Greg Malpass is founder and CEO of Burnaby-based Traction on Demand, one of many B.C. tech companies that have grown during the COVID-19 pandemic
To close the persistent scale-up gap, industry and government must help small businesses grow faster, says BC Tech Association head Jill Tipping
Quick, how many of B.C.’s roughly 11,000 tech companies have 500 or more employees?
The answer: just 22. “It’s an astonishing statistic,” says Jill Tipping, president and CEO of the BC Tech Association.
That number is a big reason why the province’s technology sector again earned a B compared to its peers across the country in the 2020 edition of the British Columbia Technology Report Card, a biennial survey by BC Tech and KPMG.
“Although we do really, really well in B.C. with our startups,” Tipping says, “we’ve got this persistent scale-up gap where our companies stay small or they sell small, and they don’t grow into the medium-sized and larger companies that really make for a larger ecosystem. So we just don’t have enough medium-sized and larger companies compared to other places in Canada.”
In fact, nearly 80 percent of B.C. tech outfits employ 10 or fewer people. To join the biggest 10 percent of companies, you need just 50 staff. For Canada, that threshold is 100 employees. For Germany, the cutoff is 150; for Israel, it’s 200. California is way ahead of the pack, with 500.
“It’s lovely to have a lot of thriving small companies,” Tipping says. “But it worries me if we aren’t putting in place the support systems that help them grow into medium-sized companies. And I think there’s so much more potential than we’re actually realizing.”
And now, the good news
In the latest report card, the B.C. tech sector earns an A versus the province’s other industrial sectors—for the fourth straight time. Bucking the COVID downturn, many tech firms in B.C. and elsewhere have expanded during the pandemic.
The survey calls COVID an unprecedented disruptor but also a unique catalyst. “I have more requests than I can manage to accommodate from people who want to talk to me about how they can accelerate the adoption of technology and innovation in their businesses, and most of those are not tech companies,” Tipping says. The COVID reality has prompted every company to reconsider its business model, she notes, whether that means going digital, supporting remote workers or finding ways to keep growing and enter new markets.
“So innovation is something that people turn to when they need to, and boy, we need to now,” Tipping says. “In lots of ways, COVID is actually causing the adoption of technology to be accelerated, and for people to be more open-minded about new ways of doing things.”
Revenue for the provincial tech sector rose a combined 14.6 percent in 2017 and 2018, reaching $34.7 billion. “It’s a good-news, mixed-news story,” says Tipping, who points out that the industry is growing from a smaller base than some of its North American peers. The Ontario sector is triple the size of ours, while Arizona and Colorado have populations similar to B.C.’s but much bigger tech revenue.
“I like to take that as a sign of opportunity for the future, because we have all the same fabulous input ingredients,” Tipping says. “If we can tackle this scale-up challenge, there’s no reason why our revenues can’t be twice as much as they are today.”
When it comes to gross domestic product, the sector accounts for 7 percent of B.C.’s industrial economy, contributing $17.4 billion to provincial GDP in 2018. “B.C. is clearly a tech economy today and will likely be more of a tech economy in the future,” Tipping says.
As for job growth, employment in provincial tech sector grew 70 percent from 2003-18, second only to construction. The industry now directly employs about 123,000 people, while another 60,000 hold tech jobs at non-tech companies. “It’s starting to become a pretty significant part of the job pool,” Tipping says. At roughly $90,000 in 2018, the average annual salary for a tech job in B.C. is almost 80 percent higher than the provincial median.
Why have wages stagnated since the previous report? “When a disproportionate amount of your companies are small rather than medium-sized or large, it has a bit of a dampening effect on wage growth,” Tipping says. “It’s another reason why we would want to see more medium-sized and larger companies.”
Going global—and local
For the first time, the report card captures the value of B.C. technology services exports. Previous surveys just included the value of goods—a somewhat irrelevant number, Tipping says, given that services contributed $6.3 billion to the $7.7-billion export total in 2018.
There’s room for improvement on the export front, but the sector must also raise its game with local customers. “One of the things that the tech companies tell us when we interview them is surprisingly, it can actually be easier to get an overseas buyer, a foreign buyer, than it can be to get one in B.C.,” Tipping says. “We’re working with governments at all levels and large companies in B.C. to see if we can’t improve that a little bit by creating more connections between tech companies and those who have problems and need tech solutions.”
Although B.C. still grants fewer tech degrees per capita than some other provinces, talent is more available than ever. To that end, Tipping commends the provincial government for investing in tech-relevant spots at postsecondary institutions. Over the next six months, BC Tech will partner with the government to offer rapid reskilling for workers displaced by COVID who want to work in tech, she says. “It’s nice to see us start to develop a portfolio of different approaches to how we can train people to get into this sector.”
The industry’s spending on research and development has climbed lately, reaching $4.2 billion in 2017 after hovering around $3 billion for several years. B.C. still has to catch up with Ontario and Quebec for R&D as a share of GDP, but the country as a whole is a laggard, Tipping stresses.
“When we look at R&D spending versus the OECD average, Canada is a bit below that, and B.C. is also trailing, and that’s a concern,” she says. “What I’m hopeful for is that if some of the great strong business champions of B.C. start to invest significantly in technology innovation, we’re going to see that R&D investment number go up.”
Asked what B.C. could do to close its scale-up gap, Tipping explains that access to capital isn’t a problem, according to the tech executives interviewed for the new report card. Access to senior experienced talent continues to be a challenge, she adds.
“But the biggest thing that’s missing in the ecosystem is access to the support systems, the education systems, the scale-up accelerator programs of the kind that we offer,” Tipping says. “Those give an opportunity for startups who can’t afford to bring in the senior experienced talent themselves to nonetheless tap into the expertise that’s available from those who’ve scaled up before. And so if we can put those support structures around a company when it’s small, it will tend to grow faster, and it will grow to a larger size than it would otherwise.”
For B.C. tech, Tipping thinks the new year will bring a need to stay resilient and positive—and build a community that can weather the pandemic. “And then when the time is right, when we’re ready, we need to really put the pedal to the floor and drive for strong economic growth and more resilient businesses for the future,” she says. “Right now we’re just hanging together and trying to get through the crisis, but I think 2021 could be a tremendous year of growth.”