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Why so many high-potential startups fail in Canada

When a group of University of Waterloo alumni invented modeling software that could monitor and assess the energy use of large facilities in real time, they knew the technology had commercial potential. After all, this innovation could help firms make educated decisions on energy management, optimizing operations, saving money, and increasing profitability. What company wouldn't want that? With a handful of employees and limited resources, the real challenge for this startup was bringing this innovation to market.

Fortunately, Energent received timely investment and business support from public and private sources, including a federally-funded Centre of Excellence in Commercialization of Research (CECR). This enabled the firm to bring on Chris Reid, an experienced CEO who accelerated the development of an international marketing strategy, customer acquisition and product sales. It was a critical turning point that catapulted Energent into the global market.

With a client base that has skyrocketed from seven to 140 sites in two years, the firm boasts utility companies, hospitals, universities, municipal governments and North American retailers such as H&M among its customers. Organizations such as Whistler Blackcomb Ski Resort, for example, can achieve energy savings up to 20 per cent with Energent technology. And the company shows no signs of slowing down. The firm was recently selected by a Fortune 100 global IT leader to pursue a large-scale opportunity in the Middle East. It is just one example of how technology commercialization by a Canadian SME is boosting productivity in several sectors – and growing our economy.

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Productivity is a longstanding problem in Canada, and one that is discussed broadly with very little action. The Organization for Economic Co-Operations and Development (OECD) defines productivity as the 'amount of labour, capital and natural resources required to produce one unit of GDP; and our nation has lagged other developed countries in this respect for years. It is commonly referred to Canada's productivity gap. As reinforced by Roger Martin in Prospects for Ontario's Prosperity, this gap is attributed to "our inability to be as innovative as we could be in our economic life." We are conditioned to work harder, but we need to work smarter. Higher productivity leads to greater prosperity and a higher quality of life. This includes high-paying jobs, thriving companies and a resilient economy that can weather any storm.

So, if innovation is one of the greatest drivers to productivity, why aren't we doing more to promote it in Canada? It is important to get the definition of innovation straight. Simply put, innovation is the commercialization of inventions. And when commercialization occurs, it drives significant productivity improvements across our economy. Just look at Energent.

In Canada, SMEs such as Energent comprise more than 98 per cent of our economy and generate 43 per cent of private sector jobs, according to Industry Canada. Thousands of these high potential startups are created each year and many more entrepreneurs are waiting in the wings. These companies hold an important key to help us unlock greater productivity. So, why do so many promising early-stage firms fail to innovate?

We certainly don't lack great inventions in this country. We lack sufficient focus on the business of commercializing these inventions. And commercialization does not begin when a product is developed. It must begin the moment an idea is conceived.

It is a struggle for resource-strapped startups and early-stage firms to navigate this process. They are constantly challenged to find the right executive leadership, capital and business support required to bring new products to global markets. They often fail to identify a commercial need or secure paying customers who put these innovations to work and drive sustainable revenues. So how can we help more Canadian SMEs to commercialize inventions, accelerate their adoption and boost high value Canadian exports? We can begin by:

  • Developing policies that drive innovation as opposed to invention; this includes rebalancing R&D funding by governments with greater commercialization support for early-stage firms
  • Increasing the commercial focus of publicly-funded innovation programs to make SMEs customer and investor-ready and reduce the risk for investors
  • Creating new ways for governments and public sector services such as health care and education to procure, apply and benefit from novel Canadian technologies
  • Enhancing connections between startups, SMEs and multinationals with global markets as competitive pressure drives greater innovation and productivity

If we want to get serious about productivity, it is time to get serious about commercialization. Energent is an excellent case in point. Its energy management technology improves the productivity of clients in multiple sectors and generates global revenues that build our domestic economy. It will take the commercialization efforts of thousands of Energents across the country to overcome Canada's productivity gap. It is time to mobilize more SMEs for sustainable business growth. Increased commercialization will propel increased productivity. It's an approach that might just constitute an innovation in itself.

Dr. Mario Thomas is the Managing Director of the federally-funded Centre for Commercialization of Research (CCR) which accelerates the commercialization of publically funded research and builds more robust, globally competitive Canadian entrepreneurs and firms across Canada. He also serves as Senior Vice-President of the Ontario Centres of Excellence (OCE) and Founding Chairman of the International Commercialization Alliance (ICA).

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