The harsh truth about startups: Canada’s incubators and accelerators need to get tougher with new businesses, says Dale

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A few weeks ago, I had the honour of attending a youth entrepreneurship roundtable with Prince Edward, Ontario Lt.-Gov. Elizabeth Dowdeswell, Ryerson University president Sheldon Levy and a number of young and older entrepreneurs. You can guess what category under which I was invited.

Successful entrepreneurs such as You.i TV's Jason Flick know it takes a strong, well-executed business plan to make the leap from startup to sustainable enterprise.

by Jeffrey Dale

The event was held at Ryerson’s DMZ, an incredible startup incubator and shared workspace in downtown Toronto.

Prince Edward, Queen Elizabeth’s youngest son, is involved in a number of youth initiatives, and during his visit he wanted to connect with young entrepreneurs. The roundtable included young businesspeople from a range of backgrounds: a high school student who was already working on his second startup, graduates from Ryerson’s accelerator programs and members of a couple of youth-based social enterprises.

The hour-long discussion touched on a variety of topics, including the challenges of being a young entrepreneur, how the education system supports budding business owners and what can be done to improve the entrepreneurship experience for youth.

The participants had plenty of energy and excitement, but overall the event was very predictable. Afterwards, however, I had a chance to speak with a number of the participants and other entrepreneurs working out of the DMZ. What I learned was quite revealing about Canada’s startup culture.

The competition for space in the DMZ is high, and some of the startups talked about “squatting” in a facility that is packed to the rafters. Others noted the huge number of companies in the DMZ makes it very difficult to find experienced mentors and sources of funding.  

Most of these entrepreneurs said they were frustrated that they completed the accelerator program only to find they could not get funding to take them to the next level. Many of them seemed to think venture capital firms and angels would be eagerly lining up to offer “free” money to help them build their businesses.

Accelerators also create a high-energy competitive environment in which entrepreneurs compete for acceptance, attention and awards. Graduates of these programs tend to have heightened expectations about their capabilities and potential for success.

Over the past decade, federal, provincial and municipal governments have invested hundreds of millions of dollars into entrepreneurship, mentoring, accelerator, proof of concept, financing and other programs. National organizations such as Startup Canada and local programs including Startup Garage, GrindSpaceXL and L-Spark have helped foster a more entrepreneurial culture. Across Canada, hundreds of companies are graduating from accelerator programs every year.

That would be considered a great success – if the long-term goal was only to create startups. But what is next for these companies?

Canada’s young entrepreneurs have received lots of early-stage support, leading to an explosion in the number of startups competing for investment. But the real challenge isn’t starting companies, it’s growing them into sustainable businesses.

Unfortunately, that has made the “natural selection” of the best and brightest firms a much more difficult task.

Investors are hesitant to pour money into startups spawned by an accelerator such as the DMZ, because the sheer number of companies makes it difficult and time-consuming to determine which ones have the highest ceiling.  

In addition, many of the tech entrepreneurs I spoke with at the DMZ have based their business models on developing an app in the hope of becoming the next Uber. A model that limited in scope is very difficult to expand into a viable business.  

In fairness, I am very impressed with the knowledge and capabilities of these young entrepreneurs. They have great ideas, but they lack the experience to know what really makes a company viable and the effort it takes to convert their ideas into sustainable business models.

In his book The Hard Thing About Hard Things, Ben Horowitz argues that building a business is difficult and building a really successful one is even harder. The next generation of startup entrepreneurs needs to learn that lesson if Canada really wants to build an innovation economy.

Organizations such as Invest Ottawa and Waterloo’s Communitech are modifying many of their startup programs and services to address this challenge. They have graduated dozens of high-potential startups that are now realizing the tough part is just beginning.

At the startup stage, entrepreneurs are focused on general issues such as building their board, protecting their intellectual property, developing a marketing plan and finding their first customers. At the growth stage, success is about execution. Every step has to be highly customized to each individual business, its market and its team. Cookie-cutter solutions won’t work.  

Providing this level of support is very labour- and time-intensive. The ability to help every and any entrepreneur is not realistic, nor is it warranted. Canada’s incubators and accelerators need to start the “natural selection” process early, weeding out applicants immediately and accepting only the companies with the highest probability of success.

These organizations need to teach startups to execute a plan based on clearly defined milestones and deadlines. If the companies fail to meet those targets, they should be dropped from the program – no ifs, ands or buts.

Experienced advisers and mentors are critical to this process.

The Business Development Bank of Canada has taken this concept to the next level with its BDC Advantage program. The program assists high-growth firms that have advanced past the startup stage with services beyond financing, offering advice, formal management training, peer-to peer networking support and referrals to outside experts.

BDC is a key provider of financial assistance to growing Canadian businesses, and it knows its most successful clients are the ones with strong, well-executed business plans. The BDC Advantage program helps them achieve their goals. Canada’s startup community should take note.

Statistics tell us most businesses in Canada fail to make the leap from startups to growth companies. Our entrepreneurs have proven they know how to start businesses. But their long-term success will be determined by how well they are able to scale those startups into sustainable enterprises that thrive on the international stage.

Jeffrey Dale is the president of Snowy Cloud Inc. as well as the former president of the Ottawa Centre for Research and Innovation.

Organizations: Startup Canada, Startup Garage, BDC Business Development Bank of Canada Snowy Cloud Ottawa Centre for Research

Geographic location: Canada, Toronto, Ottawa Waterloo

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  • Kevin Szabo
    January 18, 2016 - 19:23

    I didn't truly understand the huge difference between startups and established businesses until I watched Steve Blank's lecture on building companies. Highly recommended. "How to Build a Great Company, Step by Step" https://www.youtube.com/watch?v=1RTcXwJuCaU