Canada’s small research-intensive firms are too preoccupied with R&D and financing and lack the skill set required to succeed in the marketplace, says a new study which examined the views and experiences of 30 executives from so-called greenhouse firms. The study argues that governments and companies must urgently address Canada’s weak commerce culture and shift the emphasis of government support programs toward commerce.

The study —by Dr Douglas Barber, founder and former CEO of Gennum Corp, and Dr Jeffrey Crelinsten, partner with The Impact Group and co-publisher of RE$EARCH MONEY — is the third in a series examining issues surrounding R&D-intensive firms in Canada.

The latest found that the majority of CEOs heading the sample greenhouse firms lacked the requisite knowledge, skills and experience relating to commerce. The minority of firms that were profitable (30%) were those that were focused on customers and financed their operations from sales. It also found that firms backed by venture capital were encouraged to sell early rather than grow the business and that few expected to remain in Canada.

“The people who start these enterprises start out with a half a basket. The basket that’s half full of S&T is excellent. But the other half is also essential. You have to have competence in commerce,” says Barber. “I sense that the developed world is weak in this but Canada is weaker. There’s a real opportunity if we can build up our sales and fill that half of the basket.”

The study also discovered deficiencies in the education system. It found that many institutions held unrealistic expectations about the viability of their intellectual property and did not produce graduates with appropriate knowledge needed to successfully market and sell and products and services. The report lays out seven areas where governments and academic institutions can make changes to strengthen the culture of commerce in greenhouse firms, thereby increasing their likelihood of growing and succeeding in the global marketplace without having to leave Canada (see chart).

“A lot of people believe that we have this great pool of ideas and technology from publicly funded research and that it just needs an effort to commercialize it and we’ll be rolling in the dough,” says Barber. “And the government doesn’t get it. It begins with the R&D front end but that’s not the whole story. Graduate students doing the research are also trying to create these companies but the half of what you need for commerce is missing.”

Greenhouse firms are defined as those in early stage or start-up modes. Early stage firms spend 3% to 50% of revenue on R&D and there are approximately 4,000 in Canada. Start-ups spend more than 50% on R&D and number about 2,000. Of the 30 firms whose CEOs were interviewed, half were from the information and communication technology sector while one quarter were biotech or pharma.

Barber contends that the technological advances of the last 200 years stemming from the scientific method grew out of environments of higher learning that were subjective in nature. With the shift towards objective learning, many of the skills required for successful commerce are no longer embedded in the teaching of new graduates. The situation in Canada is exacerbated by the country’s massive natural resources, alleviating pressure to move towards a knowledge-based economy.

“We now have an objective world view and because it has been so successful, it has intimidated subjective learning. We see this in engineering. They’re intimidated into being scientific as well,” says Barber. “In Canada, the natural resources economy is actually masking and sedating our desires for the knowledge-based economy and Alberta is the worse case of this attitude and we have not reversed the trend. Science has deadened the balance you need with subjective learning to be successful in commerce.”

An emphasis on venture capital (VC) is another factor the study found disturbing. Governments and the private sector have urged firms to consider VC as a key stepping stone to growth, but the outcome is rarely a larger firm based in Canada and selling products globally. The more likely result is a firm that is sold off to a larger company or floated on the markets through an initial public offering.

“There is a real temptation to come up with a quick fix and the appetite in government is also for a quick fix. The majority of CEOs we spoke to felt that they were going to sell their company. And if they sell, it will likely be to a foreign buyer,” says study co-author Crelinsten. “We found that organic companies — those that develop and sell a product and then establish a customer base and cash flow — tended to be the most profitable. They can then invest their money in another product without relying on debt and equity financing.”

Although the shift from a culture of S&T to one in which commerce is given equal weight is still years away, there are indications that others understand the need for change.

“I expected to be much more in the wilderness than I am. There is an increasing number of people who recognize the difference between commerce and commercialization,” says Barber. “But the things we’re talking about are not well developed. We don’t know much about advanced human solutions. We need to develop prototype learning experiences.”

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