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Making The Cut: Advice for Growth-Focused Tech Companies in Canada

By Julie King |

What can smaller technology companies learn from their most successful peers?

The previous installment of Making the Cut looked at attributes that set some Canadian technology companies – those that have won a Deloitte Technology Fast 50 award – apart.

We will now explore some of the challenges Canadian technology companies face, as well as ideas for start-ups and existing businesses that want to accelerate their growth, based on an exclusive interview with Richard Lee, National Managing Partner for Technology, Media and Telecommunications at Deloitte.

Government support for technology companies

While the Scientific Research and Experimental Development (SRED) program has come under some scrutiny in the past few years, in a survey of Technology Fast 50 CEOs a strong majority agreed that the program works well and provides value to their companies.

The SRED program is the largest support for companies doing research and innovation, but it does not help a cashflow-strapped business, as the money is paid out in the fiscal year after the work is done.

There are other sources of government funding at both the provincial and federal levels, such as the Industrial Research Assistance Program (IRAP) managed by the National Research Council (NRC.) There are also a number of programs that help companies tap into talent at post-secondary institutions at a reduced cost.

Lee notes that the network accelerator programs, like Ryerson’s Digital Media Zone and Communitech, also provide valuable support.

Financial opportunities and challenges

Limited sources of investment are a significant challenge for Canadian technology companies.

Some of Canada's best technology companies are acquired as they are just starting to show potential. This, Lee explains, results from challenges with financing growth in Canada.

"You get to the point where it is easier to sell, rather than find an appropriate investor to support," says Lee. "There just aren't enough of the right sort of investors in Canada."

While financing through the stock exchange can be tempting, Lee notes that it is expensive and is not always the best way to go.

"There seems to be more talk about IPOs in the tech sector," says Lee. "That's a good thing, it shows companies are growing, but it needs to be right for your company."

Impediments to growth

The survey of this year's Technology Fast 50 CEOs highlighted two things that get in the way of growth.

The first is talent.

"Finding and attracting the right people are major challenges," notes Lee. "There is talent out there, but finding people with specific skillsets is a critical success factor and seems to be top of mind for Fast 50 companies."

The second is Canada's investment ecosystem, as noted above.

"We still don't have the right sort of investment ecosystem to support the continued growth," says Lee. "OMERS Ventures notably is making a contribution to this, but we need to do more in that space, so that as Canadian tech companies grow, they have access to funding."

While this does not affect the Technology Fast 50 winners, Lee cautions that rapid success can cause a company to fail.

Rapid success can overwhelm a company. If the company suddenly has too many customers, it may not be able to meet customer service expectations, which can lead to fast growth followed by a collapse and failure of the business.

Advice for start-ups

Lee, who is also an advisor with The Digital Media Zone (DMZ) at Ryerson University, one of Canada's leading incubators, offers this advice to start-ups that want to grow:

  1. Stay focused. Don't get distracted by what seem to be easy opportunities – i.e. I could sell to this company but would need to make big changes. Have a product roadmap in mind and don't get distracted.
  2. Pivot if necessary. Don't be afraid to pivot if you're not being successful. Pivot is different from being distracted.
  3. Don’t be afraid to let go. As you grow, bring in professional management. Recognize there are roles for the founders in the company, but you can't do everything. Recognize when you need to bring in professional management and professional management processes.
  4. Don't be tempted to take investment too early, because you will lose control. Investors will push you to easier routes to growth which may be good in the short-term but not the long term.

Advice for existing companies shifting towards growth

Not all technology companies are start-ups incubated out of a dorm room or garage. Sometimes a company that has been doing something well for several years will suddenly find an opportunity to transform a more localized product or service into an offering with a much larger market potential.

Companies in this situation have advantages, which can include paying customers. Yet, sometimes the transition may be more difficult, as the longer the time in business the more difficult it is to change the company culture and the way people think about work.

For companies that find themselves in this situation, Lee recommends focusing on two things:

  1. Think about the size of the market. The question to ask yourself is whether your existing customers represent most of the market – if this is the case you won't be able to grow it. Think carefully about the size and the problem you are solving outside of your customer base. Open your eyes, look around, talk to lots of people outside of your existing customer base and go into it with your eyes open.
  2. It's situation specific. In some cases, you are abandoning the old business and moving into the new one, in which case you need to do it relatively rapidly. It's tempting to hang onto the cash flow for the first, but it's difficult to run two businesses, especially when the customer bases diverge.

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