It’s tough to grow a startup in Canada

Peter Josty is executive director of The Centre for Innovation Studies in Canada, based in Calgary.

The latest report from the Global Entrepreneurship Monitor on entrepreneurship in Canada was released at the Canadian Council for Small Business and Entrepreneurship meeting in Calgary.

The report shows how hard it is to grow a startup in Canada. A couple of metrics from the report explain this:

1. The level of startups in Canada is very high.

The graphic below shows the level of early-stage entrepreneurship (TEA) and established businesses (EBO) in Canada compared with five of the other G6 countries – the U.S., U.K., Germany, France and Italy.

Canada has the highest rate of early-stage startups. This is defined as the percentage of the adult population engaged in the active planning stage or up to 42 months after launch.

2. The level of established businesses is much lower.

 An established business is one that has existed for three and a half years or more. A great many startups fail to grow to three and a half years. In other words, there is a big churn in startup activity – many starts and many failures.

There are many reasons why businesses were discontinued in Canada, as shown in the graphic below.

However, there is also plenty of good news in the report:

1.  The population is increasingly supportive of entrepreneurship.

Since 2016, the public’s awareness of entrepreneurship has increased in many ways, as shown in the table below.

More people know an entrepreneur, see opportunities for new businesses, feel they have the skills to start a new business and actually plan to start a business.

The downside is fear of failure, which has increased significantly. Fear of failure can make people not go ahead with a plan to start a business.

2.  Startups have the second highest use of digital technologies in the G6 countries, behind the U.K., as the graphic below shows.

3.  Established businesses have the highest usage of digital technologies among G6 countries (see graphic below).

Small businesses in finance and insurance, information and culture, professional services and wholesale trade industries were consistently among those reporting the highest digital tech adoption rates.

4.  There are more women startup entrepreneurs in Canada than in any other G6 country (see graphic below).

5.  Canada has the highest level of business angel investing among G6 countries (see graphic below).

Business angels are an important source of funds for new businesses, particularly in Canada and the U.S. The rate of business angel activity for Canada increased by three percent in 2023, while the U.S. rate decreased slightly from 2022 levels.

Rates for the other G6 economies were similar to 2022 levels.

A number of other interesting facts emerge from the report:

• This is the first year the Global Entrepreneurship Monitor (GEM) has asked the franchising question.

Almost one-quarter of total early-stage entrepreneurial activity is based on the franchise model, with just over one in 10 established businesses based on the franchise model. It could be that the high rate of franchising is related to the high fear of failure rate, as franchising reduces the risk of starting a new business.

• The peak age for startup entrepreneurs is 25-34. This is the same as all the other G6 countries. The second largest cohort is the 18-24 age group, followed by the 35-44 age group.
• Education level. GEM measures the educational level of startup entrepreneurs in four categories: some high school or lower, high school diploma, post-secondary degree, and graduate experience.

In Canada, the high school diploma group has the highest rate of startups, by a small margin. The other three categories are all approximately equal.

• Framework for entrepreneurship. GEM evaluates the support system for startup entrepreneurs according to 13 metrics. A comparison between Canada and the other G6 countries is shown in the graphic below.

Canada’s highest score was in general physical infrastructure and its lowest score was in entrepreneurial level of education in primary and secondary.

None of Canada’s ratings scored either the highest or the lowest amongst G6 countries. By comparison, the U.S. has two of the lowest scores (in R&D level of transference and in government programs) and two of the highest scores (culture and societal support and in general physical infrastructure).

Conclusion
GEM’s new report indicates it is difficult to grow and scale up a startup in Canada.

This is despite the findings that Canadian entrepreneurs have a very supportive population, use digital technologies more than peer countries, have more women startup entrepreneurs than other G6 countries, and have more angel investment.

In terms of an entrepreneurial framework, Canada’s lowest score was in entrepreneurial level of education in primary and secondary. This suggests more effort needs to be targeted toward providing entrepreneurial educational programs at this level.

Working to improve the supports for startups will help more of them grow to become established businesses.

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