Canada’s entrepreneurs sell out too early
Canada still a branch plant economy after all these years
Photo: Bruce A. Stewart
By Bruce A Stewart
There’s a reason we don’t grow enough vibrant new businesses in Canada that can use our trading agreements to take on the world.
Two stories tell the reason.
The first is “what did Brian Mulroney do before he became Progressive Conservative leader in 1983, and Prime Minister in 1984?”
He was the President of Iron Ore of Canada. It, in turn, was owned and controlled by Hanna Manufacturing of Cleveland. If Mulroney, as the CEO, wanted to do anything substantial, he had to trot off to Hanna to get permission.
The second comes from the publisher of a group of magazines for the information technology community in Canada. The publications — online and in print — are well-read, well-respected, and there’s certainly no shortage of issues to fill the pages with editorially.
But advertising is way down this year. Why? Almost all of Canada’s high tech community that buys ads is controlled from outside the country. This year, shaky economic conditions in the US and European markets have them retrenching. Marketing budgets in Canada? Slashed, and moved to be controlled elsewhere.
What’s left of the management in the Canadian subsidiaries has to beg for a few thousand dollars. This is not how you build people who can lead.
In fact, it’s a good way for the go-getters to get the message that the action is at headquarters, outside the country.
Yes, we have vibrant start up sectors from BC to Newfoundland, and from the border to the Arctic.
We also have a capital sector that expects government money to drive growth, demands far too much common stock for far too little money (US venture funding tends to take preferred shares, leaving control with the founders for several rounds so that the firm can grow) and is far to ready to sell out once the concept is proven, but before the heavy lifting of building sales organizations and growing the business to a decent size can take place.
So a third story: a serial entrepreneur from Vancouver started a new firm a few years ago. As the business grew, they changed direction a couple of times based on market feedback.
But he made a mistake: he raised his funds in the United States. A few years later came the demand: move the firm across the border, or else.
The or-else cost the management team their positions. The firm was relocated and has subsequently drifted into oblivion. BC lost another growing start up.
The entrepreneur? He now splits his time between his CEO role in Boston, and his Chair of the Board role in a Tokyo-based company, and has no plans to do another start up in Canada.
We’re far too willing to quit too soon … to sell out (a branch plant or subsidiary “head office” does not develop leaders for this country, but for the parent firm and nation) … and to expect government programs to pay the way in start up land.
About what you might expect of a nation that loads its retirement funds with GICs, eh?
This is why we have a productivity problem, and this is why we’ve reverted to being a resource-based economy after so many years of a growing manufacturing and services sector. It’s also why our new graduates and unemployed are finding it so hard to get established in the job market.
Do we need to fix this? Yes.
We need to make it expensive to sell out, rewarding to build here. We need to make private funding work (mostly by getting government funding out of the picture so that risks for rewards have to be taken).
Or we can stay as we are, in which case all the free trade agreements in the world won’t make any difference at all. And your children will be poorer than they would have been.
Your move, Canada.
Bruce Stewart is a consultant, educator and philosopher with a passion for public affairs currently located in Toronto. He is well known across the Internet for his blogs on management (Getting Value from IT) and social affairs (Just a Jump to the Left, then a Step to the Right) and for his daily stream of commentary on Facebook, Twitter and Google+. You can reach him at bastewart.toronto@gmail.com.
Category: Federal, Opinion, Politics, Provincial
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But… but… but we can’t possibly alter the natural progress of the free market!
But seriously, how exactly would we “make it expensive to sell out, rewarding to build here”?
Hi, Mae. I’d do it through the corporate tax system. No corporate taxes on small enterprises. Domestic larger ones pay the next tier. Foreign-owned, regardless of size, pay the top tier. Nothing says “we’ll interfere in your choosing to sell”, but it would put a price on the transfer of control that carried forward into the future: the loss of opportunity to chart the course, develop new leaders, etc. comes at a price.
The other thing is to remove debt as a deduction. It’s ridiculous that today a foreign firm can finance the takeover of a Canadian one using capital borrowed from our own banks, then reduce their Canadian tax payments because of the debt they saddle the takeover’s balance sheet with. In essence we not only pay to be taken over, but we reduce government revenues for years afterwards as a “thank you”. Enough!