MEDIA: Business Building a Key Part of Innovation (The Hill Times Op Ed)
Innovation tends to be viewed as something that is associated with labs, microscopes, and other technical spaces, and although it might start here, this is not where it ends. Products of invention that are viable in the marketplace do not get to customers on their own; rather, there is a need to develop this important connection point, which often involves building a business.
There is a common misconception that the “invention” phase of innovation is the hard part, and although it is far from easy, the “build a business” component can be equally, if not more, difficult. It is at this point where the potential of what has been developed thus far can be stopped in its tracks, with novel products failing to reach the marketplace and generate a revenue stream. This situation represents a dual loss, as the innovation does not get the opportunity to benefit whoever it was designed to help, and there is little in the way of financial returns to offset the investment that was made during the research stage. Unfortunately, this is the fate of many “bright ideas”, often because the business aspect has been underestimated, underfunded, or not prioritized.
Building innovation-based companies that are robust and sustainable represents an opportunity to create a foundation for further development, a cycle that is well positioned to generate ongoing economic wealth. This challenging task is too often left to those with primarily technical backgrounds, lacking formal business education and experience. Although technical founders certainly have relevant skills and experience to contribute (product and business development are good examples), leading and growing a company requires a different skillset, with a depth of experience in areas such as management, finance, raising capital, and scaling early-stage companies. In other words, this complex task, which tends to unfold in the uncertainty of emerging markets, requires a collaborative range of competencies in order to achieve success.
Equally important is ensuring that sufficient resources are allocated to the business-oriented areas of the company, such as finance, sales, human resources, compliance, and administration, as the technical (or product) function tends to already be well established. Access to adequate levels of “smart money”, including venture capital and growth-oriented financing, is integral to the process, as companies tend to be financially challenged when they are on the brink of achieving significant milestones. Having emerged from the early days of small fundraises and research or business start grants, young companies that have attracted customers and opportunities to generate larger revenue streams too often find themselves with an insufficient capital base, with many simply unable to get past this stage.
Although Canada has a growing venture capital industry, it is much smaller than the US, when considered on a pro rata basis (For 2019 venture capital investment, Pitchbook reported $136.5 billion in the US, while the Canadian Venture Capital & Private Equity Association reported $6.2 billion, approximately one-half of the 10% measure typically used for comparison to the US market, prior to including foreign exchange). Raising money can be extremely difficult, and although not all businesses are worthy of investment, many promising companies are left unfunded; those that are led by women or minorities face even greater challenges. Businesses that are successful in raising capital and generating significant growth tend to encounter limits in the level of investment that can be raised, with a need to look beyond Canada’s borders or relocate elsewhere. It is difficult to find Canadian innovation-based companies with a dominant global presence, as compared to those such as Google, Amazon, or Apple, representing a missed opportunity to bring Canadian technologies to the world and build significant wealth here.
Canada’s innovation strategy would benefit from a greater emphasis on the commercialization stage, with a specific focus on building a business around commercially viable intellectual property, to create capacity, distribution, and a revenue stream. Sufficient growth capital and targeted business advice are required in order to achieve this on a sustainable basis, resisting the temptation to cycle back to the invention stage, in terms of funding and attention. The road to opportunity is ahead, and it requires a greater degree of practical input and engagement from experienced business minds in order to reach its full potential.
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