Comments on the NB Biz Council

The New Brunswick Business Council released its reponse to the self sufficiency taskforce yesterday. I can’t find it online but the TJ is reporting the highlights.

You will recall that I was a little skeptical when this group was formed despite the fact that some of the most impressive business leaders in New Brunswick, men and women I respect deeply, were on it.

You see, I was worried that their own interests (as local biz owners) would override the greater good.

So, I’ll excerpt some of the TJ report and make a few comments – probably not worth the cyberspace they are printed on but also most likely more of a contribution to posterity than another photo of the bald Britney Speers.

Excerpt #1:
The Task Force has made statements disparaging the contribution of business start-ups in the long-term economic development of the province, and focusing instead on bringing existing companies from outside N.B. to the province. While we recognize the role of attracting jobs and investment to the province, we believe that a vibrant entrepreneurial sector creating head offices in New Brunswick is key to long-term economic health.

Such companies are more likely to remain, keep more economic benefits in the province, and depend on provincial suppliers for support services. Locally-based enterprises bring more than employment – they populate our communities with highly trained professionals and help to create a culture of innovation with spin-offs in many economic and social sectors.

A combined strategy of industry attraction and investment in home-grown enterprise would be much more effective. Small entrepreneurial firms can provide services to newly attracted companies, but they can also grow into national and multi-national companies from a New Brunswick base, as our record amply demonstrates.

This sounds good and in fact is mostly correct. Locally based enterprises do have more loyalty, leave more profit here and tend to be more dependent on provincial suppliers.

The problem is that the government of New Brunswick has been deeply biased towards encouraging local business growth instead of attracting industry for at least 30 years. In addition, the vast majority of the ‘multi-national firms’ that the Council talks about were formed more than 30 years ago. How many new firms, in the last 10-15 years have grown to have 300-400 employees and service international markets? Don’t get me wrong. I suspect there are a few. Speilo, for example, no wait – they were bought out by US-based GTech. I am sure there are some examples, I just can’ think of them right now.

In fact, there are more programs to encourage youth entpreneurship and small business startups (ACOA and BNB) than virtually all other areas of Canada. Yet, when I look at the numbers, it’s actually quite shocking. New Brunswick has just about the same rate of business closures as other provinces in Canada (around 80% fail within five years) but what’ really shocking is that compared to Ontario, the number of small businesses (say less than 10 employees) that turn into medium businesses (say 50 employees or so) is well below, very well below the Ontario average. And further, the number of small businesses that turn into national or multinational firms (as referenced by the Council) is almost none compared to Ontario.

When I look at this, there are a few major problems with NB entrepreneurs (or, let’s say small business owners as I think there is a big difference between the two).

1. 95%+ of small business owners in New Brunswick service local markets. Encouraging more small businesses just leads to more business failures without a broader economic growth strategy.

2. In Ontario, particularly the urban areas, there has been exponentially more external business investment than in New Brunswick over the past, oh say, 100 years. That external business investment has grown local economies which has fuelled the need for more local small businesses. Waterloo, Ontario (Canada’s technology triangle) which the Council holds up as an example of an ‘entrepreneurial’ climate (and it sure is) has attracted no less than 200 firms from outside the region into the high tech sector. So, to pretend it was all local startups is silly.

3. We need to foster a culture of entrepreneurship and not small business-ship. The vast majority of small business owners in New Brunswick do it for income and lifestyle, not to create some large empire. That’s okay – but it is not the culture the Council describes as creating ‘national and multi-national’ firms. I think the government should be supportive of entrepreneurs – that is firms that have a burning passion to be the next Microsoft or RIM or Ubisoft (or much scaled down versions of said companies). But more effort to create 1,000s of new small businesses who will never do business outside the region while diverting efforts to attract global investment – is just plain wrong.

So, to go back to my mantra:

1. We need to attract anchor firms into our key targeted industries. You want to grow an animation cluster? Attract Ubisoft, EA and others. Then the small startups will come – usually from ex-employees of these firms.

2. We need to foster more entrepreneurs and less ‘lifestyle’ businesses. Guys/gals with a burning passion to ‘make it’ that could end up like a Ganong or a Major Drilling – that’s who we want to target – but that’s a very small niche of literally a few hundred. The Council wants a new ‘development bank’*, call it what you will but we need to get these firms – gazelles – access to capital.

3. I also think our SMEs need to take on external equity investment. There has been a culture in New Brunswick too long of small business owners not willing to take on external growth capital (either private or public). You cannot grow exponentially from cash flow or bank loans (usually).

*Our funding schemes should be wide open to any firm that wants to invest in New Brunswick – not just people that live here. That’s what annoys me about all these AIF, NBIF and other groups offering limited amounts of R&D and risk capital. You have to be located here already to get it (essentially). This is against the grain. Iowa, Oregon and many others have investment funds available for entrepreneurs willing to locate in their states. We must do the same. Cripes, the biggest export from New Brunswick over the past generations has been our people – and now we are loathe to do anything to bring people back? In fact, I would be biased towards external entrepreneurs. The previous government doling out NB tax dollars to friends and partisans in Northern New Brunswick doesn’t sound like economic development to me.