The numbers are clear: Canadians invest less in research and development than our peers, see a lower overall rate of patent outcomes and struggle to produce sustainable firms in the knowledge sectors that our policymakers have targeted as key parts of our economic future.
For the past decade, action on these innovation and commercialization challenges has centred on a burgeoning ecosystem of business accelerators and incubators. Accelerators and incubators, while distinct in their operations and structures, both operate as funnels that take larger groups of entrepreneurs in on one side and, hopefully, produce a refined cohort of more mature and growth-oriented companies at the other.
In Canada, the proliferation of these organizations aims at helping the world’s second-largest ecosystem of entrepreneurs grow their businesses. A 2013 report by the Global Entrepreneurship Monitor found that Canada ranked second to the United States for its share of the working-age population either engaged as an entrepreneur or working directly for one. While just a handful of incubators and accelerators were in operation a decade ago, more than 140 of them exist today to help entrepreneurs across the country.
However, despite significant public investment in these organizations by every manner of government, we have very little data on what outcomes they produce. This is partly due to the relative novelty of some of these organizations, and to the long-term nature of business growth. But the information that does exist, both in Canada and abroad, raises questions as to how we’re measuring success and, ultimately, how we’ll assess the return on our public investments. While data on the number of companies engaged or events held are useful, this doesn’t speak to the outcomes these organizations are meant to drive – notably revenue growth, external financing and job creation.
This type of data related to outcomes is publicly released by just a handful. Furthermore, there’s no agreed upon standard as to what should be measured, nor how. The outcomes dashboard provided by TEC Edmonton is a great example of how this might be addressed. The organization provides annual data on incremental job creation, revenue generation and follow-on investment attraction recorded by their clients. This isn’t just about satisfying the demands of funders; it’s about putting accountability measures in place to ensure that the young firms and entrepreneurs who use these services are going to get good value for their participation and investment.
This January, my organization launched a project sponsored by a quartet of government agencies to study this ecosystem. Understanding follow-on company success and survival, the attraction of external investment and incremental job creation is a necessary part of justifying public investment in these organizations. While we believe that business incubators and accelerators play a fundamentally central role in Canada’s growth ecosystem, our challenge isn’t just about starting companies, it’s about building great ones and having the data to prove it.
To be sure, our drive for data shouldn’t obscure other less tangible impacts contributed by such facilitating organizations. The encouragement of entrepreneurship and the provision of opportunities for skill development and ideation are extremely valuable elements, regardless of firm growth. However, as policy instruments that receive significant funding, building measurement tools and transparent reporting mechanisms that focus on quantifiable outcomes is necessary. Moreover, while annual reporting on achievements is a necessary step, so too is the establishment of metrics and goals that depict success.
This lack of data on outcomes isn’t just a Canadian issue. While well-known U.S. accelerators such as Y Combinator and Tech Stars provide impressive track records of exits, valuations and job creation, an analysis of the broader ecosystem of U.S. support organizations shows far less impact and transparency. In other jurisdictions, such as Sweden, centralized funding and co-ordinated reporting have allowed for the development and collection of standardized and comparable data across the country’s system of business support organizations. Moreover, funding in Sweden is premised on previous performance and the attainment of pre-established targets for job creation, revenue growth, exports and survival.
While funding in Canada comes from a wide variety of federal, provincial and other sources, the development of a standardized and transparent reporting framework should be a priority. We need to know what’s working and what isn’t as we look to help Canadian entrepreneurs move from ideation to global competition.
Dan Herman is the co-founder and executive director of the Waterloo-based Centre for Digital Entrepreneurship and Economic Performance