authors, Growing R&D Intensive Firms in Canada: Views of the CEOs in the ‘Greenhouse’

Canadian universities and colleges must ensure their tech grads receive commerce and human skills training if Canada wants to stay competitive in the global knowledge economy.

This was one of the conclusions of a study released this week by The Impact Group, a research and consulting firm in Toronto.

The study, entitled Growing R&D Intensive Firms in Canada: Views of the CEOs in the “Greenhouse,” found that Canada suffers from a condition described as a “weak culture of commerce.” According to Doug Barber, one of the authors, CEOs interviewed for this study and previous ones identified the culture of commerce as being weaker in Canada than in other parts of the world.

Most of the profitable firms are focused on customers and finance their operations from sales. The rest are preoccupied with financing, relying on investors and lenders.Doug Barber and Jeffrey Crelinsten >Text“The culture of commerce mainly has to do with human dimensions,” explained Barber, who is also one of the founders, as well as a current director and a former CEO of Gennum Corp., a Burlington, Ont., electronics maker and data communications provider. “Technology is how you deliver what you deliver. But getting orders, establishing relationships, developing groups…crafting value and getting [it] out there [in ways] acceptable to a customer – those human skills are low in Canada.”

For the study, the authors interviewed 30 CEOs of “greenhouse” firms. The study defines greenhouse firms as companies in the early stages of development that are spending three to 50 per cent of their revenue and less than $3 million annually on R&D; and start-up companies that spend more than 50 per cent of their revenue on R&D.

Participants were asked how their companies got started; what major challenges they faced; where they see their companies in five years; and whether there was anything in the general Canadian environment, including government policies that could be changed to help greenhouse firms succeed.

The CEOs acknowledged Canada’s culture of science and technology is very strong, but also feel there is a dearth of sales, marketing and management skills in greenhouse companies. Their CEOs lack in significant areas of knowledge and experience related to commerce, participants said.

“They struggle determinedly but only 30 per cent of them are profitable,” Barber and co-author Jeffrey Crelinsten wrote in the report. “Most of the profitable firms are focused on customers and finance their operations from sales. The rest are preoccupied with financing, relying on investors and lenders. Almost half of the firms initially failed or almost failed due to lack of focus on customers and preoccupation with R&D.”

The study also found that government programs for greenhouse firms support R&D but not marketing and other business development activities. In addition, participants noted that venture capital firms offer money to R&D-intensive firms to fund technology development and then encourage them to sell early for a “quick exit,” rather than encouraging companies to continue growing on their own, the report said.

That’s bad news for the IT sector in Canada, which includes many startups and early-stage companies – and which comprises the largest chunk of Canada’s enterprise efforts, Barber said. “My feeling is we have not built on IT or seen it as strategic as perhaps we should.”

The CEOs were also questioned about findings of a previous Impact Group study. According to that study, in the period between 1994 and 2001 – one of relative economic prosperity – only 14 out 6,000 Canadian “greenhouse” firms, got to a point each year where they could spend between three and 50 per cent of their revenue and $3 million or more on R&D.

Around half of the CEOs interviewed for that study said their companies failed or nearly failed – mainly because technology was overemphasized and there was not enough focus on customers, marketing and sales.

Commerce is one of the most difficult human activities – second only to marriage – but it is essential to nurturing R&D-intensive companies through the early stages of development, according to Barber. He said founders of greenhouse firms start out with a half-filled basket. Their science and technology part of the basket is world-class, but the human side – so important in getting commerce to happen – is an area where they have the greatest potential to pull their socks up and do better.”

How? “Get back to a much more liberal education [that covers the] human, subjective side,” is the antidote suggested by Barber, who is also a professor in residence at McMaster University in Hamilton, Ont. He said this is particularly important for science and technology grads.

For the first 600 years of their existence, universities taught history, religion, literature and philosophy, without much emphasis on the sciences until the 1800s. With the development of the scientific method, science came into the picture as a very objective discipline, usurping the position of subjective, personal disciplines, which got “devalued and downgraded” in universities, and eventually in society, Barber said. “I think historically we’ve lost the balance.” Providing a more well-rounded education for post-secondary students could help fill in the gaps, he said.

“It has to happen or we won’t have the skills in the enterprises” to push Canada forward in the global knowledge economy, Barber said.

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