Scaling skills holding back start-ups

BlackBerry founder Mike Lazaridis is passionate about building up Canadian tech companies, which is why in September 2015  he gave Wilfrid Laurier University’s business school $20 million to help more promising companies scale into viable growth companies and also to conduct research on how to enable small companies to become Canadian-based global companies. The Ontario government followed through with another $15 million, making this the most ambitious Canadian effort ever to help turn start-ups into scale-ups.

As a highly engaged presence in the start-up hotbed of Kitchener-Waterloo, Lazaridis was well aware of the critical need to improve management skills in Canada’s tech sector, where bright people start companies but often lack the skills to grow them. But unless we can scale the best of them we’ll fail to capture the full benefits of our start-up investments, making this one of the biggest challenges in advancing Canada as a high-tech economy. Too often, promising start-ups fail or are acquired by foreign corporations simply because they lack the management skills to scale-up.

The trail to scale

“Start-ups are a wonderful thing, but they cannot by themselves increase tech employment,” as Andy Grove, the former chief of Intel, warned back in 2010. “Equally important is what comes after that mythical moment of creation in the garage, as technology moves from prototype to mass production.” That’s the big challenge. “Scaling is hard work but necessary to make innovation matter,” Grove warned. A study on scaling up at the Massachusetts Institute of Technology, defines companies that have reached $500 million in annual sales as “companies of scale” and companies with revenues of at least $100 million as companies on “the pathway to scale.”

We have some successes. Companies such as Open Text, Constellation Software, BlackBerry, Pivot Technologies, Mitel Networks, Shopify and Aviglon are established companies of scale, although Mitel and Aviglon are now U.S. takeovers. Others such as Enghouse Systems, Descartes Systems, and Kinaxis would be well on the pathway to scale, as likely would be private companies such as D2L, Miovision and Hootsuite. But the potential is there for many more, with the right help.

Executive advice

This is where the Lazaridis Institute for the Management of Technology Enterprises, launched in 2016, comes in.  For each of the past two years, it has selected a cohort of 10 Canadian companies for participation in its scale-up initiative. The companies are rigorously vetted by Canadian and U.S. experts to ensure they have exponential growth potential, says Kim Morouney, managing director of the Institute. Key executives from the selected companies spend 2.5 days together, once a month for six months, with experts and mentors at sessions not only in Canada but also the U.S.; companies also work separately with their mentors in fields such as marketing and sales, human resource management, and company organization.

StackAdapt is an advertising technology company whose core technology is the ability to understand in real-time what people are reading online and, using machine learning, identify and deliver content or advertisement for the brands and agencies they work with, earning revenue from either hitting specific campaign goals or a percentage of the media spend. The bulk of its revenue comes from Canadian and U.S. customers. Founded in 2013 it has 70 full-time employees today.   Vitaly Pecherskiy, a co-founder of the company and chief operating officer, participated in the first cohort of the scale-up programme.

Dream Payments, another Toronto tech company, was founded in 2014 and today has 55 full-time employees. It produces and sells cloud-based mobile commerce and payments systems, with proprietary technology, across North America. It has until recently focussed on Canada but is now actively pursuing customers in the U.S. Anant Tailor, chief operating operator, participated in the second cohort of the scale-up programme.

Management skills key

Interestingly, the main takeaways for both Pecherskiy and Tailor have been to improve their management style, to better understand the need to set priorities in the use of their time and to better see how they were building organizations that had quite different needs than those of smaller companies.  Both have also maintained links with some of their mentors.

Growing to scale matters because it is about achieving competitive advantage and sustainability for future growth. But scaling implies big changes in how a business operates, as research by the Lazaridis Institute points out. It means new challenges including more focus on management and the organizational structure of the business, more attention to functions such as HR and accounting, customer relations, marketing and distribution, and an ongoing need to invest in innovation.

It’s about growth, which is critical for scaling, says Nicole Coviello, the Institute’s research director, with much of its research pursuing key issues facing managers of scaling tech firms. The message is clear.  “The scale-up stage of a business’s life cycle is probably its most challenging,” its researchers found, noting that success brings “a genuine positional advantage” but “stumble and your firm will be left on the sidelines losing time while other companies forge ahead.”

David Crane can be reached at [email protected].

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David Crane
David Crane
David Crane is a noted commentator on Canadian innovation issues. He was previously a business and economics writer with the Toronto Star.

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