The Future of Entrepreneurship: What Canada Must Do Now
By Jeff Coull
January 2nd, 2024
ChatGPT was used for research only. This article was written by a human.
This blog post is a synopsis of a much longer Op-Ed for TheFutureEconomy.ca. A link will be provided here when it is available.
In Canada, the entrepreneurial landscape faces a crossroads, marked by declining rates of entrepreneurship and a pivotal need for strategic interventions. Several pressing issues underpin this challenge:
Declining Entrepreneurship Rates:
Only 1.3 out of every 1,000 Canadians started a new business in 2022, compared with three out of 1,000 in 2000.[i] In just over 20 years, our nation’s interest in starting a new business has decreased by more than half.
Strong job market:
Annual wage growth in Canada from 1992 until 2023 was 2.27%[ii]. However, 2023 is estimated to be anywhere from 3.6% to 4.2%, a significant increase to the annual trend. This is driven by the record low unemployment rate experienced in January 2023 of 3.9% which has increased to 5.2% as of November 2023[iii].
Venture capital is disappearing:
Globally, Q3’23 saw the number of global funding deals decrease for the sixth consecutive quarter (-11% to Q2), while the dollars invested actually increased, meaning fewer, but larger deals. Canada fared even worse with the number of deals decreasing by 28% and the dollars decreasing by a staggering 55%[iv].
Entrepreneurs are retiring and closing their business:
Canada's entrepreneurial sphere is graying, with a significant proportion of business owners retiring or preparing for retirement. This demographic shift threatens the continuity of businesses and innovation as retiring business owners do not have a succession plan, can’t find a buyer, and are instead just closing their doors.
Entrepreneurship in Education:
The education system often falls short in preparing students for the realities of entrepreneurship, failing to expose them to essential skills. A recent BDC survey[v] of 1250 entrepreneurs identified four distinct groups of skills that are critical for entrepreneurial success: grit and relationship skills, leadership and people skills, marketing and finance skills, and operational administration skills (in that order). The last two sound like a high school course one could take, but the first two, identified as the most important are a minor by-product of the school experience at best.
Immigration, education levels, job vacancies and entrepreneurship:
It's no secret that Canada has significantly increased its immigration numbers with last year more than doubling the prior year[vi]. The highest education group, bachelor’s degree or higher, is an untapped market of entrepreneurs (figure 1). In this group, the number of unemployed is almost double the number of job vacancies. Canada is not doing enough to encourage and support this highly educated group to start new businesses or takeover existing businesses.
Investments South of the border:
The US has recognized that innovation requires federal investment and is doing significantly more for their founders and entrepreneurs than Canada. In Canada, innovation ecosystem funding is stagnant, which is effectively a decrease given recent inflation. However, the United States via the CHIPS Act introduced the Regional Technology and Innovation Hubs program, authorizing $10 billion for the program over five years[vii].
What Canada must do:
Like all complex problems, there is no single thing Canada can do to ensure it is founder-friendly. Money is great, but money alone won’t help us compete and develop the next generation of entrepreneurs.
Make it easier for newcomers to become entrepreneurs:
Processing wait times for the startup visa program is now 37 months[viii]. That is unacceptable for an immigration program for “entrepreneurs with the skill and potential to build a business in Canada that is innovative, can create jobs for Canadians, can compete on a global scale.” This time line must reduced significantly so Canada capitalize on the highly educated, unemployed newcomers mentioned earlier. Canada must also start demystifying the entrepreneurial journey for its newcomers, offering targeted and accessible incentives for aspiring entrepreneurs.
Force pension funds to increase investment in Canada:
Channeling Canadian pensions towards national investment initiatives can infuse crucial capital into burgeoning entrepreneurial ventures, propelling growth and innovation.
Tech adoption programs for small businesses:
Addressing the tech adoption gap among small and medium-sized enterprises (SMEs) is pivotal. Initiatives like GenAI, tailored to true small businesses—disregarding restrictive definitions of small businesses—can enhance awareness and integration of cutting-edge technologies.
Increase IP Ownership:
Strengthening intellectual property ownership safeguards innovation, encouraging entrepreneurs to innovate confidently without fear of idea theft or replication.
Municipal Investment in Entrepreneurs:
Amplified municipal support through funding and resources can incubate local entrepreneurial ecosystems, nurturing business growth from the grassroots level. Small cities rely almost entirely on provincial and federal investment without taking ownership in their own ecosystems.
Incentivizing Business Enterprise R&D:
Encouraging research and development within businesses through incentives promotes innovation as a fundamental business practice, fostering a culture of continuous improvement and creativity. Furthermore, Canada must reverse recent rulings on SR&ED, federal green tech subsidies and the decision to delay the rollout of the Canada Innovation Corp.
The future of Canadian entrepreneurship hinges on proactive measures to address these challenges. By fostering a supportive ecosystem for entrepreneurs—embracing newcomers, enabling technological integration, safeguarding innovation, and facilitating municipal and national support—Canada can chart a prosperous path forward. Investing now in these strategic solutions will pave the way for a vibrant and resilient entrepreneurial landscape, securing Canada's position in the global innovation arena.
[i] BDC Skills to Succeed https://www.bdc.ca/en/about/analysis-research/entrepreneurship-skills
[ii] https://www150.statcan.gc.ca/n1/pub/14-28-0001/2020001/article/00006-eng.htm
[iii] https://www150.statcan.gc.ca/n1/daily-quotidien/231201/dq231201a-eng.htm
[iv] CB Insights State of Venture Q3 2023
[v] BDC Skills to Succeed https://www.bdc.ca/en/about/analysis-research/entrepreneurship-skills
[vi] https://www.statista.com/statistics/443063/number-of-immigrants-in-canada/
[vii] https://www.eda.gov/funding/programs/regional-technology-and-innovation-hubs
[viii] https://www.canada.ca/en/immigration-refugees-citizenship/services/immigrate-canada/start-visa/about.html