Canada has difficulty creating world-class companies that are research intensive and there are a number of reasons for this. In past reports we have examined management and financing practices and how they contribute to our challenges at scaling companies. In this report we want to go back to the beginning and look at the nature of technology companies that are being formed in Canada.

Research-intensive and globally competitive technology companies are currently found in four major markets: life sciences, automotive, hardware and electronics, and software. For the most part these companies serve either consumer markets or markets that focus on both consumers and businesses. Leading Canadian technology companies do not have the same focus on consumers.

While world-class life science companies have been created in many countries through the development and acquisition of novel therapeutics, Canada’s focus has not been on therapeutics. Three of Canada’s leading life science companies are in generic drug manufacturing with a further four operating in the medical marijuana market. This latter market is expected to stay restricted to Canada in the short-term due to legislative restrictions worldwide.

In addition to life sciences companies, leading research-based companies worldwide are often found in automotive markets. While we have an auto industry, we are a “branch plant economy” and do not benefit from a locally developed industry. While many new companies are now being formed worldwide to develop cars and trucks from novel automotive technology, none are located in Canada.

A third area for the development of world-class companies is in electronics and hardware. Companies like Samsung and Apple have developed successful international businesses out of proprietary technology. While Blackberry was a world leader in this market and may emerge again as dominant through supply to the auto market, we have not created many homegrown businesses focusing on consumer electronics or hardware.

That leaves us with the software market, in which Canada has many locally developed businesses but struggles to turn them into world-class contenders. The markets served by those companies can be broken down into consumer-based, enterprise-based, or a combination of the two. Data from the US and China show the following patterns:

  1. The largest new public software companies in the US and China have more consumer-based businesses and those that serve both consumers and enterprise customers.
  2. The  “best” 21 venture capital (VC) deals (those with the highest returns) struck  in late 2017 have centered largely on consumer-based businesses.
  3. The top US and Chinese Unicorns are mainly consumer-based companies.

However, Canadian software companies are typically in enterprise and small- and midsize business markets. In terms of markets, size matters, and the number of consumers that exists as potential buyers means that consumer markets are poised to be larger than enterprise markets. Thus, software companies started in consumer markets are likely to be larger than companies started in enterprise markets.

Our analysis suggests that Canada is not entering research-focused technology businesses that serve large numbers of consumers—and this is observed across the life sciences, automotive, electronics and software industries. There are several potential explanations as to why we do not drive the creation of consumer-based companies:

  1. We do not start them.
  2. We start them but fail to finance them adequately.
  3. We do not do a good job of growing them to world class.

If Canada wants to create larger companies, it will need to start building companies that serve consumer markets rather than business markets; and it will need to be able to finance their growth to help them overcome commercialization challenges unique to these markets.

If we want to create world-class companies we need to create them in world-class markets.

This is what Blackberry did exceptionally well. They built a company that served consumers and businesses and gave it enough fuel to become globally competitive. We have done it before, and we will have to devise appropriate strategies to boost our current track record.

Read the report on creating world class companies.