As we head into the second decade of the 21st century, our ability to enjoy a decent life will depend, more than ever before, on our entrepreneurs.
Canada, like the United States, Japan and most European countries, is at the stage of development where jobs and prosperity increasingly depend on knowledge-based activity, or innovation.
Entrepreneurs are the people most adept at identifying and pursuing new opportunities — and creating new businesses — from the new knowledge that comes from research and development.
To help us understand what we have to do to encourage entrepreneurship, Zoltan Acs, a prominent U.S. economist, and Laszlo Szerb, a counterpart from Hungary, have developed a Global Entrepreneurship and Development Index, which shows the entrepreneurial strengths and weaknesses of many countries, including Canada.
In fact, Canada does well, ranking second overall, behind Denmark and just ahead of the United States and Sweden. There is a strong entrepreneurial streak in the Canadian DNA.
As the two economists point out, small business and entrepreneurship are not the same thing. Most small businesses remain small — they are shops, restaurants, dry cleaners, plumbers, landscapers and other local service providers. But once established they provide few new jobs. They remain small businesses.
Entrepreneurs are different. They start as small businesses but have the aspiration to grow, which is why they are often called gazelles.
Research in Motion, which makes the BlackBerry, is a super example. Launched in 1984 by Mike Lazaridis, by the late 1980s it had only about a dozen employees and annual revenues of about $1 million. But it grew, and keeps on growing. In its most recent financial year it had about 14,000 employees worldwide and revenues of about $15 billion.
While nowhere near as large as RIM, there are many entrepreneurial companies across Canada, in manufacturing, agri-food, software, wireless systems and engineering, for example. What Canada needs is even more of these entrepreneurs.
The global entrepreneurship index is divided into three sub-indexes, which focus on different aspects of entrepreneurship. Canada does well in the first two, but is found to be weaker in the third, and most important, sub-index.
The first, entrepreneurial attitudes, indicates a country’s overall attitude towards entrepreneurship, entrepreneurs and business start-ups, as well as the population’s capacity to see and seize opportunities with the necessary start-up skills. This sub-index also deals with personal entrepreneurial traits, notably fear of failure. Networking is also seen as important since networked entrepreneurs are more likely to identify opportunities and have access to more resources.
On this sub-index, Canada ranked third, behind New Zealand and Australia. The U.S. ranked sixth. Canada’s weakest points were in networking and start-up skills, so those need to be addressed.
The second sub-index, entrepreneurial activity, measures start-up activity in medium- or high-tech sectors launched by educated entrepreneurs in response to business opportunities in a competitive environment. It looks at the education level of a country’s entrepreneurs, since this is important for success. It also examines the extent to which entrepreneurs pursue technology sectors since these will have the greatest potential.
Here, Canada ranked second, just behind Denmark and well ahead of the U.S., which ranked eighth. Canada’s weakest points were in competition and spotting opportunities for start-ups.
Canada fares less well on the third sub-index, which measures entrepreneurial aspirations and which is the most important sub-index for innovation. This sub-index focuses on the efforts by early-stage entrepreneurs to introduce new products and services, develop new production processes, penetrate foreign markets, and substantially increase the number of employees, as well as to raise needed risk capital to finance the business.
In this sub-index, Canada slipped to ninth spot, with the U.S., Iceland, Singapore, Israel and Sweden in the top five. Canada ranked 15th in risk capital, 14th in development of new products or services, 13th in pursuit of new technology, and 10th in seeking out high growth opportunities. These are all areas where we must improve.
Many Canadians have entrepreneurial instincts and have created entrepreneurial companies. But we need to do better, and this means improving access to finance for young companies and improved support for high-risk research and development projects, as well as continued efforts to build up the innovation or knowledge capacities of Canadians through education and immigration and investment in new knowledge.
But we must also learn to celebrate our entrepreneurial successes. Entrepreneurs like Mike Lazaridis are essential for our future, much more so than the next National Hockey League star, and should be celebrated accordingly.
Economist David Crane is a syndicated Toronto Star columnist. He can be reached at crane@interlog.com.