Canada reaches for critical mass in creating new companies: Don Pittis

When it comes to creating new companies, Canada has had a dismal record.

Statistics Canada dataquoted by the Bank of Canada show "aggregateentry and exit rates of new firms" havebeen plunging for at least 30 years.

But according to experts who study the entrepreneurial sector, there are signs of a turnaround. And with jobs numbers coming on Friday, Canadians could get a better picture of what effect there might be.

A new mood among young people, growing pools of both talent and capital available to Canadian startups, plus technology that is breaking down the barriers between entrepreneurs and the resources they need, aretransforming Canada's firm-creation potential.

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If the statistical data begins to backup that anecdotal optimism there will be no one happier thanBank of Canada governor Stephen Poloz.

Last week while helping journalists to decode the central bank's latest Monetary Policy Report, the governor said that one of the places the Canadian economy was lagging the most was in rebuilding economic capacity, "the creation of new jobs basically out of thin air."

'A very slow process'

"One of the key indicators of that process would be net firm creation, the population of companies, and you know that's one of myfavouritevariables," said Polozin response to a reporter's question. "And it has really not shown what we're looking for yet. It's proving to be a very slow process. Compared to United States andcompared to the U.K. we're definitely not producing new companies in the way they are."

As usual with statistics, it depends what you measure and how you measure it. The Global Entrepreneurship Monitor,a consortium of international universities, has ranked Canada near the top in entrepreneurial activity,second only to the U.S., beating most G7 countries and much of the developed world.

Nonetheless, Statistics Canada data shows pretty clearly what Bank of Canada deputy governor SylvainLeduc has described as "declining dynamism"in new firm creation, a trend sharedwith other developed countries.

Why the decline? It is hard to be sure said Leduc earlier this month. Among the possible causes are higher wages for educated people that would make them less inclined to take risks and what Leduc refers to as "astonishing" levels of industrial concentration that squeeze out new entrants.

"You must be very optimistic and have a great deal of confidence in your business model to launch a retail business these days, when giants like Walmart and Amazon are making life difficult for established companies," said Leduc.

Stigma of being an entrepreneur isgone

But according to two Canadian entreprenuerial experts young Canadians have begun to demonstrate that they actuallydo have that kind of optimism and confidence.

Elspeth Murray is on the board of one small startup, Analytics4Life, a medical devices company based on artificial intelligence and one of about 65 small firmscurrently being incubated out of the Smith School of Business at Ontario'sQueen's University.

"There are lots of small companies that are 15,16, 17 people," says Murray, who has worked at IBM and Canadian Tire andis now associate dean at the Smith School, teachingentrepreneurship skills to graduate students.

Whether it's the lack of safe jobs in the gig economy,or just the desire to build something of their own, Murray says there is a wave of young Canadians creating new firms. And if there used to be a stigma against entrepreneurship in Canada,it has nowdisappeared.

"All of a sudden it's more than socially acceptable to be an entrepreneur," she says.

And when it comes to going up against Walmart and Amazon, Murray points to Canadian army Capt.Jeff Alpaugh, one of her graduate students who is already operating a successful custom clothingbusiness under the slogan "the world's most dangerous dress shirts."

Murray says that the internet, which has handed so much power to concentrated giants like Amazon, has also been a boon to small startups. For Alpaugh who sells his products around the world from Fredericton,usingthe Canadian e-commerce platform Shopify, finding a successful fashion niche no longer requires a base in New York or London.

On the opposite coast, Sarah Lubik, agrees, but she says the value of theinternet connection goes well beyond retailing the final product.

Money is global

Lubik, who has advised the Canadian government on innovation strategiesand isdirector of entrepreneurship at Simon Fraser University in Burnaby, B.C., says the small world created by internet communication has also filled traditional gaps in funding and specializedpersonnel.

"While there may be fewer funds here, strong Canadian companies do have the ability to attract money from elsewhere," Lubiksays.

She gives many examples, including Vancouver startup Kindred, a company that uses artificial intelligence to sort and select warehouse products and got its funding from San Francisco's Eleven Two Capital.

Lubiksays that while the Canadian pool of talent essentialtoentrepreneurshipis reaching a critical mass, globalized communications means specialized talent can be foundalmost anywhere in the world.

And as to the idea that Canadians start a business and cash out, she says that is changing too. By growing organically and buildingdeep roots in the community, companies like booming Vancouver firm, STEMCELL Technologies, are increasinglylikely to create jobs at home.

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