Shift talks with Doug Holt and Simon Raby about Alberta's scaleup gap and what the ecosystem is doing to help businesses grow.

On this episode we talk with Doug Holt and Simon Raby about a report Simon prepared for Alberta Innovates that identifies a scaleup gap in Alberta. Essentially, we're good at starting companies but not so good at growing them. Our discussion explores the scaleup gap and what those in the Alberta entrepreneurial ecosystem, like Alberta Innovates, are doing to address it. 

BIOS
Doug Holt, Associate Vice President of Investment at Alberta Innovates

Doug is a seasoned executive with over 20 years of experience in the fields of finance, technology and education. Over the course of the last decade Doug has helped Alberta based SMEs raise over $130M in growth capital, founded two companies and became a published author in his research efforts. 

As a professional debt investor in the US high yield market, Doug was part of a small team that  grew a publicly listed ETF on the NYSE from $80M (USD) in assets under management to over $1bn (USD). Doug also spent a decade as an educator teaching both domestically and internationally and earned his M.B.A. from the Haskayne School of Business at the University of Calgary in 2008.

Dr. Simon Raby, Associate Professor, Entrepreneurship

Simon is a 'pracademic' working as a Professor of Innovation and Entrepreneurship at Mount Royal University's Bissett School of Business and Co-Founder of Business Improvement and Growth (BIG) Associates Ltd. BIG identifies the drivers of growth, challenges convention and offers practical ways for ambitious business owners and their organizations to achieve sustained growth and performance.

Simon's research program is focused on uncovering the strategies, practices and methods of support that enable business growth, leadership transitions and people performathe Bissett Faculty nce. Most recently, Simon delivered a program of research on the growth of Alberta's Small and Medium-sized Enterprises (SMEs) to understand the drivers of growth, innovation and diversification for these firms. This research has since led to the creation of The Leader's Growth Mindset. (Taken from Mount Royal University's Bissett Faculty)

More reading for fun!
Leading to Scale by Simon Raby et al. (opens a .pdf)

Shift by Alberta Innovates focuses on the people, businesses and organizations that are contributing to Alberta's strong tech ecosystem.

Transcript

 Jon Hagan:
When it comes to business in the economy, what's a startup? How does it differ from a high growth firm or a scale up? What is a scale up? Well, we're going to dive into the conversation today to learn more about all those things, but specifically why Alberta and Canada has a scale up gap. We're going to talk to Dr. Simon, Raby from Mount University and Doug Holt, associate vice president of investments at Alberta Innovates. Sit back, settle in. Welcome to 

So, a new report, leading to scale, Simon, that you prepared for Alberta Innovates, you conclude that Alberta like Canada has a scale up gap. So what does that mean exactly, a scale up gap?

Simon Raby:
Yeah, it sounds quite ominous, doesn't it, Jon? So what it really means is, is that, and we write about this in the report, but the majority of firms start small. They stay small and they actually die small as well. So the gap is how do we support these small firms? They're not all young. Actually quite a lot of are quite established, but how do we support them to scale up? And I know that we're probably going to debate a little bit on what does that word actually mean in today's session? But a gap itself is when you look at the statistics, particularly in Alberta, the reality is actually more firms that are shrinking from medium size to small than there are actually moving from small to medium.

Simon Raby:
From a statistics perspective, only about 0.1 of a percent of small firms actually become mid-size and about 2% of Alberta firms grow beyond $20 million and 50 employees. So as a consequence of that, if only 2% are actually achieving that, and only 1% percent are actually moving from small to mid-size, how do we improve the odds? So from my perspective, I think it's about probabilities and it's about saying, "Well, there are certain things that we can do to improve the odds." We can't predict growth, but we can do some things to help business owners and leaders do some of the things to potentially progress should they want to. So that's the gap. Scale up is a term and I'm sure there'll be questions around this, is it's a bit of a buzzword these days and we can dig a bit deeper into that at some point.

Katie Dean:
Why does it matter that we want companies to scale up and get bigger? What's the purpose?

Simon Raby:
Yeah. I mean, the purpose isn't just size. So you don't want an economy with lots of large firms in it and very few small firms, because the reality is, is that the majority of jobs are actually created by small and medium companies. So over the last two decades, two thirds of all jobs have been created by small and medium firms. So that is pretty startling. Now the reality is, is you always want firms to develop in an economy because they actually create new forms of competition. And so as competition comes into an economy, it forces other incumbent organizations, firms that exist presently within the economy to have to innovate. It puts them under pressure. If we didn't have small younger firms coming through, that would be a challenge. However, to create that competition, they have to gain traction, they have to sell products and services and they actually have to achieve that business model fit, which means that they are actually scaling up from that offer perspective.

Simon Raby:
Otherwise we would just look at them and go, "Oh, that's cute. You're doing some customer discovery, you're doing some validation," but if it's not really leading to the sale of new products and services, then it's not really going to be competitive in the marketplace. So, I think that's the biggest challenge and helping these firms. Now, a lot of those firms as well in an economy can often be small firms, which are older firms and evidence tells us that actually the majority of jobs are created by younger firms. So that's another dynamic there, which we can talk a little bit more about, well, why might that dynamic exist? Why might it be that we have quite a few small firms that are more established and how does that differ to these younger firms? Because there are programs that focus very much on younger firms and new venture building, but there's also this dynamic around established organizations as well that exist.

Jon Hagan:
Okay. So let's just define some of the terminology first, because we're going to be throwing around words like scale ups, startups, high growth firms. You mentioned a few others. How does all of this... Is it a continuum?

Simon Raby:
Great question. I believe that it is a degree of a continuum, but it's not the sigmoid curve, so that S shaped curve that they teach in MBA classes. So whilst it is a continuum, it's a peak and trough continuum and firms can achieve growth at certain points on that continuum. They can also decline so they can move up and down that continuum. And that has to be recognized. We have firms that are shrinking, but we also have firms that are growing. In terms of the activities that encompass starting versus scaling, the way I think of starting is so think from a size perspective, think of a firm that's moving from $500,000 to maybe a million dollar revenue. They're moving from one, two employees initial startup to around nine employees. So just under 10 employees. It's a phase of development that we would typically label formation.

Simon Raby:
So they're forming the organization, they're forming their products and services and the types of things that that involves is discovery, involves problem identification, customer discovery, solution ideation, and actually solution testing with the aim of getting something into the marketplace that gains traction in the marketplace and starts to get fit. So strategize it we know talks about fit. They talk about that problem solution fit and they talk about product market fit. And so the aim of formation is to get to that product market fit so that you are starting to gain traction. And what that means is, is that it's demonstrated through the sale of products and services. So that is for me, formation that's about starting. Scaling is when we're moving from this million dollar up to 5 million, up to 20 million and beyond, and it actually encompasses quite a lot more that needs to be done.

Simon Raby:
So talking back to the strategizing model, again, they talk about business model fit at that stage and that you have to have a scalable business model. And so what that means is systems and leadership and teams and all these things within the organization have to develop. So for example, work that we've conducted, when you look at the difference between starting and scaling from a strategy perspective, you've got to move from this very passionate team and fluid strategy to actually having a defined purpose and a professionalized, formalized strategy. That doesn't mean it's a document that's put on a shelf and forgotten about. It just means that you're thinking more strategically and less opportunistically about the way that you're growing the business.

Simon Raby:
From a leadership perspective, you're moving from this very technical functional specialist role as a leader, to more of a strategic leader with a team underneath you that's executing and supporting your execution process and not all leaders can achieve that. Not all leaders find it easy to actually find that team and build that team. From a customer perspective, you're moving from this discovery phase in that early phase to traction to this scalable model and create from an innovation perspective, you're launching one product or service in the startup phase, but as you grow and scale, you're going to need to have products and market line extensions. And so as well from a market perspective, you'll be moving into new markets. You'll be geographically diversifying.

Simon Raby:
I like to talk from a startup phase that firms typically pick a showcase region as I call it. And that showcase region is one where they can best demonstrate the potential for their product or service. However, moving beyond a showcase region is challenging because you often... It's your baby region. It's like you put all your effort into it. It typically is a local market and that's very different often to national or international markets.

Simon Raby:
And then the capability thing, I mention about leadership, but just because you founded a business and your entrepreneurial doesn't make you the right person necessarily to be able to scale the business. And I think we find that time and time again is that, you've got these entrepreneurial passionate individuals, but they never signed up to becoming the CEO of a professional organization and professionally managed organization. Those two are a big transition that needs to happen from a role perspective. And capital's another thing. So you're moving from this seed capital in a formation stage to growth capital, series B and series C in a scale up phase. And so those are two different phases. That's how I distinguish between them, but also happy to be challenged about that. And I know you've mentioned, Jon, about the definition of high growth and how does high growth fit into this? So I can speak to that now, or I can pause and we can talk about that in a minute.

Jon Hagan:
Well, something that came to mind and a word or phrase that we hear quite often, Alberta Innovates, and when the entrepreneurial ecosystem is technology readiness level. Doug, from your perspective now, Alberta Innovates is involved in a lot of these different phases, but does what Simon says about the growth of these companies, does that correlate to the technology readiness levels that we support?

Doug Holt:
Well, I think it does Jon and like you said, we're involved in a lot of different areas, right from early stage research, right through to commercialization and I loved Simon's [inaudible 00:10:12] about their showcase region and businesses having that. There's a historical element to the challenge that we face in this scale up gap in the fact that our economy has largely been built around oil and gas and that economy is revolved around pulling something out of the ground more efficiently than others can, putting it on a pipe at a fixed price, sending it to market and the services to support that initiative have sprung up around mainly that. Now that's great, but those services largely focused on Alberta or the Western Canadian Sedimentary Basin and so these weren't highly scalable opportunities and they weren't highly scalable businesses and we didn't find them transitioning into that.

Doug Holt:
But now we're in this inflection point in the Alberta economy where we're seeing a lot of businesses shift gears and move towards digital platforms or on business models. And yes, there may be a showcase region locally to begin with, but a lot of these businesses have global opportunities. And so it's how do we augment that? How do we support that? How do we bring in entrepreneurs that are capable of mentoring that and teaching these new entrepreneurs, how to compete on that global stage rather than just in that local economy. So I'm not sure if it's a TRI issue or a technology readiness level issue so much as it is a new business model and gaining the experience and capacity and being able to deliver on that.

Katie Dean:
I was going to as what's Alberta Innovates' role? Is it just what you described? Or is it beyond that and to more like ecosystem development?

Doug Holt:
Yeah, we plan both sides, right? I mean, we're looking to come alongside in terms of helping businesses offset some of the costs in that startup phase, whether it's with help supporting research or maybe it's a commercial associate who's going to come in and go do business development for the company, a CFO or something along those lines. But as we get to the scaling phase that Simon's work is so important for, that really transitions into ecosystem development. And that transitions into things like, for example, the accelerators program. Wherein we have the opportunity to bring in some world class talent from the likes of Silicon Valley and others to mentor, coach and help provide guidance to companies. And where it's interesting is, as opposed to a local venture capitalist looking at an opportunity that a company's trying to raise money for and vetting it and bringing it through to, say, one of his investment analysts in house, these accelerators have the ability to go directly to the companies that matter as an end user for something.

Doug Holt:
For example, if we're talking about semiconductors, well, these companies are going to go talk to Nvidia and get them to vet it, get them to opine on whether or not they want to be involved in it. Would they like to be investors in it? And so it's just got that ability to mature the ecosystem that much faster, because it can add some gasoline to the fuel tank of these business models and really accelerate them faster than we otherwise could with local networks and things like that.

Jon Hagan:
And this accelerator program that we now have going, this is the first of its kind in the province. Is that correct?

Doug Holt:
It's arguably, I've heard first of its kind in the country in terms of the dedication and the capital being deployed to these and the focus that's being put on them. So really bringing in all these groups at the same time is quite a unique initiative. And it shows the province's commitment to supporting the JEI's goals of the 900 new companies by 2030 and all the jobs that would go along with that and the revenue associated with that.

Katie Dean:
Simon, I want to loop back to your comment about how the majority of jobs created are created by the younger small to medium sized firms. I just want to know why, how, and what... Can you flesh that out a little bit more for us?

Simon Raby:
Yeah, for sure. I mean, the why is always a difficult question because the leaders... These sort of businesses, it's so personal and the growth of those organizations is so personal to the leaders themselves. So a lot of that has to be addressed to them because when you look at all the evidence out there and break it down, the biggest most important factor is the ambition or willingness of the leader to grow the organization. If you do not have that, you're not going to have organizations that are going to grow. So that is an essential part.

Simon Raby:
When it comes to young firms, it's just a fact that growth typically takes place within that first five year, less than 10 year mark. And then firms start to mature. That is an element to do with product lifecycle as much as anything, organizations move through the product lifecycle like their products do. So if an organization's initially established, they've established a new product, they'll gain a lot of interest in that new product potentially because it's brand new to the marketplace. But over a period of time, it's going to mature and if they don't innovate and that's a whole bigger conversation around innovation and R&D investment in businesses, which Canada's not particularly good at, then you're not going to have the investment coming back into the business for business enterprise R&D as it's called to continue that growth and development into the future.

Simon Raby:
And so that's why a lot of small businesses stall. They stall out at that smaller stage and the leaders, for whatever reason, do not grow beyond that growth ceiling. And so that's a big challenge. To reinforce Doug's points about how the province has previously been set up, I mean, I've only been in the province for six years. But what I have done is I've spoken to a lot of business owners and leaders in the province and the data tells you that when we conducted a study back in 2017 [inaudible 00:16:48] surveyed about 500 SMEs, 50% of them were what I would term locked in to the province. What I meant is, is that they were even only supplying a local or regional market within the province.

Simon Raby:
They weren't looking beyond and it is a factor to what Doug spoke to where the reality is, is that many of these businesses were set up to perform in that way. They weren't able to scale beyond technology, gives some of those established business's an opportunity to do that now and the accelerators also focus on new younger firm opportunities as well. So I think it's being able to do both of those things and I think there're programs that target both elements, but how do you support established firms as well as these new young technology startups as well?

Jon Hagan:
There's a point there that I want to make. Maybe I'm just going to go out in left field a little bit. When I think about the showcase region you talked about, and then the comment you just made where startups tend to serve their own jurisdiction at the start and they're not able to go out and export or whatever, for whatever reason, we've heard from a number of innovators where they find it difficult to get acceptance in their jurisdiction, that they have to go outside of the province or outside of the jurisdiction to get their technology validated. Would either one of you want to comment on that and why Alberta has that difficulty?

Doug Holt:
Sure. I mean, and I'm not speaking from any piece of data or other evidence other than personal experience, and having spoken to many entrepreneurs about this, and personally having tried to launch a new product and raise the capital for said product in this part of the world, it was challenging because of two elements. One, if it's outside of the bailiwick for which Alberta is typically known, i.e. oil and gas, investors tend to shy from it because... Or companies tend to shy away from adopting it because they don't know, they don't understand. And what they don't know, they avoid. And then the second piece of it is for whatever reason, we've found that technology adoption by the oil and gas industry, companies are more apt to find success if they do it down south. They're quicker to adopt. They're more open to it where Canadian companies typically have been happy to be second and come alongside once somebody else has done it, once somebody else has proven [inaudible 00:19:28]. Why that is, I'm not entirely sure. And again, that's just opinion rather than anything else.

Katie Dean:
Actually, no, Doug, I would say that that's not just your opinion, though. We've had many people in the podcast who have said something very similar, including... He's formally of... Harry Shawn, he's formally of the Common [crosstalk 00:19:48] Sport of Canada. Yeah, and he talked a lot about how in Canada, we're really good at starting companies. We're not really good at keeping them, which is actually a bit of a different problem that you guys are speaking of but one that I would like to explore. Why can't we keep companies in Canada? Is this something that's also part of your research Simon?

Jon Hagan:
I think Simon may want to address that first point.

Simon Raby:
Yeah. I mean, just to build on what Doug's talking about, given what we've just spoken about regarding the market and how a lot of firms were supporting the natural resources sector, when it comes to technology based and technology intensive firms, their market isn't necessarily in Alberta. Their market is elsewhere. And with technology, clearly, the market has no boundaries anymore. You can supply globally from a market based perspective. So as a consequence of that, their customers are elsewhere. They're outside of Alberta. So that's one point. The capital point that Doug was talking about where actually raising capital, Alberta hasn't necessarily had the capital to support these high technology intensive organizations, and a big reason Doug spoke to was the difference between investing in a hard, what I would class as hard asset intensive industry like natural resources compared to actually, what feels quite difficult to get your head around in terms of how do you value a technology firm because a lot of that is about future potential.

Simon Raby:
And it's difficult when you've come from this asset based valuation perspective. So I think the capital is difficult. So you have to go with a capitalist and historically has been, and then the network. So when I talk about network, I'm talking also about the business leaders themselves and the network they have. When we conducted this study on looking at graduates of global growth programs, the businesses that we interviewed in Alberta of which they were about four or five of them, the leaders, they had to go to programs in other jurisdictions because there weren't scale up programs here at that stage. There weren't growth programs here. And they also saw that as a huge opportunity. So whether it is that I'm going to go to QuantumShift in Ontario, or whether I'm going to go to the scale up program out of Lazaridis Institute at Wilfrid Laurier they're rubbing shoulders with these other entrepreneurs and business owners and leaders who are also on a similar journey, but they're taking place in other parts of province.

Simon Raby:
I think what the... I know we're going to get to this in part of the conversation, but what the accelerators do as well is they help to convene a conversation. They help to actually bring these entrepreneurs, these passion individuals together and they give them a space and they give them a home to be able to do that and to build their confidence and to move forward. That wasn't here before this process. So, I think, that for me is a big part of it and a huge opportunity for Alberta. And you're starting to now see that, whereas, I mean, I think [inaudible 00:22:50] ask in the global mail where they're calling us the cold version of Silicon Valley, but it's now we're starting to be seen as this great opportunity here, but that's been something that's had to build over the last five to 10 years.

Jon Hagan:
Well, when you think about what we've been doing in the province with the adoption and support of emerging technologies, like artificial intelligence and Amy, over a decade ago and the work that's going on with quantum, there are a host of reasons why we may not be adopting, but in some cases we are early adopters of that stuff. So that's commendable. So these accelerators can only really continue to support that. Is there funding available as well through the accelerators and the funding, not program funding, but access to VCs and stuff, Doug?

Doug Holt:
Yeah, there is access to VCs. I mean, they have a deep network of capital throughout the world, some of these investors and following on to what we were just discussing there, having a shallow capital market is truly a challenge to scale, right? Because, how do these companies, even if they obtain early stage financing from a local VC, when it comes time for that series A or series B, when the numbers have gone up, and now we're talking about raising 50, 100, something along those lines, local investors are being squeezed out. And when locals are squeezed out and you have to go raise capital elsewhere, those investors from elsewhere become a big part of your capital structure. And those investors may have their own demands of what you're going to be doing in your business model. I.e. you need to shift your headquarters from Calgary to Toronto, or to somewhere else.

Doug Holt:
And so that can be part of the scale up challenge too. So it's figuring out how to come alongside with capital that's going to be conducive to your business model and to what you're trying to build and grow. And it's not necessarily something that's bad for the company or the company can look at it and say, "Well, that's where the market is. That's where we need to be going. And that's fine." But it's just... It is Katie. One of the challenges you alluded to about why we don't see them scaling here at capital is a big piece of it. So the accelerators do bring in network of capital and they also are, because they're partnering with us in terms of building Alberta companies, there's a measure of comfort that we have that these are going to be companies that are growing and setting up their headquarters in Alberta and continue to scale from here.

Katie Dean:
And it brings me back to my other question too, about how do we keep them? So are we working on anything to help these companies stay here? We're just hearing so much about how companies... It's one thing to build and scale, but they're leaving to other markets. So are we working on anything to keep them here? Or is that even the goal? I don't even know.

Doug Holt:
Well, it's definitely the goal. And so, I'll let Simon speak to this probably better than I can, but talent is one of the challenges facing companies as they look to scale and grow. And so we've got to come alongside with the post-secondaries and we've got to be supporting that pipeline of talent that's going to be allowing these companies to hire great people here. If you can't hire great people in the geography you've chosen, that's a limiting factor for your business. And it becomes a strategic decision at that point, right? So that would be one area where we're working hard to help build that ecosystem of talent.

Jon Hagan:
Simon, do you agree with that assessment?

Simon Raby:
Yeah. I mean, the talent piece of the puzzle is huge. The province is not only investing in developing talent in the tech space. And so you're seeing more seats in post secondary institutions geared towards technology intensive roles as they graduate from university. And that's going to take a bit of time, but you're also seeing pivot programs which are more shorter term initiatives, whether it's from the University of Calgary, Mount Royal University partnership with Amazon Web Services, et cetera, that was announced, but there's a range of short term, but longer term structural changes that are being made to help develop the talent that's required for here.

Simon Raby:
The other component for me is about how do you actually attract talent and how do you retain talent? So we won't always have the amount of talent or the right talent that we need in the province and we need to make sure once we have the talent, we retain the talent. And so a huge part of this debate starts to link to place and the value of place. And it's something that Alberta has in just a huge, huge amount and huge value here. So when we think about place, we think about the Rocky Mountains. We think about Calgary, Edmonton, key urban centers. We think about the reasons why someone would want to live here. And typically there's been a lower cost of living. So, housing, property has 50% of the cost of Toronto or Vancouver. Wages on average have been typically higher in the Province of Alberta than they are in those other provinces, strangely.

Simon Raby:
And you then add in also the proximity to natural environment, which is something very important for raising a family and you start to build this quite attractive proposition. There's also revitalization taking place in the urban centers. Calgary has a lot of downtown revitalization going on at the moment and that's a 10 year plan, but all of this starts to build together of, is this a place that I want to work? Is this a place I want to live? And is this a place I want to play in the future and build a family? And I think aside to just the tech piece and the organizational piece and businesses, if we're going to retain and keep the right talent, we need to have a very attractive proposition for anybody that's looking for this province.

Katie Dean:
Another thing that's coming to my mind too is, is infrastructure, right? And it's one thing to create technology and it's one thing to try to scale that technology in that business. But if you don't have the resources available in the province to do that, am I grasping at straws? Or is this something that you're also thinking about? And the reason I'm asking is because our last podcast, we were talking about hydrogen and the infrastructure of hydrogen and how it's actually already here. So I'm wondering, do we have infrastructure for more technology companies and more of those high growth technology companies here?

Simon Raby:
I can speak briefly to that. I do think that the infrastructure is improving. You've mentioned hydrogen. I'm actually running a hydrogen innovation program at the moment, a commercialization program, and we've got four or five organizations that are really keen to prototype a solution within the dual fuel diesel hydrogen technology space. And it's fantastic to see, but they're asking the same questions, is the hydrogen infrastructure going to be in place in the future to be able to actually launch this to market and make it viable for them? Because it may well be desirable, i.e. customers might want it to an extent, but is it actually feasible and viable for the long term? And to what extent are some of these things that we're talking about bridge technologies compared to actually longer term solutions to the problem? And so there's a lot of debate and challenge bundled up in that. I think, Katie, but this is an ongoing development process and I think Alberta's doing a great job with the investments that are being made.

Simon Raby:
I mean the hydrogen roadmap is a huge investment in hydrogen in the province and is really going to drive us forward in that space. So these things are starting to happen and the grassroots are there for sure and we need to keep watering and fertilizing them.

Jon Hagan:
Simon, when you speak about investments... Doug, now that's the area you lead with Albert Innovates, what would you say are those big focus areas in terms of investment coming down the pike for 2022?

Doug Holt:
Well, I think we continue to focus on driving impact out of the portfolio through investments in emerging technology and whether that's FinTech or AI or any of the others, I mean, there's just enormous change that's happening and we're going to be arriving quickly at this time where these technologies start to work together, right? And then the power of them is amplified by way of that. But we are still in some ways, a little challenged in terms of what I'm seeing in terms of adoption rates of these technologies. And so looking for opportunities to improve that by way of programs or collaborations, that's where it's sitting at this point, Jon.

Jon Hagan:
I just want to step back briefly. We've spoken about, Simon, your report and leaderships come up a number of times in the discussion, but that was one of the main areas you identified in the report that is one of the confounding problems for company growth. And I just want to paraphrase and summarize what I'm thinking and then you correct me if I'm wrong. So a company starts. Entrepreneur gets a technology. He or she starts to move it, grow it, but they're not necessarily the entrepreneurial CEO focused person. They're maybe a researcher. Maybe they just want to get an idea off the ground and then move on. But that's where the gap exists is they hit their ceiling and they either sell it off to a larger company, some multinational or something, or the company just flounders. Is that an accurate dumb to down summary of what we're talking about here?

Simon Raby:
Yeah. I mean, it definitely is a huge transition that leaders have to make and this transition isn't just in the leadership style. It's also in their ambition and willingness to grow the firm. So wanting to start something, I think we could all have that ambition. I'm sure we all have things, projects on the side of our desks that we think if we didn't have our day job, maybe we want to start that. Maybe some of us actually do that. And we have side hustles and that's great, but actually turning that into something which is a scalable proposition and then being the one who's going to actually continue to build and invest time and energy and effort into that is big and important. We talk about shifting from this busy, full mentality where leaders are very reactive, driving around in their fire engines, putting out the fires on a daily basis to this more strategic high impact leadership profile that you see in these firms that have scaled and grown and [inaudible 00:33:49]

Simon Raby:
And some leaders can make that transition for sure. That can be done, but you have to invest the time in that transition. It's not just going to happen naturally. And for those of you that doesn't happen for, they essentially constrain the growth of their organization. So whether that's something that's conscious or whether that's subconscious is something down to the leader to speak to really, and this all then comes back to ambition. But the passion doesn't necessarily translate into that future position and role that they'd like in the business as this CEO professionalized character. They may not even identify with that. That may not be their thing.

Simon Raby:
And so a lot of the leaders that I've spoken to, some have even made that transition where they've become, say the CTO. They were the individual who really enjoyed building and launching the new products or service. They then step aside to still be part of maybe the executive team or aside to the executive team. And they bring in a CEO, a professional manager to run the ongoing operations of the business which is about repeatability and scalability and process and systems and performance management and measurement and all the stuff that [inaudible 00:35:06] when you often talk to a lot of entrepreneurs and founders, they don't want that stuff.

Simon Raby:
They're like that bores them and often it puts them... If they feel constrained from that. It's almost like looking and going, "That's bureaucracy, isn't it? That surely that's going to harm our ability to be more entrepreneurial in the future." It's like, well, no, because the existing system has to create surplus, i.e., profit, to invest in these new ideas for the future. And so that's the kind of juxtaposition, I think, that a lot of these leaders are in is that they want to keep innovating, but they have to find a way to make the ongoing operations more predictable, more scalable and repeatable. And that's not always a skill or even a mindset that some people have.

Jon Hagan:
So we've got accelerators that can help with that. And Doug, what about the technology development advisors at Alberta Innovates? Is that something that they're geared towards helping these leaders grow through?

Doug Holt:
I think certainly the technology development advisors are a key element in helping entrepreneurs understand the opportunity, helping them refine what they need to do in order to do team financing, to get traction in their business models and things like that. I think what Simon's talking about though, is really a larger mindset issue. And as we have these innovators and these entrepreneurs that start these companies, we all have to ask ourselves why is getting an exit, the goal?

Doug Holt:
Why does that seem to pervade our thoughts and why is it not more of a, for lack of a better way of putting it, more of an American mentality where I'm going to build an empire and you just don't see that thought process or that mindset and it's fascinating and I think if we can start to shift that mindset, and maybe it doesn't have to be empire building, but rather building a sustainable company and then as an innovator, an entrepreneur, having someone coach you in a strategy to create that handoff, because maybe your passion and your desire is to go and start another company and continue to innovate, but does it always have to culminate in selling the company, having the company leave and then starting again, or could it just be a building on and adding to, and creating those avenues and that mindset?

Doug Holt:
And then, we have to bring in mentors that have that mindset because so many of our local mentors are quite successful. Absolutely. But a lot of them have been... They built it and they sold it and now they're doing something different. So it's a challenge and it's an interesting one that we need to start thinking about how we can address.

Katie Dean:
What do you hypothesize is the reason for that mindset issue?

Doug Holt:
I really don't know, Katie. Maybe we suffer from tall poppy syndrome where in tall poppy syndrome it's an Australian thing. The tallest poppy in the field gets his head locked off. You don't want to be above the crowd. You don't want to be standing out. Maybe it's something along those lines. I'm not sure, but it's definitely something that pervades our society.

Simon Raby:
Yeah. One of the components to this, and when you look at the numbers is the predominance of family businesses. So when we look at that around 70 to 80% of all businesses are family businesses, and then we dig a bit deeper into that and the whole area of family business, in and of itself is how do you define a family business is, there's controversy there. But if we move beyond that for a brief while, family businesses tends to be more sustainable over the long run as a consequence of them being more risk averse. So when you look at family businesses, they often have cash in the bank, they'll call it a war chest, and it will be about riding the peaks and troughs within particularly the Alberta economy and what that risk adversity links to is then and there are always firms that buck the trend.

Simon Raby:
So don't get me wrong. There are family businesses out there who are very innovative, but there are also a lot of family businesses that are less innovative. And when you look at the statistics at an aggregate level, a lot of family businesses are far less innovative than privately owned other enterprises. So they could well be a family business dynamic there where a lot of these smaller enterprises are providing what the business owner needs them to provide for their family, for their employees who are also often treated as family, even though they're not family, that very paternalistic type of leadership style, and that's the way things are done. So I think there's potentially a component around that, which is a dynamic in the marketplace. And we've already touched base on the natural resources dynamic as well, where there's been the big gorilla in the room.

Simon Raby:
And it's been a big focus for us and a lot of organizations and that's not you, Jon, being the big gorilla, but a lot of the organizations have been serving those businesses. They've been servers of those organizations. And again, there's been a level of business that's been around, but to what extent are service industries typically that in [inaudible 00:40:41]. You actually look at the amount of R&D that's invested across Canada. 75% of the businesses are service based businesses and innovation in service is much, much lower. Innovation in things like manufacturing is much, much higher, but manufacturing in Canada is actually declining. We know that that's an industry in decline and so you've got these other dynamics that are challenging the economy around family business, potentially around the mix of industry sectors. And I think we're in a great space now where we've got technology firms that are developing, which didn't necessarily need to develop a proprietary technology from a post secondary institution.

Simon Raby:
I think one of the things that there's been a bit of a hangup on before is how do we move this great science based technology, proprietary thinking that's in post secondary institutions? We've got some very smart people in the province and how do you get that ready for market? Now, the reality is a very, very small proportion of the total value of GDP is created from post secondary actually in technologies that come out because often it's so far removed from where it needs to be. And actually a lot of it. And you will teach this. We'll teach this, Alberta Innovates teaches this. So much of it is often removed from the entrepreneurial process that's taught about the need to go and do the customer discovery and work out what customers require, et cetera. A lot of tech and stuff that's built in universities is from the mentality of we build it, they shall come.

Simon Raby:
And so there's big and inherent challenges in the way that's developed and the investments been made. I've done a PhD. I didn't do it in tech, but there'll be people out there who are doing things because they have a passion for it as well, much like an on entrepreneur and they have a passion for it and they're going to go and study that. Will that be applicable and actually make into market? Who knows? Is that the reason why they're doing the study? Probably not. It's not all about that outcome and that business startup and setup. And so there's a lot of other dynamics I think that are there that need to be thought about.

Jon Hagan:
I think Doug wanted to add to that.

Doug Holt:
Well, I was just going to add to the last comment you, Katie was asking, why we have that mindset. And it occurred to me that there's a cyclicality in our economy wherein with the rise and fall of oil prices, we see large oil companies acquiring smaller companies. The same thing happens in the services industry. Then in different periods, we see these small companies, junior oil and gas companies start to blossom up everywhere when they're pulling assets out of the larger companies and they're creating these companies and they're growing them and then they're bought up again and it happens again and it rolls and it rolls and it rolls.

Doug Holt:
So there's been this learning that's happened in our economy that this is the way you do it, and you can hardly blame them right. I mean, if you're going to grow a junior oil and gas company, your options are rather limited, right? Because you've got the big assignments, so you've got the big gorillas in the room. They're going to control your local market and so you can only grow so much, but then the outcome is there. So I think that may be part of the reason too, Katie, why we have that mindset.

Katie Dean:
I have one question, and I'm just going to preface this by saying, it might be a question we can't put on the podcast or whatever. You might not have an answer for it. So I'm going to preface this by saying, we can cut this part out if we need to. But my role on the podcast is often to ask about women and the role that women play in our economy and with the growth and leadership and in technology. So Simon has any of your research focused on women entrepreneurs in this scale up startup enterprise model? And can you speak to it at all?

Simon Raby:
Yeah, so it's interesting, being male or female and we often pick that out as that's a key characteristic of an individual, and it speaks to diversity, equality and inclusion, but there's a whole range of other factors that we could speak to around in that space. So speaking specifically to female entrepreneurs, there are initiatives that are actually taking place in the province which are fantastic. I mean, so look at the women's entrepreneurship knowledge hub as an example, WEKH. We actually have a hub through Mount Royal University working with WEKH. It's a national initiative, and it's very much geared towards supporting women entrepreneurs to get into business and to continue to network with other female entrepreneurs. From the work that I've conducted, I've worked with programs like The Growth Catalyst, which actually works with scaling up organizations.

Simon Raby:
And we have had female entrepreneurs, CEOs as well as members of teams that are on those programs. And they do a fantastic job. And I think it's about being conscious to it. Too often... And I have this conversation with my colleagues is, you have to be careful that you don't build these programs in your own shadow, where the participants in these programs just end up becoming middle aged white guys. And we speak about that a lot and it's like we have to work hard to ensure there's diversity and cohort. A huge value comes from that. And it's not just from a male, female binary dynamic. I think there's other elements in diversity. Take for example, the rural versus urban divide. There's a lot of rural organizations that are doing fantastic jobs, but a lot of these programs are run out of urban locations.

Simon Raby:
Now COVID has thrown that up a bit in terms of we are able to deliver a lot of our programs online. And so actually we can reach across the province and there isn't so much of an urban, rural divide. However, when we're in person that divide can come back through again and can persist. So there're areas that we have to really pay attention to. Other diversity characteristics are, we don't want to work with just young firms under five years. Maybe we want to also be working with some older organizations as well that are trying to pivot and sustain. Maybe we also want to think about sector. We are already doing that. Alberta Innovates is doing that. So diversity and sector is important. It's not all about natural resources. It's about health. It's about retail. It's about technology that can pervade into other sectors across the economy because actually the more diverse an ecosystem is, the more successful an ecosystem will be. And I think that is the message that we're talking about here. And I think it's a very productive message and a really inspirational and exciting message.

Katie Dean:
Yeah. Your comments really remind me of a podcast we did. It must have been last summer, Jon, now with Melinda Emerson. And we asked her a very similar question and she said, "Well, mentors and investors usually invest and mentor people that look like them." Right? And so the more we have diversity in people at the table and diversity in sector and like you're mentioning, the more we can diversify our portfolio provincially, I think.

Jon Hagan:
Don't put all your eggs in one basket.

Katie Dean:
Yeah.

Doug Holt:
Yeah. Katie, I agree. I think one of the most dangerous things we can do in investing is suffer from groupthink. When we get groupthink going, we have a confirmatory bias and we don't even see the disaster that's awaiting right around the corner, whereas if you can bring in diverse aspects, diverse thinking, different perspectives, makes the team stronger. It makes the whole process stronger.

Jon Hagan:
Simon, Doug, this is fascinating content and a really great discussion. And I just want to let everybody know we've got Simon's report that he prepared for Alberta Innovates on the Alberta Innovates website, under publications, Leading To Scale. Great report. If you want more information on Doug's work with investments, you can check out the website post-secondary investments, entrepreneurial investments. And of course the Alberta Innovates business plan to learn more. Guys, final word to you. Doug, how would you wrap up Alberta's efforts to lead to scale?

Doug Holt:
I think we're at an extremely interesting time in the history of Alberta and the next decade will prove to be quite fruitful in the development of this tech sector and what we're doing in the economy. And it's not just the efforts we're making. It's also just the timing with where tech is at and how it's changing and how it's growing. It's going to be a wild ride and I'm excited to be part of it.

Jon Hagan:
Simon, how about you?

Simon Raby:
Yeah, I think it's super exciting. I've seen the growth already over the last five years since being in the province. One of the quotes from the report that came through and I'll just read it now, but this was from one of their business owners that we interviewed and they said, "I went for a growth program because I had the skills and the knowledge to do small business, but going big quickly, it's a different skillset. The difference between running a normal business and running a scale up business is massive." And I think that's what we're here to do and here to support and Alberta Innovates is a big part of that in the ecosystem, but there's also the region innovation networks that are supporting a lot of what's going on in the province and there're specific initiatives and programmatic interventions that are really helping to support this debate and support the challenges and the hurdles that these business owners need to jump.

Simon Raby:
I think from my perspective, and again, what comes from this report is, there's business acumen that we need to be supporting these leaders on around leadership, cultural development in their organizations, systems and processes, which is about scalability as well as access to customers and the channels of routes to market. Capital clearly is part of it as well. But asides that we have to help and support to convene the conversation because network capital, social capital, so the ability to work with other people, build relationships, all reinforces the confidence that these leaders have to go on the journey of growth. And the more you have people going on that journey, the more you help them to network and work together on that journey, the more that everyone's going to go on that journey. So I think it's hugely exciting and I can't wait to see what the next five to 10 years has in store.

Jon Hagan:
Shift can be found online at shift.albertainnovates.ca, or email us at shift@albertainnovates.ca. On behalf of everyone here. I'm Jon, until next time. Have a great day.