Government: Tech companies need a hand up, not a hand out

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As part of our ongoing series examining the ecosystem necessary to bring technology to market, we asked Andrew Fisher, executive vice-president at Wesley Clover, to share his insights on public policy issues and the culture of entrepreneurship. This is the first of his commentaries and we welcome your feedback.

By Andrew Fisher

Businesses in Canada have a lot going for them. From the SR&ED program, to other services provided by Export Development Canada, the Business Development Bank of Canada and DFAIT, Canadian technology companies are certainly not starved for choice compared to most other jurisdictions.

Still, there are tweaks that could be made to improve the system and enable those areas that offer the greatest potential gain for the country as a whole. Nor is a rich buffet of government support and subsidy paid out of the public tax base necessarily a good thing.

What is innovation?

Let’s start off with a definition of innovation. To me it’s all about revenue and wealth. Innovation is only truly effective if it has value, if people demand it and will pay for it. It’s the commercialization of brainpower. Your ideas have monetary value and, as a result, they sell.

However, as a nation, our public policy intended to support economic growth is far too focused on R&D. In fact, it is far more likely to pick a loser on the research side rather than pick a winner on the development and commercialization side. In my experience dealing with politicians and bureaucrats at all levels, government absolutely shies away from any sort of incentive, reinforcement or support for people who are commercialization-centric.

Why? I don’t know. Maybe they’ve been burned in the past. But overall, they are reluctant to allocate tax dollars to commercialization activities out of fear that it will spark a negative knee jerk reaction from the population.

Instead, money keeps getting poured into bailouts for the auto sector, or into “stimulus packages” that are really just short-term construction jobs. How many bridges have been built, potholes filled, over the past two years? Compare that to how many technology companies received financial assistance to help build their sales channels.

The problem is that government in Canada tends to provide a common suite of services that have to be accessible to everybody. But there are good businesses and there are bad businesses. Bad businesses learn how to do a really good job of sucking up a lion’s share of the available subsidies. Instead of working to generate strong sales channels and scalable businesses, they become quite good at wooing various funding mechanisms and taking advantage of various programs. They have to; it’s the only way they know to survive.

The good businesses, meanwhile, don’t really have the time to futz around with those government folks and operate at a bureaucratic pace. Instead, they go out and sell their product, raise capital, whatever it is they need to do to get the job done. They don’t actually need that subsidy. Sure, it’s good to have when it comes, but the people running these companies are definitely not dependent upon it.

Now, I don’t want to sound like a complainer or a whiner here. No matter where you are in the world, you have to go out and fight everyday with every tool in your toolbox to win some business. And as I said, Canada provides some great tools. The SR&ED program is among the best in the world in terms of supporting R&D. But do we weaken companies because we give them too much subsidy?

R&D in a vacuum doesn’t create wealth

R&D is typically five percent of the budget in what is deemed a going concern. From a SR&ED perspective, it has to be risk, pure “R.” Where is the emphasis on commercialization? This is one example of where we need to rethink and tweak our existing policies to give wealth creation its due. Not that we should scrap SR&ED by any means, but it definitely needs an overhaul. The model needs to be adapted to also stimulate activities that are going to generate sales.

You can write software code till the cows come home and it might create a job in the short-term but unless someone’s out selling it, it’s not going to create all the other jobs that are needed to launch a viable company.

The flipside of this is that R&D done well can employ 20 people. That was the government’s original thought process – if we subsidize R&D, that one person will go out and hire 19 other people. But those 19 other people are in sales and marketing, operations and finance, positions you can’t fill if you are not generating revenue. Perhaps you have secured startup cash from venture capitalists or other investors to bring those people in, but you are still going to need a commercialization strategy that will bring your technology to market in whatever form customers are willing to pay for. The SR&ED program isn’t going to help you with that.

The system needs to be updated. I mentioned up top DFAIT and those other entities. They can help you generate leads. They can even help you qualify leads. However, they’re not mandated to do so. Compensation for their people isn’t based on these metrics.

Holding government accountable

The good news is that the senior people at DFAIT and elsewhere are looking at their internal processes and asking the right questions about what they have to do to generate more sales for Canadian companies. On the other hand, the majority of our elected officials just don’t get business. They do, however, understand what is most likely to get them the next vote. They understand the political currency that comes from signing a $10-million cheque for cancer research but not for helping a technology company build its export sales.

We as voters need to stand up and change that and make them more accountable. Businesses need to be provided with tools that will drive revenue, with benchmarks and balances that will weed the good companies from the bad and reward entrepreneurial achievement.

Next time, I’ll talk more about how government needs to pick winners and losers and incent those industries that offer the highest potential return for Canada.

Andrew Fisher manages a portfolio of ICT and digital media companies globally. In addition he also acts as a business prime for the Wesley Clover affiliate program, which connects teams of new graduates with tier one network operator, service provider and communications equipment manufacturers globally. These partnerships provide invaluable customer insight and a route to market for each of the affiliates.

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