech sector, or start-ups versus big companies. It’s both/and in the sense that any firm that’s going to innovate tends to need a technological solution to become more efficient or whatever they need to do, like the agriculture sector, for example. But people who watch the tech sector tend to talk about a sector rotation, as if one is replacing the other. But is that really what’s happening?
No. I think the low price of oil is going to influence the resource sector, forcing a review of technology. But I don’t know that it’s a rotation from the resource base to the innovation economy. Somehow, as a country, I think we have to embrace the resource sector, and manufacturing and high-tech. To me, this is not one at the expense of the other. They should be self-reinforcing. A good manufacturer should now be looking at 3D printing. They should be using CNC machines that eliminate waste and are more productive. Sensors and robotics. So technology underpins everything. So that’s why technology doesn’t worry me. It’s the other sectors that should be using technology. We don’t have enough manufacturers that are focusing on robotics.
Right, it’s presented as an alien landscape to them, or a destroyer of their business, when it’s actually meant to help them innovate.
Exactly. It’s more a way of thinking. You’ve got to stay ahead of the curve. We’re working on getting our account managers now to do deals using tablets. Technology is more than an enabler. Technology should be a differentiator. So if you’re a manufacturer, use technology in a way that puts you ahead of the curve. So I’m worried more about the traditional sectors that may not be using technology well than I am about technology itself. We need to adopt technology everywhere, from agriculture to fintech.
What would you say is your main message with regard to solving that problem?
There are companies in Canada that are struggling, and we all want to help them. Then there are a lot of businesses that are doing okay, but the management team isn’t pushing hard enough. They’re happy with a nice little business that’s profitable. And then there’s a small number of companies, only about 5%, that are really growing fast, and the management team is really aggressive and ambitious and willing to take risks. These folks have such a disproportionate impact on the Canadian economy, because they’re the ones who are hiring, they’re exporting, they’re adopting technology, they’re the ones that are moving. These are the ones we’re going to try to help. We’ve got be proactive with folks that really have that ambition.
So really what it’s about is innovation. If you’re opening a restaurant or running a marketing firm or whatever it is, the key is to be innovative.
Right. If you’re going to be successful, you have to innovate. Otherwise, you’re not going to be growing faster than your competitors. It can be in the delivery model, it could be the product or service you provide. So innovation, in that sense, is behind the success of these high-impact firms. They keep reinventing what they offer, they keep reinventing how they sell it, how they reach the market. Technology allows you to redefine an industry.