Dominated by small, inefficient businesses, the B.C. economy needs for a few more champions.
This is what entrepreneurial success is supposed to look like. The decor is all blues, blacks and matte metals. The cubicles are all flat screens and headsets. The offices are all sports equipment and management books. The lobby’s triumphant corporate art screams entrepreneurial testosterone: a velociraptor skeleton, made of nuts, bolts and metal tubes, hind claw raised in full attack mode. “Leave all prehistoric ideas at the door,” its plaque commands.
Coastal Contacts Inc.’s east Vancouver base, near the Renfrew SkyTrain station and overlooking the company’s 25,000-square-foot assembly and distribution centre, is solid proof that not only can B.C. support a global operation; it can grow its very own from scratch. Founded in 2000, Coastal Contacts now employs 450 people in Vancouver and another 150 in Europe, and has filled more than 100 million orders for some two million customers in North America, Europe and Asia. Revenue in 2010 was just shy of $150 million.
The entrepreneur behind the operation is 41-year-old Roger Hardy, who founded the company with his sister, Michaela Tokarski. Of course, Hardy wasn’t always sitting this pretty. Growing an online contact lens retailer in the early 2000s among dozens of competitors was a painful crucible. It involved daily trips to the bank, he says, and he personally
didn’t draw a salary for years. At one point, he says, he learned that a U.S. competitor had secured a $40-million line of credit to fund its drive for market dominance. Coastal Contacts could only draw on Hardy’s $10,000 Visa limit. “That was in our first year,” Hardy remembers. “My sister and I kind of look at each other and go, ‘Are we sure we’re in the right business?’”
Coastal Contacts is one example of B.C.’s unique economic advantage: gutsy entrepreneurs like Hardy fuel Canada’s most dynamic small-business sector. However, while Coastal Contacts broke through to the big leagues, such successes are few and far between. In 2009, businesses with fewer than 50 employees provided 57 per cent of B.C.’s private-sector jobs, the highest proportion in Canada, according to B.C. Stats. About 18 per cent of the province’s workers were self-employed, the highest rate in the country. Together, these small companies accounted for about one-third of B.C.’s GDP.
Depending so heavily on small business has its drawbacks. Productivity is linked to things like working conditions and wages, and those improve with economies of scale far beyond the reach of small businesses. Canada’s unimpressive labour productivity – a measure of wealth created per hour worked – has long been a topic of conversation among economists, and B.C. is dragging Canada’s score down, coming in at just below the national average. And we aren’t making any significant advances: a report released by the C.D. Howe Institute in June this year found that between 1985 and 2009 B.C. had the second-lowest labour productivity growth in the country, after Newfoundland.
“This is counter-intuitive to a lot of people,” explains Jock Finlayson, vice-president of policy for the Business Council of B.C., “[but] the larger the enterprise, on average, the higher the output per worker.” He explains that large companies are generally able to invest more in machinery, training and technology to max out the value created in every working hour. “This suggests that an economy that is highly weighted toward small businesses is going to have a fairly low level of productivity,” Finlayson says. “And this is what we see in B.C.”
And the bad news doesn’t end there. Exports and R&D are both crucial factors in a growing, dynamic economy, Finlayson explains, and these too generally suffer with small business size. Only Nova Scotia and PEI have a smaller portion of their GDP derived from exports, according to Statistics Canada, and B.C.’s spending on research and development per capita is below the national average.
There is, however, an upside to having so many small businesses: the ones like Coastal Contacts that do grow quickly can contribute significantly to the economy. A 2008 study by Industry Canada found that while only four per cent of companies in Canada qualified as “hyper-growth firms” between 1993 and 2003, they were responsible for 45 per cent of the net jobs created by continuing companies. So if more of B.C.’s many small businesses could follow the lead of such companies as Coastal Contacts, they could transform B.C.’s economy from laggard to leader.
As Finlayson explains, “the challenge is to have an environment where these rapidly growing small firms will take root and actually grow and reach their potential.” So what’s stopping them?