Getting Good at Getting Better

by Charles Plant | Aug 23, 2017 | Entrepreneurship

I just finished an Impact Brief on Public Sector Venture Capital and there were a number of thoughts I had while preparing it that I didn’t think belonged in a report so I figured I would include them here.

The report looked at the ability of BDC’s venture capital arm and MaRS’ Investment Accelerator fund to pick and nurture world class companies. These are two organizations that have invested in over $1 billion of government money in 500 Canadian tech companies.

As I was doing the research I talked with a number of other VC firms to get their perspectives as well. What I found in these conversations stunned me. It appear that very few VCs are looking back at the history of their investments to discover best practices either at investing or at growing world-class tech companies.

Several major venture capital funders have done absolutely no research on best practices and don’t intend to do so. One VC is planning to do some research. One even told me that he didn’t think it would be worthwhile to do this type of research as his companies were all different.

And then I thought about Google and perhaps the whole ethos of Silicon Valley. Google has initiated numerous projects to determine best practices within Google. An HBR article reports that Google initiated “Project Oxygen, a multiyear research initiative. It has since grown into a comprehensive program that measures key management behaviors and cultivates them through communication and training.” Project Aristotle was another study that looked at team effectiveness.

VCs like Openview regularly do research to help their portfolio companies and they share best practices publicly. CB Insights did research on why companies fail. All sorts of VCs blog regularly about the industries they are investing in and how to get better. Just check out websites for Bessemer or Andreessen Horowitz.

What the US VCs get is that research is essential to improve business practices. They are actively trying to get better.

In Canada there is virtually no practitioner based research on technology company best practices. There is virtually no research on investing practices. Governments across the country are investing over $5 billion annually to improve the performance of the technology sector and the application of technology but there is very little research to determine how we can improve these practices. If we’re spending so much money to get better, wouldn’t it make a little sense to spend some money to figure out how best to do that?

Shouldn’t we be trying to get good at getting better?

Canada’s CMO Search

by Charles Plant | Jun 13, 2017 | Entrepreneurship

The goal of our current study on Canada’s CMO Search was to examine and compare the quality of marketing leadership in Canadian and American tech companies. We looked at the qualifications of the most senior marketing officer at Canada’s top private venture capital-backed technology firms. Out of the 67 companies we examined, 47 had an identifiable marketing leader. We then compared this person’s qualifications with those of the top marketing officers of 47 U.S. “Unicorns”, which are defined as private companies with valuations of $1 billion or more.

On the whole, we found that Canadian-based marketing leaders are less qualified and less experienced than their American counterparts:

• Thirty-eight per cent of the leading Canadian firms had made the strategic decision to place their marketing functions in the U.S. The U.S-based senior marketing leadership had a job title that featured the term “marketing” in 61 per cent of cases. In Canada, there was a senior marketing person only 35 per cent of the time. In the other 65 per cent of cases, the role was more junior or was included in another position.

• In the case of American firms, marketing leaders had a senior marketing title 90 per cent of the time. In only 10 per cent of the cases we examined was the marketing role part of another title. Compared to Canada, US companies are much clearer as to who is responsible for marketing. The role is more senior on average, and it is not combined with other roles in the company.

• In terms of educational background, there is a clear difference between the qualifications of Canadian and American technology marketers. Forty-eight per cent of Canadian marketing leaders on both sides of the border had no business degree. Ten out of these 23 individuals had a STEM degree (Science, Technology, Engineering, Mathematics) degree. Only two per cent had both a graduate and undergraduate degree in business. In comparison, 75 per cent of American marketing leaders had a business degree and 26 per cent had both a graduate and undergraduate degree in business or economics. There were five times as many business graduate degrees among U.S. marketing leaders as there are among Canadian marketing leaders.

• We also looked for experience at growing technology firms. We found that 83 per cent of U.S.-based marketers working for Canadian firms had prior experience with high-growth firms, while only 38 per cent of Canadian marketers had prior experience. Similar to the U.S.-based individuals working for Canadian firms, 85 per cent of U.S.-based marketing leaders had prior experience at a VC-backed high-growth firm or industry leader.

• In terms of international experience, our review of the foreign qualifications of Canadian marketing leaders shows that only 10 per cent of those based in Canada have U.S.-based experience, and 66 per cent have no international experience.

Another factor that is seldom mentioned in Canada is the domestic brain drain. This refers to situations where a foreign tech company such as Google hires Canadians in Canada. These foreign firms attract the best candidates through reputation, better wages and more aggressive recruitment. They get the best talent in the country and train them to do tasks that are not immediately applicable to Canadian tech startups. Thus, the marketing talent trained at certain foreign firms cannot leave directly to help a growing Canadian firm.

When Canadian companies are sold early, very few Canadian tech marketers remain in Canada because they do not want to miss the opportunity to gain experience taking a company from a startup to a global player. Since successful Canadian tech firms often move their marketing offices outside of Canada, there are very few people in Canada developing a base of experience that can help us address our marketing challenges.

With foreign firms taking our best talent, and Canadian firms conducting marketing out of U.S. offices and being sold before they flourish, we have a severe problem. We are not developing a local talent base that will enable us to solve the marketing challenges our firms face. This has implications for public policy and the development of support programs aimed at accelerating the growth of Canadian companies.

Read more about Canada’s CMO Search

Canadian Tech Tortoises

by Charles Plant | Apr 13, 2017 | Entrepreneurship

Are we really producing Canadian Tech Tortoises? Recent research we did revealed three critical issues that may be impacting the ability of Canadian businesses to grow rapidly:

1. Canadian companies wait longer before they start raising funds.
2. They raise funds less often.
3. They raise less money over time.

But why do Canadian businesses delay the fundraising process, which is essential to ensuring further growth?  Anecdotal evidence suggests two things:

1. That many Canadian technology companies wait until their products are completed before raising and spending funds on crucial functions, including marketing and sales (M&S).
2. That Canadian venture capitalists (VCs) look for evidence of market traction before considering funding.

This is disconcerting because early expenditures on M&S may lead to faster market traction, more solid growth, and earlier VC funding. But practitioners in the Canadian technology scene have observed that many businesses underestimate the importance of M&S in their formative years.

The goal of this study was to determine whether Canadian technology startups do in fact delay funding M&S activities. To this end, we looked at job classifications of employees at over 900 private Canadian technology companies that had received external investments. We could argue that if Canadian firms postponed spending on M&S, we would expect to see no or few employees in M&S roles relative to total employment in the earliest stages of development, followed by a steadily increasing percentage of M&S-related employees as companies grow. 

Job classifications were used as proxy to gain insight into how firms allocate money for various functions within the business. We discovered a striking pattern: while Canadian firms with the lowest recorded levels of external funding (our proxy for growth) have only 13% of their employees engaged in M&S activities, this percentage was significantly higher for businesses that had managed to raise funds. Firms with US$50,000–US$2 million of funding have 24% of their employees engaged in M&S. Thus in the early stages of development, Canadian tech firms are likely to have a larger fraction of their workforce dedicated to research and development (R&D) than to M&S.

A smaller contingent of M&S employees means that less time will be spent on vital startup activities such as market intelligence, product marketing, and business development. Companies that neglect M&S tend to approach the market only when a product is ready, therefore delaying their first revenue and growth.

But how do top technology companies in other countries approach the same issue?

Our analysis of more than 60 tech businesses in the US showed a different recipe for success: firms that scale quickly to US$10 million in revenue spend, on average, 73% more on M&S than on R&D. Leading American firms have 40% of their employees dedicated to M&S.

This is significantly different in Canada where even the highest funded firms only have 31% of their employees in an M&S role. This creates a vicious cycle: fewer M&S employees means less M&S activity, which slows down all the processes needed for customer traction and entry into the market.

Such patterns add to the perception that Canadian companies struggle with commercialization and market adoption. They also led us to conclude that, relative to US businesses, there is a striking difference in philosophy about when to approach customers and markets and that perhaps our technology companies grow more slowly than the leading US companies because they do not spend enough on M&S. Thus creating Canadian Tech Tortoises.