With a variety of unique challenges impeding opportunities for growth, mid-sized enterprises in Canada are limited by an “ice ceiling,” according to the authors of a new white paper.
The report, produced by KPMG Enterprise in partnership with the Ivey Business School at Western University, gathers insights based on in depth interviews and surveys with 400 medium-sized business owners and fellows of QuantumShift, a Canadian leadership and development program.
The white paper points to a number of hurdles faced by Canadian firms, which include access to talent and financing, red tape and “an underlying psyche that may diminish entrepreneurial ambition beyond a certain size.”
These barriers should be of concern to the entire country, not just the owners and employees of companies under 500 employees, argue the white paper’s authors. While such companies represent 1 per cent of all Canadian firms, they are responsible for 16 per cent of national employment, 12 per cent of national GDP and 17 per cent of Canadian exports.
“It really helps build the middle class in terms of what these organizations do,” said Eric Morse, a professor of entrepreneurship at Ivey and co-author of the QuantumShift report. “I think it’s a really important piece of the Canadian economy and our overall quality of life.”
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Though vital to the Canadian economy, there was a 17 per cent drop in the number of Canadian mid-sized firms between 2006 and 2010 and only 1.4 per cent as a result of growth. The rest shrunk to small companies, were acquired or dissolved.
Access to talent
Whether they are in the market for skilled, semi-skilled or unskilled labour, few mid-sized business owners in Canada feel confident with their ability to attract and retain talent. In fact, 28 per cent of those surveyed cited talent attraction and retention as their number one challenge, which remained the most common challenge among that group for the past 12 years.
“As much as we may think we’ve made some strides, which I think we have, it continues to be a big issue,” said Paul Woolford, a tax partner at KPMG Enterprise, and co-author of the paper.
Mr. Woodford adds that Canadian mid-sized businesses struggle to adapt to the changing needs of the work force. They are often unable to match the compensation packages provided by large and foreign competitors, and need to do a better job at advertising non-financial perks and points of differentiation in order to attract talent moving forward.
Access to capital
Accessing capital is a major hurtle for Canadian small businesses and startups, but even the most successful mid-sized firms struggle to find the funds they need to grow their business to the next level.
“The challenge is if they want to significantly grow by way of, say, an acquisition, or some form of unique manner, I think the ability to raise the necessary financing can be estranged,” said Mr. Woolford. “If you’ve got a mid-sized company who wants to achieve the next stage of growth, and it’s not organic but by way of acquisition or strategic partnership of sorts, I think there’s a gap of what’s available in the marketplace.”
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The report suggests that government backed funding sources like Business Development Canada and Export Development Canada, though vital for some, are often too targeted, limited and short-term in scope and scale.
The report notes that the mid-sized firm’s relationship with the Canadian government is often mixed. While some praise the resources provided by programs such as the Trade Commissioner Service – which helps Canadian companies develop business partnerships and gain customer insights in foreign markets – others cite red tape and a complex regulatory systems as significant impediments to growth.
“A lot are frustrated with the CRA, not because they hate taxes – everybody believes they should be paying their fare share of taxes – but any time there’s a question the onus is so heavy on the entrepreneur that the amount of resources that it takes to work these cases through is really substantial,” said Mr. Morse.
External factors aren’t all to blame for the woes of Canadian mid-sized enterprises. The QuantumShift white paper suggests there is a conservative business culture in Canada that often prevents its mid-sized firms from experiencing the rapid growth enjoyed in other markets.
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Among QuantumShift executives, for example, 33 per cent cite personal goals as the strongest motivator for starting a business, while only 16 per cent cited wealth creation. The study suggests that a culture that values measured growth versus ambitious risk taking may explain why financing options are more limited in Canada.
“If you don’t bet big you can’t win big,” said Mr. Woolford. “It sort of speaks to the way Canadians operate, we’re typically comfortable a little behind the scenes.”
Though the country’s reluctance towards risk taking often makes it a less attractive environment for investors, Mr. Morse argues that this conservatism serves the best interest of mid-sized firms.
“What we’re, as a society, asking those individuals to do is to put their well-being at risk, because it’s better for all of us,” he said. “It would be better if they were going for a home run instead of a single, because it would bring more people in who can bet on those home run hitters, but they’re better off going for singles, and they employ hundreds of thousands of people across the country who would be putting their jobs at risk as well.”