Government 'can and should pick winners' to grow scale-up companies, says federal advisor

Canada needs an Olympics-style “Own the Podium” strategy to help grow scaling companies — including the government identifying and supporting select firms with high potential to become global competitors, says a special advisor to the federal government.

“We need a stronger Team Canada approach. Both the public and private sectors have to feel a shared responsibility for removing barriers to help Canadian companies be successful,” Sheldon Levy, special advisor to Mary Ng, Minister of Small Business and Export Promotion, told Research Money.

Free market economists and policy experts typically caution government not to pick winners and losers, but let the market decide. Levy, however, disagrees.

“I think the government can and should pick winners. There are many countries that have to pick their laneway and can’t be the best at everything all the time," he said.

“Canada is a country where the government can and should get involved in picking the winners, and be accountable and transparent why they’re doing it and accept the criticism."

Levy, a former Ontario government deputy minister and a past president of Ryerson University, makes four major recommendations in his report, “Getting to Scale: Accelerating Canada’s high-growth companies,” written for the Brookfield Institute for Innovation + Entrepreneurship.

His recommendations are:

• Build out a comprehensive “Own the Podium” strategy for supporting Canada’s scale-ups.
• Expand the supply of talent for Canadian scale-ups — the top issue identified by companies and ecosystem experts interviewed for the report.
• Expand the supply of later-stage growth capital and financing of intangible assets.
• Support access to and development of markets that enable companies to scale.

“To maximize success, support for scale-ups should be more concentrated to a small number of high-potential firms, with levels of support increasing,” according to Levy's report. (A scale-up business is defined as a company that has annualized growth of at least 20 percent over three years with 10 or more employees at the start of the period, according to the OECD.)

Levy's report also recommends that government provide special treatment to high-potential firms in existing programs. “The federal government should create a new elite tier within the existing Accelerated Growth Service concierge program, which would be specifically targeted to high-potential scaling firms,” the report says.

The federal government offers an Accelerated Growth Service for scale-ups with annual revenue of at least $5 million and year-over-year revenue growth. The service provides companies with free, expert support from an innovation advisor who's a seasoned former entrepreneur, along with a tailored growth plan, a custom-built government team and advice on how to pitch their business.

Build on CAN Health Network model

To better support Canadian firms in scaling and improve the country’s poor record of domestic technology adoption, more initiatives like the CAN Health Network are needed, Levy said in an interview.

CAN Health is a national partnership of leading Canadian hospitals, health organizations and companies across Canada. The network works together to introduce new solutions into the health care system and, by bringing in companies so they understand the problems, helps Canadian businesses scale across Canada as well as globally.

“We now have hospitals doing single RFPs (request-for-proposals) across provinces that Canadian companies are winning,” Levy said. “Rather than knocking on multiple doors, they only have to go to one door.”

Building on the CAN Health model, the federal and B.C. governments are expected to introduce a similar initiative in an area of clean tech within two or three weeks, he added.

Where possible, governments should encourage creation of integrated domestic markets, particularly in areas that are heavily regulated and/or largely funded by the public sector, such as health tech or clean tech, according to his report.

Canada also needs to recognize that the world’s economy is now based on intangible assets, like intellectual property and data, Levy said.

For example, the Korea Development Bank (South Korea’s equivalent to the Business Development Bank of Canada) underwrites up to 95 percent of IP valuation for use in obtaining loans and security. In comparison, Canadian companies “spoke to the frustrations around the valuation of their intellectual property by Canadian banks and financial institutions,” according to his report.

As part of a Team Canada approach, all players in the Canadian economy, including the big banks, must recognize and assign real value to IP and other intangibles, Levy said.

Procurement environment needs improving

In preparing his report, Levy said he spoke to many Canadian firms who said they were able to sell their technologies and services anywhere but within Canada. Companies wanted to sell to the government, but perceived the procurement and reporting process as too complicated, onerous and lengthy.

“Despite improvements, the procurement environment still feels siloed and overly transactional, rather than providing strategic opportunities for Canadian scaling companies,” according to the report.

“We need to be as ‘buy Canadian’ as the United States is ‘buy American,’ as the Japanese are ‘buy in Japan,’ while still respecting international trade agreements,” Levy told Research Money.

The current way of thinking in Canada is that the scaling of a Canadian company is the problem of that company, he said. At the same time, he added, Canadian scale-ups face burdensome regulations, the lack of a competitive financing program like Korea’s and hard-to-obtain venture capital.

“So at the end of the day, so many scaling companies get to a certain level and then go to the States or other countries,” he said. “In some ways, Canada’s policy is we love these companies at the front end [as startups], but we don’t help them at the back end.”

Levy called for a rebalancing of government support for startups and scale-ups, with much more emphasis on helping high-potential Canadian companies scale and win international RFP competitions.

“We should position the companies as best we can to be able to be ready to compete with the world’s best and win on the world stage."

R$