Why Canada Has No Big Tech Companies

Today, I watched a BNN interview with Boris Wertz, one of the leading VCs in Vancouver. You can find the video below.
Boris Wertz BNN

In the interview, Boris thinks that Canada doesn’t have large tech companies. He named two – Nortel and RIM, one dead and the other dying.

Here are a few quotes from Boris’ interview:

“We don’t have billion dollar Internet companies with the likes of Microsoft, Google, Facebook, and Amazon.”

“The valley is big not because the entrepreneurs were born there.”

“Canada needs to attract foreign entrepreneurs.”

While I agree that Canada needs to attract foreign entrepreneurs, I think what makes Silicon Valley is not merely foreign entrepreneurs. At the surface, that might be what Silicon Valley looks like, but that’s like giving an elephant to blind people and ask them what an elephant is.

What makes Silicon Valley so unique is the complete ecosystem around technology.

You have people who got rich from working in technology. You then have these people invest in technology companies. In essence, what make Silicon Valley great is the insight on what it takes to build technology companies.

“Silicon Valley is not a place but a state of mind.” – John Doerr.

Some of these insights are collaboration, competition, openness to innovation, failures and experimentation. Probably the most important one is the long term commitment behind technology companies.

To the rest of the world, wealth equals money. In Silicon Valley, everyone understands that wealth is created by building something people want.

It’s hard to create the next Silicon Valley just by copying what Silicon Valley is at the surface. At the surface, you bring immigrant entrepreneurs together, and you magically create the next Silicon Valley. But it’s a lot more than that.

Just like it’s impossible to build the next Facebook by copying Facebook’s features. What makes Facebook great is the fact that it’s the virtual representation of your friends. You cannot compete unless you focus on the friends first. To disrupt Facebook, you will need to create a completely different product – think Instagram.

As the world blindly competes to build the next Silicon Valley, they are merely paving a better road to it. Almost all second-tier startup incubators end the program with a road show to Silicon Valley. You’d wonder who is really benefiting from the whole startup hype.

Solution to Canada’s Next Billion Dollar Company – Immigration?!
Now with Silicon Valley already a powerhouse, brining foreign entrepreneurs to Canada is not the solution to create the next Silicon Valley. Again, it’s like copying Facebook features to compete with Facebook. It’s superficial, and it’s missing the point.

You can have these foreign entrepreneurs work for a few years in Canada. And let’s say they become successful in 5 years and right before they have the serious job-creation potential, they move to the States or get bought off by well funded US companies.

Companies like Salesforce build a complete acquisition strategy around Canadian companies.

So, why is nobody pointing to these as the missing opportunity at creating the next billion dollar company in Canada?

Greedy Investors with Near-term Thinking
So, why is nobody talking about these acquisitions? I think it’s simply because investors are getting filthy rich off these deals.

And that’s exactly what not to do if you want to create the next Silicon Valley. You cannot sell the hen that lays the golden eggs for a few quick bucks. Technology companies take 10 years to really manifest the value. To really build a billion dollar company, it takes tremendous multi-decade commitment. And that’s the biggest missing piece in Canada.

Too many Canadian investors get rich off natural resources. So, they naturally have a tendency to sell off the hen that lays the golden eggs. Nobody understands how to build the hen. Too many people have near-term thinking.

It’s probably best embodied by this episode of Dragons’ Den.

To summarize, two young entrepreneurs reinvented a brilliant new luggage. They patented the innovation, and they went to the Dragons’ Den. There, all investors advise them to license the technology to US companies in order to get filthy rich quickly. Nobody advises or helps them to think big and disrupt the luggage industry.

If you are wondering why Canada doesn’t have the billion dollar company, it cannot be more obvious than this. Too many people are in it trying to get rich quickly off entrepreneurs. Not enough people have the guts and commitment to create or help create something truly meaningful.

Do you think Google will be a billion dollar company had they license the technology to Yahoo? Unfortunately, I don’t think Google would even get IRAP money based on what I had to answer last time…

It’s a shame!

UPDATE: Hackernews Discussion.

About Jerry Tian
Jerry is the founder of ContentDJ. He is passionate about entrepreneurship and technology. While not working, Jerry enjoys blogging, playing squash and watching European football.

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jonbaer
Why no mention of D-Wave at all?

http://www.mayo615.com/ David Mayes
Very premature. D-Wave, General Fusion and Hootsuite are not yet big companies, and at least two of them are a long way from becoming big companies…All three are promising candidates, but there have been so many tech company bubbles that it’s not wise to be hyperbolic about it.

myBestHelper
Important to keep the dialogue going Jerry and I think your points are exactly the type of conversation that Boris Wertz was trying to get started. I would like to add that Canadian entrepreneurs need to own up to the self-imposed limitations we pose on ourselves (similar to how women are held back both by external factors as well as their own beliefs – see Sheryl Sandberg’s LeanIn book).

Jerry Tian
Definitely agreed. But unless the ecosystem changes (which is highly unlikely), we can only lift the limitation by moving south.

huslage
Don’t forget that this same syndrome happens in Silicon Valley itself. 90% of the tech companies started there fail miserably because of exactly the same nonsensical short-term focus. 30 years ago, we saw VCs doing the long-term thing, but since the “.com bubble” started in probably 1995 or so, we haven’t seen any sort of long-term strategy for anyone. The only truly successful companies buck the trend by kicking out the VCs that don’t agree with their long-term strategy – and that is a hugely expensive proposition.

Jerry Tian
Thanks for sharing the insight. I would have assumed 90% of the companies failed because they didn’t build a product that generated enough traction.

bfancher
It’s aboot time, eh hosers?

Jason McCandless
Google *did* license to Yahoo early on. The deal was struck on 26th June 2000.

Jerry Tian
Jason, thanks for pointing that out.

My point is that had Google founders relied on getting rich off licensing their technology, there would not be a Google (the current multi-billion dollar company) today.

bwertz
Great post, Jerry – just 2 follow-up comments that got lost in the TV interview:
– I don’t think any start-up ecosystem should copy the Valley – it would be impossible. But you can certainly try to learn from what they have been doing.
– Secondly, it is all about the quality and quantity of entrepreneurs that you have in an ecosystem. So attracting foreign entrepreneurs is one important strategy, as is investing into universities and celebrating entrepreneurship.

Jerry Tian
Boris, thanks a lot for the reply!
Completely agree with the first point.
On the second, do you think it’s sustainable as a strategy to play the immigration game? Just as I point out in the article, we can bring these foreign entrepreneurs to Canada, but the brain drain continues after they become successful. What’s your take on that?

bwertz
I don’t think we will be able to keep them all here but I still think it can be a game changer.

http://Thatstartupguy.com.au/ Daniel Mumby
@bwertz, agree, but the biggest source of entrepreneurs is often ignored -home grown locals, with life experience and insight (deep domain knowledge)- 40 – financially secure & looking to solve a problem

Jackie Murchison
Great article, Jerry. It certainly IS a different mindset over here- what do you think would be the most important step towards changing the game for Canadians?

Jerry Tian
Don’t sell ourselves short. Find good investors and make the commitment to shoot for the moon. In other words, I admire what Hootsuite is doing A LOT.