Building Champions: What Canada's Fastest Growing Firms Are Telling Us

By Claire Wilson
CCI Research and Policy Analyst

In a new digital era, value accrues to large super-star firms and the countries that house them. Intangible assets make up 92% of the S&P500 and are approaching $100 trillion in value globally. Control of data, intellectual property and the standards that govern them underlie economic advantage and are pre-requisites for firm success and national economic prosperity.  But growing and scaling a firm in Canada often comes with unique difficulties. For Canada to succeed in the new global economy, the government needs to create the conditions firms need to become national - and global - champions.

It’s no secret that Canada has a scale-up problem. Home-grown firms are often acquired by foreign buyers before they reach global scale. The consequences of this are clear: slowing GDP growth and stagnating productivity.  60% of the productivity gap between American and Canadian firms is explained by Canada’s higher share of small firms and their greater productivity disadvantage relative to large firms.

Earlier this year, CCI undertook its annual CEO survey: a survey of 125 CEOs of some of the fastest-growing innovation firms  in Canada. While there were a few bright spots – for example, a majority (67%) of respondents are happy with the government’s  handling of US-Canada relations, the survey revealed Canadian CEOs are facing a cooling business climate and have significant concerns about Canada's future. 54% of respondents think that Canada’s economy is going in the wrong direction, and 42% are less confident than they were two years ago in Canada as a place to scale a business.

Concerns around trade relations were another common refrain among respondents. 23 CEOs explicitly mentioned trade diversification and export policy as an area governments should focus on to help Canadian firms scale, and a further 16 flagged US-Canada relations as an important government priority.

CEOs identified access to customers as their largest barrier to scaling their businesses, followed closely by access to capital. However, these challenges varied by firm size. Large and medium-sized firms were more likely to cite customer access as their primary obstacle, likely reflecting their greater focus on expanding into new markets. By contrast, smaller firms were more likely to identify capital constraints as their most pressing barrier. Similar differences emerged in views of the broader economy. Large and medium-sized firms were more likely to believe Canada’s economy is moving in the wrong direction (65% and 55%, respectively),  smaller firms were more optimistic, with over half (52%) believing the economy is heading in the right direction. This difference, once again, likely stems from larger firms’ greater exposure to global markets and broader economic pressures relative to smaller businesses.

Perhaps the most troubling trend appeared when we asked CEOs and business leaders why they stay in Canada. Time and time again, they reported that they stay in Canada because they love this country. A noble reason, certainly, but patriotism alone doesn’t pay the bills. And while over half (51%) of CEOs surveyed indicated that patriotism was a key motivating factor for not relocating, only nine respondents mentioned capital or market access, only six mentioned talent. This should worry all of us.

Governments play a critical enabling role for businesses. They create the conditions firms need to scale and succeed. It is unreasonable to expect CEOs, entrepreneurs and other talented and ambitious people to perpetually struggle through difficult capital markets, unclear regulatory environments, and a dwindling talent base, especially given our proximity to one of the largest economies in the world. Competitive and innovative companies are what make a country economically prosperous, and growing the Canadian economy requires  making this country  a place where people want to (and can) grow and scale firms.

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Claire Wilson is a Research and Policy Analyst at CCI. She can be reached at cwilson@canadianinnovators.org. Mooseworks is the Council of Canadian Innovators' innovation policy newsletter. To get posts like this delivered to your inbox, sign up for CCI's newsletter here.