Setting out on the Small Business Path
Nancy Peterson worked in senior management for Fortune 500 companies before she started her at-home business, a site where people can post reviews of home renovators and building contractors. The company has 50 employees and $5 million in annual revenue and has grown at a steady clip of 50 percent each year for the last three years. Intriguingly, it was only as the company approached 50 employees that it moved into an actual office space.
The Canadian small business scene often has a lot of tech startups, which leads to local success stories of prospering businesses. Ecommerce platform Shopify, founded in 2004 out of Ottawa, now has 500 employees. Today, it’s worth millions. British Columbia, Alberta, Saskatchewan, and Manitoba rank in the top provinces in terms of invested venture capital. All of these areas are hotbeds for small businesses with big dreams.
From Little Things, Big Things Grow: Small Business Communities
The small business tradition doesn’t include just companies with plans for global domination. It also includes the micro-enterprise, or the Mom and Pop level, which is defined as having fewer than four employees. Take, for example, a married couple who owns and maintains a bed and breakfast. While they may hire groundskeepers, the occasional waiter, or concierge during busy seasons, B&B owners fit in closely with Industry Canada’s statistical picture of small businesses at the very minute end of the scale: They’re older, rely on the business as their sole source of income, and are motivated by the joys and challenges of being their own bosses.
Whether it’s a young tech entrepreneur looking to grow a multinational corporation, or a couple running a bed and breakfast, small businesses rise up from communities. They carry the nation. A recent report from TD Economics estimated in the last three Canadian recessions, 85 percent of net job creation within the first two years of recovery came from small businesses.
Canadians respect this. In a 2011 survey of 2,000 adults there was remarkable consensus on the value of small business to the country: 98 percent of people said small business was important to the country’s future and 94 percent of people said small business was crucial to the local community. More than two-thirds of respondents felt the government was not doing enough to help this along, a feeling partly remedied in 2013 by new support for small businesses in Canada’s Economic Action Plan. This included tax relief for new equipment, hiring credits, and better tax cuts for small businesses.
An Army of Entrepreneurs: Canadian Small Businesses by the Numbers
With a quick look at the numbers, it’s clear small businesses are a real cornerstone of the Canadian economy. According to theBusiness Development Bank of Canada (BDBC), there are 1.1 million small businesses in the country. Technically, 98.2 percent of all business in Canada falls into this category, with 87 percent of all small businesses comprised of fewer than 20 employees. The people running smaller companies are also a more diverse group of business leaders. Women lead one third of the small businesses, an impressive figure when compared to the total paucity of female leadership at Canada’s largest companies.
Small business in Canada shows off something of the country’s national resilience: 2.7 million Canadians are self-employed. In these post-global financial crisis times, the greater Canadian economy isn’t adding jobs at a great pace. The Canadian labour force is largely static compared to five years ago. Against this trend, small business in Canada is in itself extraordinarily resilient. Despite a general economic stagnation, small businesses are the only group where employment has slowly ticked upward in the last five years. Employment in larger enterprises cratered in 2009 and is just working its way back to even. Small businesses are survivors, too. In fact, companies with fewer than 100 employees have a better survival rate than those with fewer than 500 over a two-year span: 86 percent to 80 through year one, and 85 percent to 72 percent through year two.
Sure, the rate of new small businesses created may be significantly down—the 35,000 new businesses created in 2013 is just a snippet compared to the historic highs of 115,000 in 2005—but these companies are still holding their own, outshining other economic groups and supporting the country.
It’s a hard working group, too. The average Canadian worked a 35-hour workweek in 2010. The average self-employed Canadian worked a 40-hour week. And 31 percent of self-employed Canadians reported working more than 50 hours a week that year. For the rest of the working population? Just four percent recounted working 50-hour weeks.
Location, Size, and Industry
While Ontario, with one third of Canada’s population, accounts for roughly 35 percent of all small businesses, Alberta, Saskatchewan, and British Columbia have a higher density of small businesses. Small businesses in Nunavut and the Northern Territories contribute more to GDP on average ($4.2 and $3.7 million respectively), but that’s largely because of their lower populations. Compared to the larger population centers such as Ontario, small businesses in Saskatchewan, Newfoundland, Labrador, and Alberta contribute more per company to GDP.
Access to capital and resources is key for small businesses trying to grow. Thirty percent of companies applied for debt financing in 2013. However, if the scope is expanded to include leasing, equity finance, and trade credit, 55 percent of companies were involved in some form of financing last year.
Small businesses generally find it easy to gain access to money when they ask, with 85 percent of all applications approved. The bigger the business, the more certainty there is for a rubber-stamped application. Companies with fewer than 10 employees boasted a success rate in the lower 80 percent range. That figure rises up to 93 percent for financing applications from companies with 20 to 100 employees. Naturally, the bigger the company the higher the ask: Companies with 20 to 100 employees were borrowing an average of $680,000, while those with one to four were asking for $120,000.
Innovation is a major contributor to growth, and small businesses play an important role in adding to the collective pool of intellectual property in Canada. In 2012, small businesses in Canada spent $4.8 billion on research and development, which is close to a third of the country’s total pool of R&D investment. Elsewhere, small businesses needed financing most often for working capital—machinery, vehicles, and real estate—as well as pressing needs and to a lesser, but still significant, extent with hardware and software.
Small business in Canada is a surprising ecosystem: a web of smaller enterprises combining together to provide the country with an often overlooked economic backbone. It’s an army of workers right under the nation’s proverbial nose, large and diverse, strong and resilient, and definitely not to be underestimated.