Mark Falbo
President & CEO - Mircom
Part of the Spotlight on Scaling Canada’s SMEs

Canadian SMEs Need Financing, Talent and Foreign Markets

Takeaways

  1. Human capital is the most critical element of a business, so SMEs need the leadership and management skills to recruit, motivate and evolve their workforce.
  2. While Canada does have a good support system for SMEs, more targeted and collaborative government and competitive support for Canadian exporters would help to level the playing field in global markets.
  3. Canadian SMEs need to have a viable alternative to being acquired by foreign competitors or giving up ownership and control as they scale.

Action

I would pitch to the government leadership and partners and encourage them to start with the view that global competition and exports are necessary for growth, scale, a stronger tax base, a healthier economy and population, and talent attraction. Then, ensure that all activities, initiatives, legislation and programs that they put in place are aligning effectively with improving global competition.


How has Mircom grown from a local Canadian SME towards its goal of being a billion-dollar global company?

Mircom is a family-owned private business founded and based in Canada. Although more than half of our business today is conducted in export markets – primary among them the United States – we have a “Grown in Canada” philosophy. In almost all parts of the world, there is an acceptance of the North American Underwriters’ laboratory-approved products – the primary approval for fire life safety systems in North America – that we design and manufacture. This creates opportunities to compete directly in North America but in many other global markets as well.

“It is important for entrepreneurs to surround themselves with a core group of people who share and execute on a very strong vision for the company.”

Mircom was founded in 1991, initially as a local Toronto service company and a distributer of products that we now compete with. We very quickly developed the strategy of becoming a homegrown Canadian technology company, supporting our own design, development and manufacturing. The early 1990s was a very challenging time for the Canadian economy, but our founder was determined and committed to his vision. The company had a steady climb from the early 1990s, with natural inflection points. Few companies are able to scale past the nine-figure mark and keep growing, so we are proud of what we have achieved with Mircom.


What advice do you have for start-ups and SMEs in terms of their talent strategy and its impact on their ability to scale?

In all cases, human capital and the associated culture of a company is going to drive strategy, utilize and capitalize on technologies, and is going to help develop and execute processes. People are central to the success of any business, especially so for SMEs. A company’s team is critical to its credibility in the marketplace, with clients, funding partners and for growth and momentum.

“One challenge around scaling is transitioning from a small, driven, foundational team that manages all business development and operational functions to a larger, more specialized workforce, that needs to be imbued with the vision of the core team.”

In our experience, in early days, it is important for entrepreneurs to surround themselves with a core group of people who share and execute on a very strong vision for the company. They tend to be jacks of all trades involved in all aspects of the business from strategy, to business development to manufacturing,engineering, customer support, logistics and even to buying business supplies and sweeping the floors. This core team often has a strong work ethic and team ethos, which is necessary to grow your business. As you continue to grow, there are going to be natural pressures for functional specialization.

Beyond the start-up phase, the core team needs to evolve to scale the business. One challenge around scaling is transitioning from a small, driven, foundational team that manages all business development and operational functions to a larger, more specialized workforce, that needs to be imbued with the vision of the core team. The human capital aspect of any company is both its biggest challenge, and its biggest opportunity and reward.

“The human capital aspect of any company is both its biggest challenge, and its biggest opportunity and reward.”

At Mircom, we have set a culture that says, “Expect change. Change is a constant imperative, change is necessary and change is good.” Although we all like operating in our comfort zones to some extent, Mircom has been transparent and proactive about our views on the importance and necessity of change. For us to continue to succeed and grow, we need to evolve as a company. That often involves blending legacy teams with new people with new perspectives, experience and ways of doing things.


What kind of support systems are critical to enable SMEs to thrive in Canada?

In its initial start-up, one key government program for Mircom was the Scientific Research and Experimental Development (SR&ED) program in Canada. We made the decision to move from a service and distribution company to a proprietary designer and manufacturer. The life safety industry is heavily regulated, so the technology going into our products is very important. We wanted to design a portfolio of life safety products that met competitive requirements and industry standards. That took engineering talent, money and time, and the SR&ED program in Canada was particularly helpful in our early days. Smaller companies that participate in the SR&ED program access cash refunds instead of the tax credits offered to larger companies and that funding was critical to making ends meet for Mircom. Other programs have not been as successful in supporting Canadian SMEs. The export programs today do not seem to be as targeted, pervasive or well-developed. And while the Trade Commissioners and Chambers of Commerce always try to be helpful, we have not seen a tight correlation between their efforts and our success.

“The CBGF seems to be a very unique, creative and much needed solution – it comes with a mandate to invest long-term through a minority position while targeting growth and scale opportunities.”

On a postive note, relative to twenty years ago, there seem to be a greater number of networking programs and supports to help CEOs today, whether it is the Young Presidents’ Organization (YPO), the Entrepreneurs’ Organization (EO), TEC, Quantum Shift, Global100, McKay Forums or other such organizations. Banking, accounting, legal and financial partners like the Canadian Business Growth Fund (CBGF) also seem to be more creative and consultative today in assisting businesses to grow.

Ultimately Canada is a small market with just under 37 million people across an enormous landmass. Global markets and competitors are much larger, so they have greater resources in talent and financing at their disposal. Success in Canada and abroad requires a strong degree of self-relianiance but there is a real opportunity for strategic support from government and industry promoters.


What is the importance of having Canadian SMEs stay Canadian as they scale up?

Canada has seemingly well-developed capital networks in the early stage, the venture capital network and at the public market level. In the SME mid-market space access to cost- and cash-flow effective, or minority investment is more challenging. Once Canadian SMEs grow to a certain scale, their options tend to be limited to either curtailing growth, going public or selling control to strategic competitors or to private equity groups. Often times, those strategic investors or private equity groups are foreign based or foreign competitors. As a company scales, entrepreneurs are often faced with the dilemma of having to either double down on their own capital investment or access external funding that often risks control or ownership. Since the inflection from SME to large company often involves a considerably larger capital investment and associated greater risk, the result is that they often exit the business or take on majority partners and lose control of their business.

The CBGF seems to be a very unique, creative and much needed solution – it comes with a mandate to invest long-term through a minority position while targeting growth and scale opportunities. Their long-term view of investment is not necessarily the mandate of equity groups. CBGF also offers other critical benefits to SME scale: good governance practices, an independent board, a business, capital and professional network and disciplines. Moreover, CBGF has ability to provide add-on capital and the expertise to help with growth and acquisitions.

“It is a shame that the logical evolution of Canadian SME is, in most cases, a sale to large strategic competitors or private equity groups – often a foreign entity. Why should Canadian companies give up our productive capacity, value add margins and intellectual property?”

Of course, I believe that Canadian SMEs should have the opportunity to stay Canadian as they scale up. As Canada continues to grow its population base, we want to continue to grow the wealth quotient as well. Canada may be a small country, but it is very a complex economy and landscape. SMEs that grow into larger companies can contribute to the economy in a meaningful and impactful way.

I’m also excited with the potential for SMEs to create a lot of intellectual property as they grow, which is valuable from a value and export perspective. To me, it is a shame that the logical evolution of Canadian SME is, in most cases, a sale to large strategic competitors or private equity groups – often a foreign entity. Why should Canadian companies give up our productive capacity, value add margins and intellectual property?We can stay true to our values and offer great products and services to the world, all while retaining ownership. The stronger we are economically, the more influence Canada will have on the global stage.


What should the public sector do to support Canadian companies in access foreign markets?

In order to scale our products, we needed to look beyond the 37 million people in Canada.  Mircom’s global experience has been very good; we have proven ourselves to be competitive while maintaining Canadian production, innovation and values. Companies around the world like working with Canadians and our technology. Of course we face challenges. For example, Canada’s diplomatic spat with Saudi Arabia is impacting our ability to export to that market. When we go to other markets, sovereign jurisdictional issues sometimes impact the way we can execute our business. Positive government and industry partnerships with other countries are very helpful to export. Government, banking, crown corporation programs and initiatives which focus on export and global competiveness are necessary to help Canadian businesses scale. For example, Canadian banks being permitted to operate seamlessly in the US would assist Canadian companies seeking credit, treasury process and other banking requirements in foreign jurisdictions. Credit and receivable insurance programs would help mitigate the risk of foreign sales. Business development and networking introductions at the highest level of government – but focussed on SME business, not necessarily just large infrastructure and government-to-government contracting – would be of great help.

“In order to scale our products, we needed to look globally – beyond our relatively small population of just under 37 million people in Canada.”

To support this I would propose that government leadership and partners start with the view that global competition and exports are necessary for growth, scale, a stronger tax base, a healthier economy and population, and talent attraction. Then, they must ensure that all activities, initiatives, legislation and programs that they put in place are aligning effectively with improving global competition.


Part of the Entrepreneurship Series presented by: