While research and development are necessary for innovation, they are not sufficient. This conclusion is based on our experience working with both startups and large Canadian businesses. It is also echoed in the latest report from the Council of Canadian Academies on the state of R&D in Canada.
Building on a decade-long history, this latest assessment of Canada’s performance indicators in science, technology, and innovation, investigates Canada’s strengths and weaknesses in creating new knowledge, translating that knowledge into new technologies, and then creating wealth and productivity from those technologies.
Our own Impact Briefs have been diving into many of these same questions, and while it is heartening to see many of the same themes arise, there are some key differences.
Marketing and Sales:
Many of our Impact Briefs have focused on the challenges Canadian firms face in building robust marketing and sales (M&S) pipelines. The CMO Search investigated the quality of marketing leadership in Canadian and American tech companies. On the whole, we found that Canadian-based marketing leaders are less qualified and less experienced than their American counterparts. Also, with foreign firms taking our best talent, and Canadian firms conducting marketing out of U.S. offices, we are not developing a local talent base that will enable us to solve the marketing challenges facing our firms.
A Nation of Soft Sellers focuses on the resources Canadian firms put into marketing and sales. We found that while mid-sized US software companies spend, on average, 34% of their revenue on M&S, comparable Canadian firms only allocate 20% of their budgets to those expenditures. In addition, Canadian Tech Tortoises found that in addition to less funding, Canadian startups are hiring fewer M&S focused employees than US firms do. Even among the best-funded firms, Canadians have 25% fewer M&S employees than US-based Unicorns.
All this suggests that Canadian firms take longer to establish product-market fit, such as market analysis and market development, as well as in laying the groundwork for successful sales channels, which are vital for company growth.
The Canadian Council report acknowledges the same finding, at least in terms of talent development. “While STEM skills are perceived as being abundantly available, there is a lack of management competencies in areas such as sales, marketing, organizational design, product design and development, and product management.” However, the report does not specifically focus on this challenge in its data collection or analysis.
While policy makers have established programs to encourage bringing international talent to Canada, supporting companies in their market development and sales activities is generally excluded from startup and scaleup supports and programs.
The report echos the findings of our own report on Canada’s Patent Puzzle. It cites alarm at “the increasing flow of intellectual property out of Canada.” It also highlights that Canada is “a net exporter of patents, which signals the R&D strength of some technology industries. It may also reflect increasing R&D investment by foreign-controlled firms.”
Our own report found that of all the patents granted to Canadian inventors by the US Patent Office in 2016, 58% were assigned to companies domiciled in other countries. This is up from 45% in 2005. This means that Canada earns a return through commercialization for less than half of the patents granted in the US to Canadian inventors.
Patenting is an international, not a local activity. While international companies provide local jobs and economic activity, the ultimate value of the IP resulting from that research is not being retained in Canada.
The report highlights the recent improvement in Canada’s VC funding landscape. “The year 2016 marked the seventh straight year of VC growth and the largest since 2001. VC investment was up by 41% from 2015, yielding 530 deals totalling $3.2 billion in investments.”
However, our reports show that this growth in funding is uneven. Our report Canada’s Venture Capital Puzzle showed that while we have good funding opportunities in early and growth-stage capital, we fall behind in later-stage capital required to catapult companies to world-class. In addition, The Rich Get Richer, shows that Canadian VC firms are making strategic decisions to finance companies later, less frequently, and with less money than companies in the US.
Therefore, while our overall funding levels are improving, the availability of significant, late-stage capital, is restricted. This prevents Canadian firms from competing on a global scale and creating world-class companies.
In the words of the report, “Canada’s ability to translate research strengths and achievements into technological innovations is not hindered by major systemic barriers. The barriers impeding the translation of technological innovations into wealth creation, however, are more significant.” In other words, while research and development are necessary for innovation, they are not sufficient. We hope that this report, and others like it, help to drive Canadian policy makers, industry, and entrepreneurs to overcome our commercialization challenges and create a more prosperous Canada.