The Missing ‘M’ in SME – Why small technology businesses fail to grow

1. The Missing “M” in SME – Why small technology businesses fail to grow The Missing ‘M’ in SME – Why small technology businesses fail to grow Prepared for: Institute of Certified Management Consultants of Alberta Prepared by: Alberta Council of Technologies Society DRAFT - Not for circulation (12-OCT-14)

2. Report Highlights – Who participated? Site consultations – Nine 1.5-hr. workshops co-hosted across the province. N = 70 On-line Survey of ABCtech’s 15,000 subscribers sharing “an interest in the commercialization of emerging technologies” N=169 • Great interest from Management (30%), InfoTech (28%), Engineering (25%), Energy (25%) and Research (20%) • Higher interest than expected for Management (+25.6%) and Engineering (+22.5%) • 73% of respondents are operating an SME; 1/3rdare exporting • 50% of SMEs are growing fast or moderate The top 3 industry interests of those – Surveyed vs Responded Management & Strategy 4.4% vs30% +25.6% Engineering & Design 2.5%vs25% +22.5% Manufacturing & Export 1.5% vs16% +14.5% Agriculture & Food processing 1.6% vs15% +13.4% InfoTech & Analytics 15.1% vs28% +12.9% Energy & Distribution 12.5% vs25% +12.5% Communications & Marketing 5.2% vs17% +11.8% NGOs – Non-government organizations 2.8% vs14% +11.2% Construction & Real Estate 3.1% vs14% +10.9% Government & Policy 8.2% vs17% + 8.8% Education & Research 12.2% vs20% + 7.8% Health & BioTech 4.8% vs12% + 7.2% Finance, HR and Legal 11.0% vs17% + 6.0% Environment & CleanTech 10.7% vs16% + 5.3% Entertainment & Hospitality 1.6% vs 6% + 4.4% Forestry & Wood Products 1.1% vs 5% + 3.9% Transportation & Logistics 1.6% vs 4% + 2.4% DRAFT - Not for circulation

3. Report Highlights - BACKGROUND The Issue – Few small technology businesses fail to survive and even fewer ever grow to medium (99+ employees). About growth, the Survey revealed: • GROWTH IS IMPORTANT to all respondents and very/most important to those operating SMEs, more so than for those in public services and others not in an operating enterprise. Growth may increase in importance as SMEs grow in size. • GROWING. Half of those operating an SME are growing, the other half are growing slowly or not at all – excluding start-ups where it was too early to tell. • INTERESTS of the 50% operating fast/moderately growing SMEs include Engineering and Construction along with Entertainment and Forestry AND least likely mentioned by slow or no growth SMEs. These are competitive private sector industries. • INTERESTS of the 50% operating no/slow growing SMEs include Government, Education & Research, and Health AND least likely mentioned for fast/moderately growing SMEs. These are public services. DRAFT - Not for circulation

4. Report Highlights – Important for growth? • Most important for growth of SMEs were marketing, management, manpower and networking – each ranked consistently high. • Least important for growth of SMEs were services typically of interest to larger, more established SMEs. DRAFT - Not for circulation

5. Report Highlights – Impeding growth? • Most important AND impeding growth of SMEs are management, networking and internal investment in addition to marketing and manpower. • The emergence of Internal Investment as an impediment to growth of SMEs may reflect that respondents were early-stage and small, a time when External Investors is less important than Internal Investment – and cash flow. If this is the case, it may also explain why management and networking are impediments as managers are too busy to network. DRAFT - Not for circulation

6. Report Highlights – Who’s helping? • Medium-sized businesseshire more qualified staff, invest more in research, have more resources to acquire other businesses, and are more likely to engage in global exporting. The effectiveness of the following sources was rated for "helping" grow entrepreneurial and small businesses. There may be a bias here as the Survey sponsors were a management consulting and an industry association. Both they, incubators and research agencies, angels and VC networks, are viewed as most helpful. Least helpful are banks and financial institutions, multinational corporations, and municipal government, resources that typically attend to established businesses. DRAFT - Not for circulation

7. Nine issues – from site consultations Technology. Securing technology knowledge is also addressed under Human Resources. Product management and development is poorly understood. Management. Adapting to growth and setting aside time for more than operations. Governance. The lack of a board or networks of advisers. Human Resources. Talent shortages and the lack of social-relational skills by knowledge workers. Funding. Inadequacy of Internal funding for early-stage enterprises and unavailable External funding at a later stage of development. Venture capitalists undermining growth, promoting early exits with a consequent loss of talent/experience, and an economic loss to the industry and the province of a growing enterprise. Evaluation. Little attention to metrics and the setting of priorities. Money is over-valued as the proxy of success. Mismatch of expectations afteran investor relationship has been sealed. Regulations. Municipal governments “red tape”. An obsession with timely tax collection by the federal government, particularly of GST creating a significant burden on the cash flow of small businesses. Marketing. A weak understanding of the customer, their problems, and markets. Also weak integration of market research in product development. Technical "wow!" driving internal funding priorities. Learning. Failure is under-valued, and not appreciated as a critical element for managing growth. "Failure" both in terms of identifying "lessons learned" and appreciating the value of asking and where to go for "help". DRAFT - Not for circulation

8. Recommendations – Four with several proposals #1. Human Resources. Improve communications and relational skills for knowledge-based students and graduates, professions and industries. Proposal 1.1. Develop a curriculum of requisite communication skills warranted at various stages of small business development; publish and promote them. Proposal 1.2. Encourage the integration of applied communications into the curriculum of all educational institutions particularly the professional schools. Proposal 1.3. Governments need to increase the priority given to developing small business incubators linked to research institutes and universities. Proposal 1.4. Management consulting needs to appreciate the significant value attributed to the profession by small technology businesses and convey the profession’s interest in the success of small business. DRAFT - Not for circulation

9. Recommendations … continued #2. Funding Reform. Cultivate local and regional networks of early stage investors as advisory. Proposal 2.1. Establish a model Innovation Zone compatible with the Zone's socio-economic vision featuring collaborative economic development and the integration of science and culture, technology and arts AND the development of the associated infrastructure, including a network of domestic and foreign investors to support small business retention and attraction and an associated network of small business incubators. Proposal 2.2. Conduct workshops on the risks and rewards of mergers and acquisitions for growth and tell stories about the success for Alberta enterprises that have adopted mergers and acquisitions for growth. DRAFT - Not for circulation

10. Recommendations … continued #3. Banking. Restore the role of banks as commercial lenders. Proposal 3.1. Establish a task force of government policy makers, tax authorities, accounting professionals and corporate leaders to translate society's asset management protocols from the declining industrial era assets to the creative assets of the knowledge-based economy. #4. Policies & Practices. Revise procurement and regulatory, advisory and funding practices to support the development and retention of Alberta innovation and innovators and the attraction of foreign partners. Proposal 4.1. Review procurement practices to support small business bidding and the aggregation of bidders. Proposal 4.2. Review public funding and investment practices to ensure the return on investment remains with Alberta. Proposal 4.3. Establish an industry advisory to provide recommendations to government, corporations and NGOs on measures for increasing their accountability and effectively serving small business survival and success. DRAFT - Not for circulation