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       Motivation for this study
• Entrepreneurship has been shown to be a
  powerful force driving innovation,
  productivity, job creation and economic
  growth
• It is often claimed that Canada lags in terms of
  entrepreneurial performance
• This report was commissioned to use available
  evidence to examine the state of our country’s
  entrepreneurial performance

                                                 1
Entrepreneurship is a process that starts with
someone – the entrepreneur – recognizing an
opportunity to create something new
Type of Entrepreneurial   Examples
Opportunity
New product or service    Blackberry, snow blower, Trivial Pursuit
                          board game
New market                Five pin bowling, Fuller Brush, pet
                          insurance
New production process    Cobalt-60 cancer treatment, film animation
                          techniques, instant food production
New raw material          Insulin, kerosene, plastic pellets from
                          disposable diapers
New way of organizing     Instant replay, online auctions, Standard
                          Time


                                                                       2
Our focus is on entrepreneurial performance




                                              3
      Indicators of entrepreneurial performance
               Indicator                                Definition
Employer enterprise births               The proportion of all firms that are new
                                         enterprises in a given year. Includes only
                                         firms with employees.
Employer enterprise deaths               The proportion of all firms with employees
                                         that cease operation in a given year.
                                         Includes only firms with employees.
Survival rates for employer enterprises The proportion of firms existing in year
                                        y which had not died within each of the
                                        first 5 years. Includes only firms with
                                        employees in year y.
High growth firm rates based on         The proportion of firms with average
employment or sales growth              annual growth in either employees or
                                        in sales greater than 20% a year, over
                                        a three-year period. Includes only
                                        firms with ten or more employees at
                                        the beginning of the 3 year period.
“Gazelle” rates based on employment “Gazelles” are the subset of high
or sales growth                         growth enterprises born 5 years or less
                                        before the end of the growth
                                        observation period.                     4
Assessing performance in Canada over
                time
• Unfortunately, do not have data on
  entrepreneurial performance in larger
  established firms
• Fortunately, do have indicators of
  entrepreneurial performance in newer,
  smaller firms
• Used data collected by Statistics Canada and
  analyzed by Statistics Canada and Industry
  Canada

                                                 5
Entrepreneurial Performance               2003    2004    2005        2006
Indicator

Birth rate                                   9%     10%      10%             12%

Death rate                                   9%      8%          9%

5-year survival rate                                                         51%

Proportion of high growth firms                      4%          4%          4%
(employment)
Proportion of high growth firms (sales)              7%          7%          8%

Proportion of gazelles (employment)                                      0.5%

Proportion of gazelles (sales)                                           1.1%



                                                                               6
      What does the data mean?
• Births rates consistently offset or outweigh death
  rates: each year, the number of businesses stays
  the same or increases
• Over half of new businesses survive 5 years
• There are a number of high growth and even of
  gazelle firms in the country: the percentage of
  high growth firms appears relatively stable

• More inferences are possible with comparative
  data

                                                       7
  Choosing countries for comparison
            with Canada
• Selection criteria:
  – Geographic proximity
  – Cultural similarity
  – Similar population size
  – Similar level of economic development
  – The availability of comparable data
• Countries selected:
  – Denmark, Finland, Hungary, the Netherlands, New
    Zealand, Spain and the United States

                                                  8
Birth and death rates for
     manufacturers




                            9
  Some comments on birth and death
              rates
• Canada’s relative performance for service firms is
  comparable to our performance for
  manufacturers
• Canadian birth rates are slightly lower than those
  of most of the comparison countries, but the
  percentages are very close
• Death rates of businesses in the Canadian
  economy is lower than that in most of the other
  countries examined, and birth rates always meet
  or exceed death rates
                                                   10
Survival rates




                 11
 Some comments on survival rates
• Unfortunately, comparative data is only available
  for one year survival
• Canada compares quite favorably with most of
  the comparison countries in terms of the survival
  rate after one year.
  – E.g. 85% of manufacturing firms in Canada and the
    U.S. survived through their first year.
  – Survival rate of Canadian service firms (85%) is higher
    than that for service firms in the U.S. (78%), and is the
    highest among the comparison countries.

                                                            12
Proportion of high growth firms (based
            on employees)




                                     13
Proportion of high growth firms (based
               on sales)




                                     14
Some comments on proportion of high
     growth firms and gazelles
• Our relative performance for gazelles is quite
  similar to our performance for high growth firms
• In manufacturing sector we rank third among the
  comparison countries, but in service sector we
  have the lowest proportion of firms with high
  employment growth
• In manufacturing we rank second among the
  comparison countries, but in service sector we
  have the lowest proportion of firms with high
  sales growth
                                                 15
        What about exporting?
• Best available indicator is percentage of
  exports accounted for by SMEs (not ideal)
• Canadian SMEs accounted for 34% of exports
  in 2005.
• We compare favorably with U.S. (34%) but not
  with European countries such as Spain (66%)
  or Scandinavian countries e.g. Denmark (62%)
• We outperform countries with comparable
  trade agreements (e.g. Australia, 6%)
                                             16
 Some additional relevant information
• About 1 in 15 Canadians is self employed in an
  incorporated business.
   – Compared with working Americans, a larger percentage of
     working Canadians were self-employed and had an
     incorporated business.
• Over 1/3 of SME owners are women
   – Higher percent than in countries such as U.K.
• The ownership of our SMEs increasingly reflects the
  demographic diversity of our population
• Over the past decade, average education, experience
  levels and ages of Canadian SME owners have been
  rising

                                                           17
• Owners of larger businesses are wealthier




• Most Canadian business owners start their businesses from scratch




                                                                      18
Where Canadians found funding to start
their firms




                     (3%)




                                                     19
                     Source: Industry Canada, 2007
        Where Canadians found money to operate their
        firms
                            Commercial or personal loans
                                        Retained earnings
Ongoing Operations
 Financing Used for




                                         Personal savings
                                                  Leasing
                            Tade credit owing to suppliers
                          Loans from friends and relatives
                      Government lending agencies/grants
                         Loans from unrelated individuals
                                                              (3%)
                               Other sources of financing
                                             Micro-credit
                                   Loans from employees


                                                         0%          20%   40%      60%       80%
                                                                 % of Business Owners
                                                              Source: Industry Canada, 2007
What about venture capital?
     Venture Capital as a Percentage of GDP 2008




                                                           21
                Source: Global Entrepreneurship Monitor 2009
    Conclusions: areas of strength
• Pool of entrepreneurial ventures – The birth rate of new
  firms with paid employees is higher than the death rate,
  which means that the pool of businesses with
  entrepreneurial potential is being replenished regularly.
• Sustainability of entrepreneurial ventures –businesses
  created by Canadians have desirable characteristics that
  enable them to attain and maintain a competitive
  advantage in their markets.
• High growth rates for manufacturers – The growth rates
  and gazelle rates achieved by Canadian manufacturers rank
  among the best of the countries examined for this report.
  These indicators of growth suggest that Canadian
  manufacturers are developing innovative products,
  processes and/or markets.
                                                          22
 Conclusions: areas where we need to
               improve
• Growth of service firms – Canada generates a lower
  proportion of high growth and gazelle businesses in the
  service sectors than do most of the comparison countries
  considered here
• investigating the reasons underlying this relative weakness is
  a priority for further study, given the increasing prominence
  of the service sector in most economies.
• Exporting – The percentage of exports accounted for by
  Canadian SMEs is lower than in European nations examined
  for this report and comparable to that of the U.S.
• Investigating the reasons behind Canada’s ranking in this
  regard is also a priority for further study, given the small
  Canadian domestic market size is many sectors and the
  general increasing globalization of business.

                                                                   23
                  Final thoughts
• Is this report consistent with other assessments of the
  state of entrepreneurship in Canada?
   – We focus on performance indicators that others have not
     always considered … based on recent advice from OECD
   – We do not look at “inputs to innovation” (e.g. R & D) but
     arguably look at an output thereof (growth)
   – We do not make assumptions about the “culture” but
     rather report facts about the economy
• While we come to generally favorable conclusions here
  we end with cautionary notes about the limitations of
  what we can infer from the data we have and with a
  call for specific research that will help us understand
  both our performance and how it could be improved
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