Today’s article in the Globe and Mail about Sonder, the San Francisco based travel company tells a great story. Founded in Canada in 2012, they moved quickly to the US where 90% of their 560 or so employees now reside. (Employee data from LinkedIn.) They are heading to $400 million in sales this year and just raised a $210 million US D round of capital (CBInsights). So far they’ve raised $340 m US and are officially a Unicorn. In Narwhal List terms, Sonder has a Financial velocity of 48. This is 39% higher than Canada’s leading tech Narwhal, Element AI which has a Financial Velocity of 35.
If you paid attention to our latest research summary, you’ll see why we think they are doing it right. First of all, they are in a horizontal consumer market. This is where all sorts of strong growth is possible. Secondly they are amassing copious amounts of capital. With last year’s revenue of about $200 million they now have 1.7 times as much capital as revenue. They have employee growth of 94% in the last year and 244% in the last two. This is exactly the growth they need to propel them towards an IPO.
Why this is great for Canada
You may be asking why I think this is a great Canadian story. After all, they are now based in San Francisco. It is sad that Sonder had to move south to be successful. But it’s great because it shows that we can create good ideas here and have the entrepreneurs to propel them to glory. It’s great because Sonder is now about to bring a second headquarters back into Canada and that’s a place where we can incubate new talent. Most of all, we’ll be building employees with the experience of working in fast growing companies and that can only be good for our ecosystem.
If we get enough of these stories, the Shopifys and Sonders, we will eventually have enough anchor companies around which a more successful ecosystem can flourish.
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?
It just hit me this morning why the US seems to dominate the world in the creation of innovative companies and products and I think we’ve gotten it all wrong. The Americans aren’t better than the rest of us at research and development and product creation, they’re just better at us in market development.
If you’ve been following my recent research you’ll have seen that I’m on a path to discover why Canada lags many of its peers at the development of an innovation economy. My thesis is that our problem has been misunderstood for years and the problem is not that Canada fails at research and development, patenting or financing startups. The problem is that we’re no good at market development.
I’ve recently started to look at why the US is so good at launching new products and companies. The general consensus seems to be that the US and in particular Silicon Valley is more innovative than the rest of us. But wait a second, this is the country that hasn’t adopted the metric system or replaced low denomination paper currency with coins. This is the country without universal medical care, that still executes citizens, even minors. It is a country with a completely dysfunctional political system and one that is still embroiled in debates over abortion and gay marriage while the rest of the world has moved on. Is this evidence that they lead the world at innovation?
Despite what they claim about innovation and what we think, I think they’re wrong. There is no evidence that the US is better than the rest of us at research and product development. But if they seem to be so good at creating products and companies, what are they better at? I think they’re better at market development.
Over the years across the US, entrepreneurs and companies have perfected the art of market research and in particular design thinking. They have perfected product marketing, developing alliances through business development. They have perfected marketing communications and even more so, sales. They have perfected the art of incubation through such entities as Y Combinator. They have perfected the use of private venture capital and how to best assist the companies reach markets through the assistance these VC firms provide. They have created a machine that can turn average research into world-leading products and companies.
If we want to improve our ability to help innovative new products reach markets we have to stop focusing on the research and development side and focus, as the US has on market development.