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Canadian entrepreneurship on the rise but many firms struggle to grow

John Paul Morgan, president and chief technology officer of Morgan Solar, beside an array of panels at the company's Toronto facility.

Fred Lum/The Globe and Mail

John Paul Morgan was working as a field support engineer for Doctors Without Borders in the Democratic Republic of the Congo in 2005 when he got to thinking about access to energy: how cheap and abundant electricity could transform lives.

The spark was lit. When he returned to Canada, the engineering grad debated whether to join a big firm to develop his idea of making more powerful, lower-cost solar panels. Instead, he and his brother, Nicolas, struck out on their own. From its beginnings in a cramped corner of his apartment in 2007, the business now employs 63 people, and this summer it will open a factory in Toronto that makes panels with an eye on markets from Mexico to Morocco.

"I felt like the incumbent technologies out there were self limiting. … So I decided to jump in," said Mr. Morgan, 36, who estimates he works 70 to 80 hours a week – adding that it's a labour of love. "These problems aren't going to be solved unless a lot of people don't try to solve them. And maybe we will be the ones to break through."

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He's not alone. Canada is abuzz with entrepreneurial activity. A new study on entrepreneurship finds Canada has one of the highest levels among Group of Seven countries. It ranks No. 2 after the United States and tied with Australia among industrialized nations. The paper, released Friday by the Global Entrepreneurship Monitor (GEM), suggests that Canadians have an embracing attitude toward entrepreneurship, and that many are turning to it as a career path.

Among its findings: Early-stage entrepreneurship levels are highest in Alberta for the second year running, while Nova Scotia has the lowest rate. The share of female entrepreneurs is two-thirds the male rate, an area the authors say has room for improvement. The peak age of entrepreneurs is the 45- to 64-year-old range, up from the previous survey when it was largely people in their mid-30s to 40s. It also found entrepreneurship tends to rise with education levels, and that Canada has high levels of social entrepreneurship, (defined as "initiatives with a particular social, environmental or community objective").

There are several weak spots, however. One is in turning those ideas into long-lasting businesses – all these great ideas aren't necessarily morphing into enduring, larger-sized business ventures. And entrepreneurship levels within large organizations are weak, suggesting workers at big firms are hesitant to take initiative. This weakness could help explain the country's relatively poor innovation record.

"It's reassuring that there are very high rates of entrepreneurship in Canada," said Peter Josty, executive director at the Calgary-based Centre for Innovation Studies and team leader for the annual GEM Canada report. However, compared with countries such as Australia, the United States and the United Kingdom, "levels of corporate 'intrapreneurship' are quite significantly lower, and we are wondering if this relates to Canada's poor productivity and innovation performance."

Canada has long lagged the United States in productivity and has been sliding down global innovation rankings. The Conference Board of Canada gives this country a "D" for innovation.

The GEM study began in 1999 and is the largest survey of its kind in the world, now covering 73 countries. The Canadian study is based on a survey of 2,000 adults conducted between May and July last year. It combines people's attitudes and aspirations about entrepreneurship with several dozen expert interviews and data from Statistics Canada and the Organization for Economic Co-operation and Development.

Alberta is the hotbed of entrepreneurial activity, the results show. The data were collected before the decline in oil prices, and it could be that layoffs force more people to turn to startups in the coming year, said Chris Lumb, chief executive officer of TEC Edmonton, a business incubator for tech companies. "I'm guessing over the next year we'll see more activity, but the first thing people tend to do is go find consulting work to pay the bills, while they're thinking about a business, and then a few months later they get a business plan ready."

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"There's a real entrepreneurship movement these days, and it's a good thing – but the real objective isn't just to start a company, the real objective is to grow a successful one," says Mr. Lumb, who has tracked outcomes of businesses that started four years ago and found those that seek support services (and have more work experience) have above-average survival rates.

Lower oil prices have actually helped efforts, as investment capital has shifted away from the energy sector and toward new ventures, he said. In the past six months, "we have seen that there is more financing available for tech startups in Alberta."

Canada may be awash in ideas, but many businesses don't last. Industry Canada has estimated that a third of micro-enterprises (firms that employ between one and four people) don't survive two years after starting.

"If you look at the Canadian numbers, we have a tremendous number of startups, but the number of established businesses is not that much out of line with other places, so there's a huge churn," Mr. Josty said. "We still have great difficulties assisting small companies to grow to be big companies."

Tax rates and other policy incentives have encouraged owners to stay small, he and others have noted.

Entrepreneurship often grows when unemployment rises as more people are forced into it due to lack of other opportunities. In Canada though, the data suggest entrepreneurship is higher in provinces with greater wealth, and that many are turning to it out of choice rather than necessity.

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Currently, 2.7 million Canadians count themselves as self-employed, or 18 per cent of the work force, according to Statscan's labour force survey. The GEM survey shows more people are motivated by opportunity than necessity. But the motivation varies by province. In Ontario, Tim Jackson of MaRS Discovery District says one offshoot of a slow hiring environment – and layoffs related to BlackBerry – has been to spur more people into entrepreneurship.

Bank of Canada Governor Stephen Poloz has expressed concern over the sluggish rate of new business formation in Canada. In a speech this month, he noted that the "Canadian rebound hasn't been as quick as we'd like," but recent data have been "encouraging."

Unlike most countries where the entrepreneurial activity is concentrated in consumer services – like flower shops or hairdressers – in Canada, many are turning to business services. This may be tied to a larger resources sector, which has needs for services such as trucking, satellite imaging or geophysical exploration, Mr. Josty said.

Lyssa Neel is founder of Linkitz Systems, a startup aimed at making wearable tech toys for girls. She relocated from Boston to Toronto eight years ago and believes innovation is rampant in Canada, citing the Pebble smartwatch, Nymi and Shopify as examples. She is grateful for support from MaRS and the provincial and federal governments, but she says venture capital funding for early-stage firms is still scant. "If you don't water the seeds, there's no way for them to grow."

The GEM report recommends more education about entrepreneurship – starting from kindergarten, and more efforts to encourage women to turn to it as a career path.

At Morgan Solar, Mr. Morgan says the years of round-the-clock hours and earning less than he would have at a big firm are worth it. The payoff, he says, is the chance to tackle a problem that could, eventually, help lift people out of poverty.

"It's a very hard slog," he says. "I wouldn't want to work on any other problem right now. "

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About the Author

Tavia Grant has worked at The Globe and Mail since early 2005, covering topics from employment and currency markets to trade, microfinance and Latin American economies. She previously worked for Bloomberg News in Toronto and Zurich, writing on mining, stocks, currencies and secret Swiss bank accounts. More

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