BC’s Minister of Small Business, Technology and Economic Development points to MacDonald, Dettwiler and Associates (TSX:MDA), the former Creo Software (now Kodak) and Rainmaker Entertainment (TSX:RNK), as examples of B.C. technology companies that have become household names in certain global circles.
Such companies have all managed to push through what Iain Black refers to as the B.C. technology sector’s glass ceiling – the $5 million in revenue mark.
But Black – who was an experienced technology executive before entering politics – also acknowledged that few other companies have joined MDA, Creo and Rainmaker in breaking through that ceiling.
“As you get closer to this $5 million mark, there’s almost this artificial wall that you hit,” said Black last week.
“Frankly, that $5 million mark, for many technology companies, involves a fairly significant step in terms of capital investment. But its not just the money – you have to, in most cases, reinvent your operating model.”
To eliminate that $5 million glass ceiling, the British Columbia Technology Industry Association (BCTIA) – in what is its most ambitious program in recent years – is adopting industry-support mechanisms that have been used to great effect to grow Waterloo’s technology sector over the last four years.
Through a $1.2 million Centre4Growth program, the BCTIA plans to help develop up to 500 small and medium-sized technology companies during the program’s two-year pilot phase.
The Centre4Growth, which Black unveiled last week at a luncheon, is hiring five CEOs-in-residence throughout the province – three in Vancouver, one in Victoria and one in Kelowna – who will use their previous business successes to coach and advise companies on expanding their business.
A business outreach initiative within the program aims to link companies with trade missions, international shows and other events.
The Centre4Growth will also provide virtual training, webinars and an online “intelligence library” that companies can use for market research.
The program is being funded by the provincial and federal governments and the National Research Council’s Industrial Research Assistance Program.
Each partner is chipping in $400,000 over two years.
BCTIA president Pascal Spothelfer said the program is largely aiming to address how a shallow management pool in B.C. has resulted in a dearth of medium and large-sized companies.
A vicious cycle results: if companies don’t expand, their management teams can’t gain the know-how needed to grow.
“If you have a strong management team,” said Spothelfer, “you’ll find the access to capital, the access to market and the access to talent.”
Without strong management, companies find it hard to access export markets and develop beyond the “one-trick pony” phase, in which they have no more than one or two products in their pipelines.
That can often result in smaller exits, say in the $3 million range, that provide no larger benefit to the cluster. In such acquisitions, U.S and other foreign companies often leave research and development teams in B.C. but centralize managerial duties at their headquarters elsewhere. Spothelfer said B.C.’s managerial talent pool gets no deeper in such scenarios.
“That leads to a fundamental structural weakness in our industry,” he said.
In contrast, the sector benefits from the trickle-down effect of larger exits.
As an example, Spothelfer noted Kodak’s US$980 million acquisition of Burnaby’s Creo in 2005.
While Kodak has downsized the company, many members of Creo’s management team and owners have re-invested the wealth they gained from the sale back into B.C.’s technology sector and have helped found new companies in the sector.
“These are all people who know how to grow companies,” said Spothelfer, “and that’s the type of talent we need.”
In Waterloo, the development program that is the BCTIA’s template for the Centre4Growth has worked with 500 companies over three years and helped facilitate more than $30 million in financing during that time.
Said Spothelfer: “The more companies that can grow to the $20 million, $30 million or $40 million range and grow beyond 20 employees, the more jobs there will be in the tech sector.”