GEM report finds entrepreneurial activity high, but focus on scalable firms required

Canada needs to focus on scalable firms to increase its productivity and competitiveness and capitalize on its high level of early-stage entrepreneurial activity and support by the general population, states a new report on Canadian entrepreneurship. Weak intrapreneurial activity — which plays a key role in the creativity and growth of established, especially large, firms — is singled out as an area where Canada could be stronger.

The report also cites the need for more policy development for the framework conditions surrounding finance, which will become more acute as the impact of crowd financing through social media becomes more pronounced.

Without progress in addressing these weaknesses, the persistent gap between entrepreneurial activity and low productivity and business R&D will continue.

Entitled Driving wealth creation and social development in Canada, the 2015 Global Entrepreneurship Monitor Canada Annual Report — authored by Peter Josty, Cooper Langford and Chad Saunders — marks the third consecutive annual GEM Canada report after Canada withdrew from participation for a decade. Like the 2013 and 2014 iterations, the 2015 report finds that Canadian appetite and optimism for entrepreneurship is up considerably from the last (2003) report prior to the suspension of Canada's involvement.

The GEM report focuses on entrepreneurial activity that leads to growth, job creation and impact, noting that 50% of Canadian entrepreneurs are engaged in consumer services, which are mostly active at the local or national levels.

"We need to focus on scalable companies with the potential to grow and be competitive," says Josty, executive director of The Centre for Innovation Studies in Calgary (THECiS). "We work with Futurepreneur Canada and they said their typical customer is food trucks. That's won't solve Canada's innovation and productivity problem."

Zeroing in on scalable firms is deemed to be the most effective avenue for improvement, with the need for better programs, incentives and metrics to gauge scale up activity. This has become more pronounced since the 20th century when the main drivers of innovation performance shifted from large corporations to individuals.

"There is little reason for policy to further encourage an overall culture of entrepreneurship. Rather attention should be directed to high impact, quality initiatives, encouraging productive entrepreneurship and innovation," states the report.

Among the report's key findings are:

• Canada is #1 in entrepreneurship among developed nations at 14.7% of the adult population compared to 11.9% in the US;

• female entrepreneurship is at 84% of the male rate, the highest level among development countries;

• there is a high correlation between educational attainment and rate of entrepreneurship;

• the rate of entrepreneurship is constant between the ages of 18 to 54 and falls off among older ages;

• Provincial, entrepreneurship increases from east to west while intrapreneurship is constant across Canada.

Low technology usage inhibits startup impact

Another factor inhibiting high entrepreneurial activity with greater productivity and competitiveness is the low level of technology usage among startups.

"Most startups don't rely on new technologies at all and that's a proxy for scalable business which is the main mechanism for getting new technologies to market," says Josty. "Small businesses create the most jobs (but) they don't create wealth and global competitiveness without new technology."

The report also addresses the difficult issue of R&D transfer which has long plagued the Canadian innovation system. Josty says that university policies for intellectual property ownership play a major role, citing the Univ of Waterloo — regarded as one of Canada's most entrepreneurial post-secondary institutions — where IP remains with the professor/inventor.

"Norway changed its IP ownership rules at its universities in 2003, and saw a 50% decline in entrepreneurship and patenting rates," says Josty. "They moved from a model where IP was owned by the professor to one where it was part owned by the university."

The GEM report found that entrepreneurship among women is among the highest in the world (84%) of the rate of men, but notes that women experience a greater fear of failure and lack of confidence in their skills.

"Women are the main reason why our rate of entrepreneurship is higher than the US," says Josty. "More work is needed to support them."

The GEM reports are supported by the governments of Ontario and Alberta and the International Development Research Centre, which supports GEM reports in developing nations around the world. IDRC recently withdrew funding for future reports.

Find the report at: www.thecis.ca.

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