Vancouver Sun Op-Ed by Dean Daniel Shapiro: B.C. underrated for start-ups

By Daniel Shapiro, Dean of the Beedie School of Business.

Ryan Holmes, founder of Invoke and the CEO of HootSuite, one of British Columbia’s fastest-growing start-ups, made something of a revelation at a recent presentation at the Beedie School of Business. He told our students how early investors urged him to move his company to the Silicon Valley — where it would be plugged into a bigger pool of talent and venture capital, and a more robust environment for start-ups.

That Holmes has chosen strategically to remain in Vancouver — Invoke now employs over 200 individuals and continues to grow rapidly — is important because it is to some extent unusual.

Over the past few months a number of studies have been released, each one pointing to a serious innovation gap in this country — one that is leaving Canada as a mid-level player in the new knowledge-based economy.

In September, The World Economic Forum ranked Canada an unremarkable 14th in its global competitiveness rankings, down from previous years. Canada also dropped out of the top ten in the Global Innovation Index published by INSEAD Business School. And the Conference Board gives Canada a grade of “D” for innovation, while Canada’s Science, Technology, and Innovation Council (STIC) warns of a stagnating innovation performance.

It is not exactly a mystery as to why Canada is falling behind. The studies noted above collectively point to the failure of Canadian firms to commercialize new knowledge, the essence of innovation. Despite being home to one of the world’s most highly educated workforces, and despite a very credible university-based research sector, Canada is falling behind because of a relative inability to foster the creation and expansion of high impact, knowledge-based new ventures. Put otherwise, Canada lacks entrepreneurial capital, the network of resources and people that can identify and act on innovative opportunities, particularly those that emerge from our investments in research. Thus, if innovation — or lack thereof — is the problem we face as a nation, then building an entrepreneurship-based knowledge economy is surely part of the solution. But that is not so easy.

The Global Entrepreneurship Monitor (GEM), in its 2012 report, using a framework developed by Michael Porter and associates at Harvard, distinguishes among factor-driven, efficiency-driven and innovation-driven growth. The first two are based on resources and mass manufacturing, and the relevant policies to support such growth are well understood: supporting physical infrastructure, macro-economic stability, broad higher education, and relatively open and transparent markets.

An innovation-driven economy is focused on entrepreneurship and new venture creation, and in particular on those opportunity-driven entrepreneurs who can transform knowledge into viable and growing businesses. Thus, as we move from a focus on factor- and efficiency-driven growth to innovation-driven growth, we must also transition to opportunity-driven entrepreneurship.

Given the current relative success of the Canadian economy it would be reasonable to ask why we would bother to move in this direction. There are a number of potential answers to this question, but suffice it to say that there is now empirical evidence from the US and Germany suggesting that regions or cities characterized by higher levels of entrepreneurship also grow faster. Entrepreneurship is a driving force of economic growth because it is the means by which new knowledge is mobilized to economic and social purposes.

The policy measures associated with an innovation driven economy are now emerging. For example, a recent CD Howe study on venture capital confirms that VC enhances innovation, but that is particularly true of private and institutional VC, which should be encouraged. There are also proposals to enhance and make more effective industrial R&D through both direct grants and better use of tax credits.

It is also widely understood that the promotion of an innovation-driven economy is to a large degree about geography. Innovation is more likely to occur in geographically limited spaces, often referred to as clusters. Entrepreneurial-driven clusters rely on a variety of institutions — including universities, private business, NGOs, business incubators and venture capital. It is strong and effective clusters that help create, retain, and attract new high growth ventures.

Consider the case of Ithaca, a college town in upstate New York, and home to my alma mater, Cornell University. A recent study from the Kauffman Foundation reports that on a per-capita basis Ithaca produced more founders of high growth start-ups than any other US city but one. The founders were typically graduates of Cornell (contrary to popular mythology, most founders in the study are not college dropouts).

However, not one of those businesses is located in Ithaca, all having moved to locations where there was access to a more diversified set of resources.

Similarly, other university towns in the United States have seen large net outflows of high-growth company founders because they lacked the cluster strength to retain them. On the other hand, cities like New York, San Francisco and Boston have — in building strong, supportive clusters — been able to retain existing firms and attract new ones.

Vancouver, of course, is not Ithaca; but neither is it Boston nor San Francisco. If we are to foster the founding of successful high growth, knowledge-based, and opportunity-driven start-ups like HootSuite, and I believe we must, we must work toward creating the conditions that will encourage them to stay and grow.

Daniel Shapiro is dean and Lohn Foundation professor at Simon Fraser University’s Beedie School of Business.

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