Posted on | March 19, 2010 | 4 Comments
March 19, 2010
The Right Honourable Stephen Harper
Prime Minister of Canada
Leader of the Conservative Party
Member of Parliament for the riding of Calgary Southwest AB
Office of the Prime Minister
80 Wellington Street
Ottawa K1A 0A2
[Sent by email to: pm@pm.gc.ca]
Dear Mr. Prime Minister,
Re: Please Help iSME Business Now!
Canadians have now heard your Government’s recent Throne Speech and Finance Minister Flaherty’s 2010 Budget. And yes, times are tough and the deficit is astronomically high, something I acknowledge is likely to continue for 5 more years.
Furthermore, I understand how Canadians ideologically against taxes expect you to not reverse the GST reductions your Government enacted a few years ago by any amount, even though that could ease our country’s strained financial situation quite a bit.
Despite the above, let me raise an important point with you because effectively you are the person who determines what gets done and not done in Ottawa these days. This matter relates to the real backbone for jobs, wealth creation, and tax revenues in Canada: innovation oriented small and medium sized businesses (iSMEs).
Canada’s Job & Wealth Creation Engine is Sputtering and at Risk
Due to the problems in the economy and the capital markets, iSMEs all across Canada are REALLY struggling, particularly in Ontario. Many, if not most, have eaten through their reserves of cash that came from reinvested past profits or early rounds of capital investment. Additionally, new customers, new orders, and critical new sources of financing are all in extremely short supply to those at the base of Canada’s business totem pole.
Today, it is abnormally hard to get loan financing, venture capital, angel capital, or new equity of any sort. What is going to give? Is your Government going to stand by while many of these early and growth stage companies lose hope and the ability to carry on? Many more people will be put out of work if this happens, only to be memorialized in bankruptcy ads that their court appointed receivers place in local newspapers.
I respectfully ask you to extend a modest amount of critical grass roots encouragement to this vanguard economic sector on whom much of our near and mid term future prosperity depends, namely innovation oriented Canadian SME companies. Canadian iSME businesses NEED help from your Government NOW, not later. Support coming a year or more later such as how the Government’s recent stimulus package has rolled out won’t do if we are to benefit to a material degree from growth in this key bell-weather sector!
Different Canadian Regional Realities Exist
I believe it is important for you to appreciate how here in central Canada iSMEs innovate, develop and manufacture high value goods and services in order to create their income, secure their future, and employ lots of people.
This is a different reality from what many SMEs in Western Canada do. There, in the part of the country that you have been calling home for a long time now, the majority of SMEs enjoy the relative luxury of having their living tied to our country’s indigenous natural resources. Lucky them / poor us.
The reality of our future here in Ontario and Quebec, where 2/3s of Canadians live, depends on finding new ways to innovate and do business at home and abroad in a rapidly changing, increasingly complex world where interdependence is exponentially increasing year after year. This is also true for innovation-oriented commercial, industrial, manufacturing, technology and health science companies in other parts of Canada.
That is why I encourage your Government to extend critical support lifelines NOW to innovation oriented SME companies to foster (a) real, grass roots Canadian job creation and (b) the nearer term iSME led revival of Canada’s economy.
Here is how I suggest your Government can do that: support two iSME oriented business initiatives.
One of these is directed at helping innovation companies more easily find market-sourced financing, which can be done by extending an existing tax program to this sector.
The other is directed at providing them with two critically important financial and non-financial forms of direct government-sponsored business support.
Both of these suggestions are aimed at stimulating new innovation development today AND in the very near future. That means more job creation NOW and more net increased tax revenue SOON.
I suggest strongly that both need to be done TODAY for they are reasonable, relatively cheap and affordable ways to help preserve Canada’s iSME business resource base and appropriately cultivate its future growth and global competitiveness.
Proposal 1:
- Increase Market-Sourced New Funding for Innovation Development
My first suggestion focuses on helping SME innovation companies better finance themselves.
This could be done within established precedents if you direct Finance Minister Flaherty to extend the existing Flow-Through Share Program from where it is now, only available to mining, oil and gas, renewable energy and energy conservation companies, to where it could and should be, available to all capital needy new innovation development corporations including tech & biotech companies in all knowledge based industry sectors.
Importantly, your Government’s already in place SRED tax credit qualification program could be leveraged to determine who qualifies and who does not. So you see, this is all about extending proven-to-be-successful programs to help these iSME companies attract vitally important equity capital from public and private market investors, not setting new precedents.
Proposal 2:
- Provide More Business Support for Innovation Oriented Companies
In the same vein, I suggested there is a critical need to re-establish proper funding to the already established iSMEs business support programs run by the National Research Council (NRC), most particularly NRC’s Industrial Research Assistance Program (IRAP).
I say this because I have witnessed first hand how iSME businesses have and are being increasingly cut off from critical but minimal financial and business advisory supports by your Government. How has this happened? Well it has happened because of the decision to increasingly cut down funding to the NRC which in turn has forced them to underfund IRAP.
IRAP is a highly successful, well received, multi-dimensional business support program which has helped cultivate many of Canada’s successful companies. But now, it regularly runs out of its program funding early on in the Government’s fiscal year. This stymies iSME new initiatives and I hear that the situation in the 2010 -2011 fiscal year will be significantly worse.
Please arrange that NRC’s IRAP programs get an ultra-quick return to adequate funding so they can encourage worthy Canadian iSME businesses to innovate, grow and fight harder in the global economy to survive these tough times.
Examples of the good work IRAP has done in and around the Greater Toronto Area can be found in the numerous companies here that have received (i) life saving small grants from various IRAP programs and (ii) vital business mentorship support from not-for-profit, IRAP-supported organizations like the Innovation Synergy Centre in Markham.
Why NOW is the Time to Invest in SME Innovation
In tough economic times, businesses of all sizes tend to hunker down by cutting jobs, delayed-payoff activities, and discretionary spending. Much of this is understandable but some is incredibly short sighted.
An example of the latter is cutting back on support for sales and marketing even though it takes sufficient sales to make it through the short term while getting more growth requires somehow finding more new customer needs to serve. Sales and marketing is a particularly strategic area in all companies, one where it takes money (i.e. making new investments) to make more money (reaping future profits). Not investing in these activities when revenues have been negatively impacted by the economy is like tying one’s shoes together. That same truth goes for Canada as a country too. In terms of new job and wealth creation, we need more investment in the iSME sector because Canadians depend on this sector and it is where much of the Government’s tax revenues come from.
Conclusion
Prime Minister Harper, seriously and respectfully, please provide more stimulus support to Canada’s iSME business sector starting TODAY. While many of these companies in locations across this land are in bad shape now, this sector is our economy’s vanguard and what happens there will define much of our country’s GDP future. All of us highly depend on iSME business for a significant portion of total new job and wealth creation.
There are savvy, practical and highly affordable things that can be done quickly. These have been mentioned above. For the sake of Canada and all Canadians, stimulate continued iSME innovation NOW for this is the time to act.
Sincerely,
Tony Johnston
President
Compass North Inc.
Management & Advisory Services
that help companies get more:
sales / profits / cashflow / capital / valuation
cc The Honourable James M. Flaherty, P.C., M.P.
Minister of Finance for Canada
Related & supporting information posted on line with comment requested
at http://blog.TonyJohnston.biz
Related & Supporting Information:
OECD March 2009 Turin Round Table on the Impact of the Global Crisis on SME & Entrepreneurship Financing & Policy Responses
Globe & Mail March 15, 2010 Editorial: High time to aim higher
Globe & Mail Simon Avery March 12, 2010 ROB Front Page Article: Lessons from the tech bust
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Letter by –Tony Johnston
© Blog.TonyJohnston.biz & Compass North Inc. 2010
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Tony Johnston
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Tony Johnston, CMC, CGA, MBA, BA (Econ)
President
Compass North Inc.
18 Balding Court
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M2P 1Y7
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March 19th, 2010 @ 11:53 am
Dear PM Harper: Help iSME Business Now! | Biz Money Matters |…
[Open letter to Canadian Prime Minister Harper] Due to the problems in the economy and the capital markets, innovation oriented SMEs all across Canada are REALLY struggling. They need Federal Government help NOW. Here are 2 relatively cheap and afforda…
April 18th, 2010 @ 12:53 pm
[...] > Dear PM Harper: Help SME Business Now! [...]
April 22nd, 2010 @ 1:29 pm
Follow-on comment submitted by Jacoline Loewen Partner & Owner with Loewen & Partners, Experienced in Raising Private Equity Capital, Canada on Apr 2, 2010 at the LinkedIn Canada Corporate Finance and Investment Group News Discussion page:
You are right that it is difficult for companies under $10M to get financing–Dragons’ Den is as likely a place as any.
The Canadian government does do a great deal but is being relied upon now to do the VC gap. It is so hard to grow a business because cash flow is hard to manage and taxes do not help. As for investors, why take a risk when you can invest money elsewhere.
April 22nd, 2010 @ 1:38 pm
Follow-on comment submitted by Robert Venczel, MBA, CMA, CISA, PMP, CIA Principal at Bivium Executive Consulting Ltd. on Apr 5, 2010 at the LinkedIn Schulich School of Business Network Group News Discussion page:
Tony,
I wholeheartedly agree with your proposals and your conclusion that the time for investing in innovation is NOW. Unfortunately, this and previous governments have not made it a public policy priority and, as a result, not only Canada’s world-wide ranking for innovation capacity is poor compared to other developed countries, but our productivity suffers also because of it.
More details about how the low public investment in innovation affects the Canadian economy’s future growth prospects, together with suggestions regarding how the government could help build a highly competitive, innovative and knowledge-based economy, can be found here: http://bit.ly/cppcKW .