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How to foster Canadian startups to scale up instead of sell out

Carl Rodrigues is president and CEO at SOTI.

Innovation is the act of introducing something new or different and, in Canada, it is seen as a catalyst for our economy. For entrepreneurs, innovation can be synonymous with speed. There is an inherent nature in innovation to race, to create something new, the first of its kind, the first to intellectual property, the first to market. What we are seeing with startups in Canada is not only the race to launch, but also the race to sell.

Recently, the Canadian government committed $125-million to create a Pan-Canadian Artificial Intelligence Strategy with a goal of making the country a world leader in digital innovation. An additional $7.8-million has been committed to implement a new Global Talent Stream. Innovation hubs are popping up in cities across the country to help entrepreneurs bring ideas to life. This is great, but where the major disconnect lies is in the guidance to help our entrepreneurs grow and scale. Understanding that innovation contributes to our economic profitability as a country, we should be grooming them to build profitable companies with a long-term vision to stay in Canada.

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Since launching SOTI in 1995, I've been approached by venture capital and global tech companies looking to fund or buy my business. I declined the offers because, for me, it was never about a short-term goal. I want to create technology that I am passionate about, and proud of, and to build a great company around that technology. We can succeed globally, while staying Canadian. Many young entrepreneurs I talk to have a "build and sell" mindset, rather than "build and scale." They are looking to run the 100-metre dash for that quick win, rather than the marathon. For Canada to succeed, our entrepreneurs need a marathon mindset, not an exit strategy.

Do I build or do I sell?

In the past five years, 183 Canadian companies have been acquired, nearly 70 per cent by U.S. firms. According to PwC, 77 per cent of Canadian tech founders are planning an exit for their company. How many of these companies selling out to foreign entities were funded with taxpayer money? Should funding be focused on companies focused on a long-term stay-in-Canada vision? This is a sad state of affairs. A successful company needs to be focused on a mission, with long-term thinkers constantly innovating to determine what's next, to stay ahead of the changing technology landscape. If you are passionate and believe in something, why have an exit strategy? It is like deciding to have kids, and then someone asking, "What's your exit strategy?" You know, just in case you do not like your kids.

Scaling up instead of selling out

One of the challenges to Canada's startup success has been the deficit of "scale-up" technical and business talent. Although Canada produces some of the world's top technical talent, we have few employees with hands-on experience scaling companies, which is slowing growth and causing companies to exit. In a recent survey conducted by the Lazaridis Institute, 53 per cent of industry stakeholders cited insufficient executive and managerial talent as the primary obstacle to scaling tech companies in Canada. In order to keep companies and talent in Canada, we need to better equip it with the necessary skills, be open to bringing in global talent to help companies scale and build a stronger community of entrepreneurs, investors and industry sponsors to strengthen the connection between talent and companies.

Playing a role in Canada's startup success

Large enterprise plays a critical role in helping startups scale. Signing on as a first customer, offering testimonials and acting as mentors in entrepreneurship are key to helping Canadian entrepreneurs grow and scale. Encouraging conversations between startups and established Canadian companies can help to guide them when they consider whether or not to exit. There is also an important role for tech companies to play, by working with primary and secondary schools to inspire and create new generations of engineers and entrepreneurs.

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Fostering a long-term vision for young entrepreneurs

I believe that not having an exit strategy can be one of the unique characteristics of successful companies and, in a time where Canada is thriving with young tech talent thirsty to create and innovate, we need to switch the perception and help these companies grow and scale. SOTI is proof that you can launch a Canadian company and drive exports, but continue to scale globally at home. An exit strategy is like having a parachute – it's something in your toolbox, but you keep it there for when, and if, you really need it. It should not be the goal.

Executives, educators and human resources experts contribute to the ongoing Leadership Lab series.

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