TheCodeFactory: ‘A place for innovation to grow’

By Leo Valiquette

Now we’ve got it, let’s put it to good use.

Last night was the official launch of TheCodeFactory, a private business accelerator/incubator intended to help fill the gap between a great idea and a commercial product gaining traction in the marketplace. It’s the cherished baby of business consultant Ian Graham and its launch attracted plenty of interest from the local business community, including remarks from Denny Doyle, the “Don Cherry of Ottawa’s tech sector,” Mike Milinkovich, executive director of the Eclipse Foundation, and Scott Lake, founding partner of both Jaded Pixel and Shopify and blogger on Startup Ottawa.

First up, I’ll freely admit inmedia‘s support of TheCodeFactory and my role as PR flack for its launch. But my personal interest and support for this project goes right back to my previous incarnation as editor of the OBJ and my favourite hot-button topics. We need to foster a culture of true entrepreneurship in this town defined by people who want to build a successful company versus those in search of a paycheque who are just trying to give themselves a job. Problem is, having that mindset is only half the battle. You need the means to get from the idea stage to the cash-flow stage. Plenty of great ideas with talented, committed people behind them wither and die thanks to a lack of support for the earliest stages of the start-up lifecycle.

That’s where TheCodeFactory comes in.

What Ian is offering up is a combination of office space for start-ups looking for a desk without all the administrative and costly aggravation of setting up their own office. That’s the fourth floor. What’s truly unique is what’s on the second floor. There he offers co-working space with the relaxed atmosphere of a coffee bar (with full connectivity, of course) where entrepreneurs at every stage and code warriors from local schools can network, collaborate, troubleshoot and refine their ideas, even connect for potential employment opportunities.

It’s this unique community approach, the emphasis on creating a “vital, vibrant, ecosystem” that truly sets TheCodeFactory apart from other venues that fit into the business accelerator category. And Ottawa couldn’t need it more. We’ve seen a host of anchor tech tenants of one stripe or another downsize, pull up stakes or get bought out over the past while. There’s plenty of volatility and uncertainty our there, the perfect breeding ground for startups as people decide it’s time take hold of their destiny and go into business for themselves. It’s been referred to as the “supernova effect,” as experienced and savvy individuals disperse their knowledge and expertise throughout the tech community like seeds cast to the winds.

In this environment, TheCodeFactory is just the kind of place we need for those seeds to sprout into new ventures or for that kind of experience to be made available to others. As Scott said in his remarks last night, it’s “a place for innovation to grow.”

Building small companies that roar

By Leo Valiquette

Small is the new big.

These words came from Jerry Everett, director of sales and founder of six-year-old conference services firm onconference Inc. Everett was part of a panel of speakers reflecting on six years of entrepreneurship in Ottawa at an OCRI event this week with the catchy title of “Blood on the Tracks.”

Small is the new big wasn’t the overarching theme of the event, but it certainly struck a chord with this nascent PR practitioner. Everett’s point was that consumers (and I’ll use that as the broad term for anyone on the receiving end of a service or product) have had enough with the kinds of customer-service experiences typical of large, monolithic organizations. They are ready and willing for a more customized personal approach typically found only with a smaller company. Peronalized service will increasingly become a key differentiator in the years to come.

We’ve heard this before, of course. A business strategy that focuses primarily on your product or service’s features likely has a short shelf life. New features and fancy bells and whistles come along all the time. It’s difficult to maintain an edge over the competition for long. As for price, well, somebody is always going to find a way to do something cheaper, be it with outsourcing, tightening up the supply chain, or simply focusing on volume over margins.

Service, on the other hand, falls into a whole other category where the emphasis is on behaviour and the relationships built with customers. When customers feel that their concerns and needs are being taken seriously and made a priority, they’re much more likely to become repeat customers.

At inmedia, our mantra is “global reach” with “high-touch local service.” How? By maintaining a laser focus on our client niche and the range of services we offer to them. By having a small, veteran team of counsellors who work together on each account to ensure continuity for the client regardless of who’s in the office. By holding ourselves accountable for the results of our media outreach efforts on behalf of our clients. Small is the new big has been a guiding principal for inmedia from day one.

Wake up call

But the emphasis of the event was much more specific to Ottawa. In an already-sour venture-capital climate, the question was asked, why has Ottawa fared so much worse in recent years than other tech centres across the country?

Panellist Debbie Weinstein, of tech-centric law firm Labarge Weinstein, spoke largely of the retooling of the Ottawa tech sector, from its heavy emphasis during the boom on telecom and semiconductors to emerging sectors such as clean and green, represented by firms such as Plasco, Iogen and Menova.

That may be part of it, but other tech veterans on the panel, namely David Vicary and Rainer Paduch, were somewhat more blunt: Most of the VC cash these days is coming from U.S. VCs and U.S. VCs will back a B-grade technology if there is an A-grade team behind it. The problem with Ottawa, is that the reality (or at least the perception, which often carries more weight than reality) is that we have A-grade technology but B-grade management talent.

(Then, of course, there was the argument from Everett of whether or not a company should even focus on VC capital for growth rather than bootstrapping, but that’s a topic all its own.)

Mr. Paduch emphasized the fact that as Canadians, we’re just too timid. We’re not ballsy enough compared to our American cousins.

Perhaps that’s partly to blame for the fact that we have this habit of hiding in a lab and engineering the hell out of a product before we even validate the need for it with potential customers. There’s too much upfront development cost and far too little initial marketing effort. We need to do a better job of getting out and selling an idea and gauging the market’s interest before putting all the money, time and effort into building the product.

“Entrepreneurship is part of the American dream. In Canada, an entrepreneurial economy is almost shunned,” Brian Hurley said in his opening remarks.

So why is Canada, and especially Ottawa, languishing when the experts say there is plenty of investment capital out there? What keeps us from building more anchor companies for the local tech sector that don’t end up a branch plant? Maybe the answer is only as far away as the nearest mirror.

Tech community disagrees that BDC should ‘abandon its dogs’

By Francis Moran

I have been soliciting opinions all this week on a story by the Canadian Press, carried in the Globe and Mail on Monday, that said the Business Development Bank of Canada‘s venture capital wing had been urged by a federal government-ordered study to “cut its losses more often, abandoning the dogs in its portfolio in favour of the stars.” With the government-owned bank a key investor in many Canadian technology companies, the implications of this could be bad news for those still working on achieving their business plans.

(In the interests of full disclosure, I should note that the BDC is a welcome lender to inmedia and I have always been very happy with its service of our operating loans, even if the money does come at a bit of a premium. Additionally, we have a further, if indirect, dependency on the bank given that many of our clients count the BDC among their investors and, therefore, the source of the funds they use to pay for our services. Some of these clients have a happy and valued relationship with the BDC as VC; others are considerably less enamoured.)

“BDC seems to have some difficulty to walk away from non-performing investments to concentrate on winners,” the CP story quoted the report’s authors saying. “Build winners, walk away from losers.”

I asked several people in the community for their reaction to the story and their opinion of what it might mean if the bank became a less patient investor.

Most sidestepped that issue entirely and went straight to the heart of what they thought was a more relevant criticism of the bank, an apparent unwillingness to take the lead on new investments. BDC’s venture capitalists, many told me, are happy to have another investor do the initial due diligence and offer the first term sheet and only then will they pile on.

One person I spoke to noted that the bank’s charter is very clear that it does have a mandate to be an engine of economic growth for Canada. While not suggesting that BDC should become as interventionist an instrument of government economic policy as, say, the Caisse de dépôt et placement du Québec, it clearly should play a more nuanced role than your average cold-blooded VC.

Perhaps, in the end, BDC has the balance right. Allow some other more hard-headed investor to validate the investment before joining the syndicate, but then be a little more patient in waiting for the investment to pay dividends. There certainly was no appetite among the people I consulted to have the bank become more cut-throat in its treatment of what the CP called “the dogs in its portfolio.”

I’d love to hear from others on this issue. Should BDC walk away more swiftly from its underperforming investments or should it play a waiting game? Either way, what would that mean for Canadian technology companies?

ITAC IT Hero Awards seeks nominations

By Linda Forrest

We’re doing a bit of work for the Information Technology Association of Canada, helping to promote the organization’s IT Hero Awards program. The ITAC IT Hero Awards celebrate and recognize creative applications of information technology that significantly improve the lives of Canadians and readily demonstrate social and economic benefit.

Nominations are being accepted in both community and corporate categories until May 9 and the winners will be announced at the ITAC Chairs’ Dinner in Toronto on June 26. The nominees’ work highlighted in the submissions so far is impressive and truly making a difference in communities across the country.

Are you aware of a company or individual that might be worthy of a nomination? If so, please submit an online nomination form. A full set of guidelines and nomination criteria is available on the IT Hero Awards web site. We’re working to get media coverage for stand out nominees like Paul Gillespie and Dan Babineau, and could potentially promote outstanding work that is being done in your community to the media as well. Good luck to all of the deserving nominees and keep up the good work!

Where, oh where has Ottawa gone wrong?

By Leo Valiquette

There’s a very simple, and very valid, reason why Ottawa’s flow of venture capital has slowed to an occasional spurt, Celtic House’s Andrew Waitman told his audience at OCRI’s Technology Executive Breakfast yesterday morning.

The reason is that area companies haven’t proven themselves a good investment, if one takes stock of the new companies started since 1995 and tracks the results of the investment dollars that have been pumped into them.

While the managing partner of the local VC firm insisted he’s an optimist, since it’s impossible to persevere in his business otherwise, he nonetheless considers himself a frank fellow. Taking a frank look at the numbers demonstrated that the billions of dollars in VC pumped into the Ottawa area since the mid-1990s have failed to generate a single home-grown success story that has reached the $100-million revenue mark, his benchmark for being a mid-sized company. (He raised the bar to $250 million when talking about U.S. companies.) Never mind that none of them have gotten anywhere near the kind of returns that that level of investment should have returned to the VCs.

Now, while the erosion of deal flow may be simple enough to understand in theory, why the return on investment has been so poor is infinitely more complex, Waitman said. One of the obvious reasons is the irrational exuberance of the boom and how much of that cash was pumped into startups that proved to be utter flops. That tends to skew the statistics a bit. On the other hand, the region has plenty of strong and growing companies, many of whom have done just fine without any VC cash at all, so it’s not like Ottawa is utterly inept in terms of building and sustaining a vibrant tech economy.

But while the reasons for Ottawa’s tepid performance may be complex and difficult to distill down to a few key factors, I think an underlying cause is that same old issue of executive bench strength. It’s a combination of too many executives having an engineering rather than sales and marketing-oriented background, and the complacent sense of entitlement that comes of being a government town. When I’ve harped on this before as a journalist, one reader wrote in to criticize my griping, claiming that he had spent time in Washington, D.C. and found that city to be no different than Ottawa. He suggested that the bureaucratic and corporate cultures can’t really co-exist in a city like Ottawa and expressed his preference for a sleepy old government town. “Move somewhere else, if you don’t like it,” he wrote.

For those of us who actually do care to see a strong local economy built from more than our tax dollars at work, that’s the kind of sentiment we need to escape. On the surface, it appears that it may be limited to a specific segment of our population. But Mr. Waitman’s frank assessment of Ottawa’s track record over the past decade would suggest it’s far more pervasive and caustic than we think. It’s the kind of sentiment that smothers the tenacious and scrappy attitude that defines true entrepreneurship.

I think the lack of VC dollars is a good thing, a harsh slap in the face that may prove positive. It forces startups to bootstrap, to push out into the global market to identify potential customers and generate early streams of revenue. (See our excellent guest blogger, seasoned start-up veteran Jason Flick, who wrote on this here yesterday.) In other words, become a sales and marketing-centric, rather than engineering-centric, organization. There’s already ample evidence to prove that engineering a product for it’s own sake is a recipe for disaster. It’s a fact that’s been dogging Ottawa for years. Any company today must look at itself as a services business tapped into what potential clients want and need and figure out how it can distinguish itself from the competition. And of course, that all starts with screaming its existence to the world and understanding how to get its message out.

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