Everybody’s favourite TV tavern fixture, Norm Peterson, once summed up his down-on-his-luck existence with this classic line: “It’s a dog-eat-dog world, Sammy, and I’m wearing Milkbone underwear.”
David Ross didn’t actually reference Peterson – so memorably played by George Wendt in all 275 episodes of Cheers – in his speech to a couple hundred local business leaders at the latest Mayor’s Breakfast on Tuesday morning. But the sentiment of the trailblazing tech CEO’s frank, no-holds-barred assessment of many Canadian companies was pretty much the same as the iconic sitcom character’s woeful take on his life: too many of them are getting eaten alive by ravenous international competitors.
Ross, OBJ and the Ottawa Board of Trade’s 2016 CEO of the Year, called his talk “How to breed unicorns.” The chief executive of Ross Video filled the audience in on a dirty little secret that many of this country’s tech leaders probably don’t want you to hear: despite getting hundreds of millions of dollars in venture capital funding every year, Canadian startups have a conversion rate of turning that cash into sustainable, world-beating companies that rivals the punchless Ottawa Senators’ power play.
“Canada is great at small companies,” said Ross, whose thriving enterprise has a global roster of customers that includes the capital’s NHL franchise. “We’re terrible at large companies.”
The numbers bear him out. In 2016, Canada attracted the third-highest rate of venture capital among OECD countries as a percentage of GDP, behind only Israel and the United States. Yet when it comes to building companies that scale up and prosper over the long term, Canadian firms, like the Senators of recent seasons, are practically cellar-dwellers.
Venture capitalists, Ross explained, feed on fast returns on their investments. They typically want to cash out within three to seven years, pushing founders to sell their precious creations to maximize those returns – deals that often leave promising engines of economic growth in foreign hands.
“Canada is breeding herbivores for United States carnivores.”
“Canada is breeding herbivores for United States carnivores,” he said bluntly.
In a brisk, thoughtful 20-minute address, Ross promoted what might seem like a bit of a bold approach: rather than looking south for VC funding, Canadian entrepreneurs who want to grow the next Ross Video or Shopify might want to consider going old-school and seeking other sources of capital.
Ross’s dad John, for example, sold a small airplane he was fixing up to provide the $3,500 in seed funding that launched Ross Video in 1974.
When David became CEO in the early ’90s, he found ways to expand the firm’s product base and R&D know-how without blowing wads of cash – such as swapping IP with competitors in other geographic areas. He financed his first of what has become a mind-boggling 14 acquisitions with a one-million-euro bank loan in a heavily backloaded deal.
“The first time I bought a company, I had no money,” Ross said. “You can get creative.”
Ross also religiously abides by the 10 per cent rule: Ross Video will never acquire a competitor larger than 10 per cent of its size, preferring to target diamonds in the rough that blossom under its wing like “the Charlie Brown Christmas tree.”
Companies with global ambitions also must be willing to venture outside their comfort zones if they truly expect to give customers what they want, he added, explaining his firm’s forays into tech such as robotic cameras that wasn’t previously in its wheelhouse.
Ross also suggested it might be wise for more fledgling tech enterprises to eschew the conventional wisdom that the software-as-a-service model is the ticket to fame and Wall Street stardom, arguing that too many young companies see SaaS as a panacea.
“It drives me mental,” he said, shaking his head.
Because they tend to generate so little revenue up front, SaaS firms typically take years to recoup their initial investments, Ross explained, but the path from minnow to narwhal requires a steady flow of cash. Better, he suggested, to use the traditional licensing model in the early going as a means of accumulating the war chest necessary to finance those bigger long-term dreams.
“Start by selling up front and then transition to SaaS as you get larger,” said Ross, whose company now employs more than 800 people in 14 offices around the world and has posted 28 consecutive years of revenue growth.
The personable chief executive also didn’t gloss over the vital role sound HR strategies play in building companies that can go toe to toe with global behemoths.
Ross recalled once asking entrepreneurs at a seminar how many had started their own companies at least partly to escape terrible bosses. More than 90 per cent raised their hands.
“People will be your most important asset,” he told the crowd. “Hire smart people and don’t piss them off.”