By Gordon Harling
Dec. 10, 2018
A recent column in The Globe and Mail by Richard Florida and Ian Hathaway (“Solving Canada’s startup dilemma” (Nov. 2) raised some important points about Canada’s tech ecosystem.
Of special interest was mention of “the influx of Asian and US companies into Canada”. They do ‘suck up talent’ as the authors suggest, but these companies also serve as useful training grounds for tech talent who later find a reason to launch their own start-ups (or when they are laid off in a downturn).
Why do those companies come to Canada? There are many reasons: Our quality of education creates extremely good technical talent; we are happy to accept the best researchers from other countries as foreign students; and our cost of education is very reasonable, especially when compared to the U.S.
One of the reasons for our excellent engineering education is Canada’s National Design Network (CNDN), operated by CMC Microsystems. This network shares industrial-grade design and analysis software among 67 member universities and colleges in Canada and provides training and networking to make access simple and affordable. No such entity exists in the U.S., where the education you receive is more strongly tied to the financial health of the university.
But there is another, equally crucial factor at play here. I call it the software trap. Let me explain.
The goal of CNDN is to promote the development of hardware innovations by providing access to 20 different fabrication processes world-wide for making game-changing components and devices. Regrettably, the clear majority of venture capital funding goes to software start-up companies. These enterprises are relatively cheap to finance and can scale quickly. The flip side is, they offer minimal barriers to competitors and they do not typically create a durable competitive advantage. A few ‘unicorns’ in software have created a lottery-ticket mentality among venture capitalists. As a result, hardware companies are out of vogue.
Canada should put more effort into facilitating hardware companies that are designing and incorporating custom components in novel systems. Yes, these start-ups take longer to build, but they have more inherent ‘stickiness’ with their customers and better long-term viability. A new model in cost-sharing, prototyping and more help in scale-up, similar to what CNDN does for academic researchers, could create a lasting wave of product companies with protectable intellectual property and know-how.
Gordon Harling is President and CEO of CMC Microsystems.