Supporting Canada’s Startups Now and Post-COVID
- The Government of Canada has responded quickly to help entrepreneurs, but many do not have the cashflow to sustain their business until mid-May.
- For many entrepreneurs, pivoting their businesses is not possible because they work in a deficit.
- Entrepreneurs are thinking about how to leverage the digital space, connect in new ways and identify new product offerings in anticipation of the post-COVID Canada.
Small businesses that have zero employees, pre-revenue businesses, mom and pop institutions and solopreneurs are, in some cases, falling outside of current government subsidy programs. Relaxing the restrictions on these programs to make them more inclusive will greatly benefit the entrepreneur ecosystem in Canada.
What Is the State of Canada’s Entrepreneurship Ecosystem? How Has It Been Impacted by the COVID-19 Crisis?
The entrepreneurship ecosystem three months ago was dramatically different than what is right now.
What we have seen over the last couple of months is that Canada’s entrepreneurship ecosystem is still very diverse. We are seeing an increase in women, newcomers, visible minorities, those who identify with disabilities and Indigenous entrepreneurs. At the moment, we are seeing a dramatic shift in the sustainability and feasibility of a startup starting up completely or just keeping the lights on. We have seen our entrepreneurs be incredibly challenged by COVID-19 in ways that we might have anticipated because of the fragility of the ecosystem in its initial stages, but obviously with revenue decline we are seeing a significant shift with small businesses that already had a tight margin and minimal access to credit. We are seeing losses across every major sector. That includes those that are offering professional services, social assistance, education opportunities, contractors—everyone across the board. Startup Canada’s membership base is very diverse in terms of industries and we have seen that impact across the board.
Fifty-four percent of our membership have zero paid employees—they might use contractors or other suppliers—and we are seeing a major gap in support for those groups.
The biggest thing that we are seeing at the moment in the impact of COVID-19 is the lack of protection and support for solopreneurs and for sole proprietors—those who are really in the infancy stages of their businesses. Fifty-four percent of our membership have zero paid employees—they might use contractors or other suppliers—and we are seeing a major gap in support for those groups. They are falling through the cracks of a number of government subsidies.
We are also seeing some challenges with pre-revenue startups. There has been some traction to provide them with additional support, but of our membership almost half had under $100,000 revenue last year. They are already in a challenging financial situation and that has really been exacerbated by COVID-19.
How Do You Asses the Government’s Response to the Economic Crisis and Support for Startups?
The Canada’s COVID-19 Economic Response Plan has really been essential. We are seeing its rollout have tremendous uptake, and the federal government has done an excellent job, from a communications perspective, of ensuring that cadence of communication and trying to provide Canadians with up-to-date information. The biggest challenge from the Canadian government’s response to this economic crisis are the entrepreneurs that are falling through the cracks because they do not qualify for these government subsidies. Many of our entrepreneurs have expressed this concern, especially among sole proprietors, solopreneurs and pre-revenue enterprises. That has been a major gap.
These government recommendations are assuming that our entrepreneurs can wait until the beginning of May.
We are seeing the 75 per cent wage subsidy have incredible traction in keeping staff on the payroll, at least for the interim, as organizations begin to pivot, offer different business offerings or look to the future of their organization under the COVID-19 light. But until those funds come in, we are seeing a tremendous amount of anxiety. In terms of cashflow, these government recommendations are assuming that our entrepreneurs can wait until the beginning of May. Many organizations have almost two weeks of cashflow to keep their organization afloat, so they are not going to make it to those times.
Although the government’s response has been strong in terms of speed, we need to be even faster and ensure that urgent cashflow gets to smaller enterprises as soon as possible. I know that it is a Herculean effort to get this underway, and the federal government is doing a tremendous job in connecting to those entrepreneurs, but I think we need to move faster and see those emergency funds allocated to solopreneurs and sole proprietors.
Allowing businesses to defer their GST and HST payments has been very helpful. We are doing a number of Startup Chats that connect TurboTax and other tax support organizations to make sure there is clarity on how to proceed, either with deferral payments or shifting those spaces. The Canada Emergency Commercial Rent Assistance Program that was announced last week was a great initiative, but we are hearing a lot of feedback that it is too restrictive. The minimum thresholds of monthly rent are too high for many of our small businesses, and we are going to need a more inclusive plan roll out that is not as limiting.
We are also seeing with the Canada Emergency Business Account, CEBA, that awareness around interest-free loans to small businesses and financial supports is very high, at about 80 per cent to 90 per cent, and we have conversations with our financial institution partners on a regular basis to get this information. However, of those they are serving within their client bases, about 20 per cent of those qualifying candidates have some level of hesitancy about applying. That is a really interesting piece that we need to drill into a little bit to understand if there is a lack of trust with the financial institutions or lack of trust in government support initiatives. We really need to get to the bottom of why entrepreneurs may not be using the supports that are in place for them.
We are seeing great investments in the Industrial Research Assistance Program which has incredible traction, and I think symbolically investing into the innovation economy is fantastic. But we really need to look at these smaller entities—these mom and pop institutions—that will not survive COVID-19 without an immediate cashflow from the Government of Canada. I think that is where we really need to be investing heavily.
How Have Startups Evolved to Weather This Crisis? How Will the Ecosystem Evolve in the Coming Months?
We have already seen the startup ecosystem evolve since day one of COVID-19. We saw the immediate pivot of businesses, especially in the restaurant industry. We are seeing shops across the board offering takeout and trying to adjust their business models. They are also going digital. We are seeing a number of entrepreneurs either leverage what was initially a small service offering that they had digitally that is now occupying more revenue space or investing more heavily into digital. Really, when we look at our entrepreneur base at Startup Canada, 20 per cent of our entrepreneurs had no revenue in 2019, and 50 per cent had under $100,000. These groups are not in a financially stable situation, which will compromise their ability to weather this storm and to pivot their businesses because they are already working from a deficit situation.
These groups are not in a financially stable situation, which will compromise their ability to weather this storm and to pivot their businesses.
There are a number of fantastic examples that we have seen, like distilleries shifting to selling hand sanitizer, or especially in the healthtech space. We are seeing unbelievable innovations that are coming out, but those groups are generally fairly well funded or have other institutions backing them. We need to look at those success stories and celebrate them. We have the upcoming awards with innovators and entrepreneurs that we are launching at the beginning of May and throughout June to celebrate entrepreneurs, celebrate these pivots and celebrate these demonstrations of innovation.
However, some organizations can’t do that. If you are offering a service that either can’t go digital or you have no runway to even attempt to pivot your business, we are going to see those businesses decline completely. Over the coming months, having that cashflow influx immediately will support them to try to identify ways to pivot.
If we look long-term, we are going to see a moment where we need to start up Canada again. We need to start thinking about what our future looks like as a country and as a world post-COVID. What is the event landscape going to look like? Large gatherings of groups may be a thing of the past. How can we leverage the digital space, connect in new ways, and identify new product offerings and spaces to invest heavily into?
We are going to see the entrepreneur community activate, because that is a strength that entrepreneurs have. They are willing and able to feel that passion and energy to propel themselves forward.
I think it is almost too soon to know what that looks like, but I can assure you entrepreneurs will be the ones to figure out what the future economy will look like in that space. We are going to see the entrepreneur community activate, because that is a strength that entrepreneurs have. They are willing and able to feel that passion and energy to propel themselves forward, and we need to make sure they are supported along that journey.
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What Support Will the Startup Community Need When This Crisis Passes?
In a first instance, we are going to recognize post-COVID how essential entrepreneurs are and how crucial they are to the Canadian economy. I hope that that realization does not come too late. We do not way to see a secondary wave or ripple effect where without statups, we do not have scaleups, and then we do not have larger institutions. Hopefully we can get ahead of that so that we are preventing this future loss of the startup community and the potential for employment. As we know, many of our small businesses employ part-time, full-time, contractors and freelancers and we need to ensure that there are jobs at the end of this. Startups and scaleups are going to be places that can hire, hopefully, post-COVID.When we look at the new organizations, we need to be investing in those startups to ensure that they can really expand and bring additional unemployed Canadians into the fold.
Entrepreneurial campuses within universities and colleges are going to be really essential, because what the job market looks like post-COVID is going to be very interesting. We do not know what it is going to look like, but we can really incentivize students to start coming up with solutions to the challenges they are seeing in their evolving world. We need to embed that entrepreneurial mindset into these institutions. We are already working with Colleges and Institutes Canada to have these conversations and think about how we can encourage entrepreneurship as a viable career option, especially post-COVID. That means having students advance and think about entrepreneurship as their next step after graduation, in the absence of more traditional jobs that might have been in place pre-COVID. Supporting entrepreneurs with education opportunities and connections is very important.
We need to ask what other support functions the Government of Canada can provide to make sure the entrepreneurial space is well-resourced and to make sure that we are supporting them.
What we are seeing right now is this pan-Canadian conversation that what used to be localized into major urban centres and on the local perspective is now a Canadian conversation about entrepreneurship and innovation. Post-COVID, I hope that that remains and hopefully we will be able to identify more innovative solutions to solving these challenges. Just like what we saw with our startup weekend, there is so much power in bringing together these minds across regional spaces and increasing this community approach. I think there is tremendous power in that.
I think post-COVID, thinking about how we congregate in-person will be dramatically different as well, either with landlords or in office space. Co-working spaces are key for many entrepreneurs as a social space, and that will be interesting to explore. We really need to be providing a soft-landing space, either for brand new startups, for those coming out of university or those who have had to rebuild their organizations. Startup Canada is going to be at the forefront of that conversation, making sure they have a soft place to land in the new accelerators and incubators that could be formed post-COVID-19.
We need to ask what other support functions the Government of Canada can provide to make sure the entrepreneurial space is well-resourced and to make sure that we are supporting them. If we don’t support them, we are going to see a ripple effect happen year over year, and ultimately impact the Canadian economy as a whole. We don’t want to get to that point where we say “coulda, woulda , shoulda.” We really need to demonstrate how essential and fragile the startup ecosystem is now and will continue to be unless there is commensurate support in place.
In terms of corporate sponsors and industry, we have been partnering with a number of different private sector institutions. We actually have a private sector leadership advisory committee that congregates quarterly with Startup Canada to connect the voices of entrepreneurs with industry. In this environment, we are seeing the power of private-public partnerships and it is a really unique space. We are already seeing that evolve, which is encouraging. Hopefully the lines will be more open to communication and to partnerships in the future.
The feedback we really get from the entrepreneurs is to reduce the red tape—make it more accessible, make things easier to understand, even if it is just how we position the language. I think we have seen some major shifts with our industry partners to go that route and to go where the entrepreneurs already are. By partnering with groups like Startup Canada, industry can have that connection to the grassroots communities and to entrepreneurs—but the feedback loop needs to go back the same way. We really encourage those types of conversations.
The entrepreneur community says that barriers to financing are the biggest challenges that they face, so working with banking groups and building financial literacy post-COVID and during COVID will be essential, while making sure they are hearing some of the challenges that entrepreneurs are facing within finance. Post-COVID, encouraging this private-public sector partnership will yield some really positive results.
What Lessons Can We Learn from This Crisis to Emerge Stronger?
From a communications perspective, the Federal Government has been doing an incredible job. There are lessons in communications, and as a former communication strategist, I think they have been great. We are also seeing a lot of lessons in leadership from our federal constituents, private sector companies and small startups. There are a tremendous number of leadership lessons that we are seeing on the ground.
For overall lessons, I think one—which is more a point than a lesson—is the fragility of the startup ecosystem. This could be a hard lesson to learn if we do not get it right. Supporting our startup ecosystem and our small to medium-sized enterprises over the coming weeks, days and subsequently, post-COVID, that could be a lesson that is hard to swallow once you see those ripple effects if there is not commensurate support.
From a transparency perspective, there are lessons about listening and responding. We really need to demonstrate that we don’t simply have our ears open—we are ready to act. I think from the federal government we are seeing that. We have daily calls with the Assistant Deputy Minister, Small Business and Marketplace Services, and Startup Canada is doing weekly townhalls with MPs and their entrepreneur ridings. That listening exercise is incredibly important, but we are going to need to see turnaround and action. It is moving quickly, and we know that there is speed—but if we see some of these innovations that are getting turned around in a week, we can also expect that type of turnaround with other industries.
We need to be thinking about what the 80 per cent solution is here. We do not need to get it 100 per cent right, but how can we move the dial and move things forward urgently, because we are in an urgent situation within our startup community.
We are also learning that we need to support every entrepreneur at every level, and that is a challenging lesson that is also potentially learned too late. We can’t just be investing in specific demographics—we need to look holistically and look across the board with various industries, various stages of revenue and number of employees, and we can’t just bet on the fastest racing horses. We need to really be providing support across the board. I think that we can hopefully learn that lesson now and that demonstration will be impactful at this moment before it is too late.
We can’t just be investing in specific demographics—we need to look holistically and look across the board with various industries, various stages of revenue and number of employees, and we can’t just bet on the fastest racing horses.
Another lesson is the importance of community. We are gathering in unconventional ways—digitally—and my voice hurts from talking so much on the phone and connecting with so many entrepreneurs and partners every day, which is beautiful because we are now opening the door for conversations that we haven’t formerly had. We are connecting in a meaningful way, being vulnerable and sharing, because COVID is almost an equalizer across the board. Everyone is affected by it. Coming into these conversations, people are much more open, and they are really putting their hearts on their sleeves, saying that their organizations are at risk and they need support. I think we need to tap into that vulnerability, recognize that and really support that. They are coming to us, so we need to provide appropriate support because they are asking for help
How Can We Continue Supporting Sustainability and Inclusion within Our Startup Ecosystem Post-COVID?
With Startup Canada’s membership, we have already seen a tremendous uptake in social enterprises and social innovators. About 40 per cent of our membership identify as social entrepreneurs, and that means connecting to our UN Sustainable Development Goals. We are seeing that connection existing within our startup ecosystem, and that was relevant post-COVID, but it will be especially relevant post-COVID. We are not just trying to keep businesses afloat because they are small businesses—they are trying to do social good and make some type of social impact in the long-term.
By supporting our startups, we are also going to be supporting our social innovation economy. Climate change is still going to be an incredible challenge, and we are still going to see a number of challenges in terms of inclusivity and making sure that we are responding actively through the businesses we build. We are investing in our startups, and many of our startups are going in that direction. Fifty per cent of our membership are women, and supporting marginalized women is something that Startup Canada is actively working on. We are partnering with the Canadian Women’s Chamber of Commerce and have done a survey that is getting feedback from underrepresented founders and marginalized groups to identify how COVID-19 is providing an additional level of extreme challenge for their businesses. We know that these marginalized communities have may barriers to entry already and now this additional layer has made things exceptionally challenging. We are doing a series of surveys and series of small group roundtables to give a platform for those marginalized communities to have a voice and connecting that to government. Making sure that these marginalized groups and these voices are heard has been implicit since day one for us. We make sure we have that inclusivity and the diversity of perspective embedded into our asks from government.
By supporting our startups, we are also going to be supporting our social innovation economy.
It comes down to recognizing Canada’s incredible diversity. I think that is foundational to who we are as a country, and it is also foundational to our entrepreneurship ecosystem. We need to be supporting all of those marginalized groups now more than ever.