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Founded in 2008 by Nick Waddell, Cantech Letter is an online magazine focusing on Canadian technology. The site has grown into one of the most popular and respected financial sites in Canada, and was described by Canadian Business Magazine as “one of Canada’s premier technology newsletters”.... More
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  • Tomorrow’s Leaders: Ten Canadian Tech Stocks for the Future

    Tomorrow's Leaders: Ten Canadian Tech Stocks for the Future

    At the Dollarton Cantech Letter we like value. Talk to us about a tech stock trading under one times sales with 45% of its market cap in cash and our ears perk up. Admittedly, though, being an adherent to any discipline mean you sometimes miss stuff that falls outside your parameters.

    The Canadian techs listed below are by no means smoke and mirror jobs. There's no illusion to the leadership role Westport Innovations (TSX:WPT), which has its roots at The University of British Columbia, has carved out for itself. But at nearly five times sales, the stock falls outside our screens for value; we like to uncover Canadian techs trading under one times sales. That said, the ramifications for Westport's natural gas engine technology are absolutely immense, meaning the company may fill in the value behind that multiple with an ease that value plays cannot.

    This list consists of a mix of companies, there are those like Westport and NEO-Material Technologies (TSX:NEM) who are well beyond guessing whether their technology is commercially viable, yet still look out onto vast untapped markets. Still others here, like our number ten, Zecotek Photonics (TSX:ZMS), are on the verge of commercialization. Pick up a paper in five years time and its likely that at least one of these companies, perhaps a few, have become the next big (Canadian) thing.

    1. Neo-Material Technologies (TSX:NEM)

    Toronto based NEO-Material Technologies is producer of
    neodymium-iron-boron magnetic powders (Neo Powders), rare earths and zirconium-based engineered materials and metals. Granted, that doesn't sound too sexy. But consider what rare-earth metals are used for: catalytic converters, computers, television display panels, optical lenses, and electronic chips. Rare earth metals are used for hard-disk drives, in wind turbines, and in the electric motors of hybrid cars. A single Toyota Prius, for instance, uses 25 pounds of rare earth elements. If you have a Blackberry or an iPhone, own a plasma TV or use a GPS, you are already a consumer of rare earth metals.

    McWhirter: "(Neo-Material) provides an investor with exposure to a number of green technologies, including wind power and electric vehicles."

    McWhirter: "(Neo-Material) provides an investor with exposure to a number of green technologies, including wind power and electric vehicles."

    And NEO-Material is no neophyte; last year The Company earned $.017 cents a share on revenues of $187 million and has secured lucrative joint ventures with giants like Mitsubushi. Bob McWhirter of Selective Asset Management believes NEO-Material Technologies could succeed in any or all of a number of multiple revenue streams. McWhirter is is excited by the potential for the company to surge on demand for netbooks, for instance. But the picture is larger still: "The stock is speculative" McWhirter says " But one extremely appealing aspect of NEO-Material is that is provides an investor with exposure to a number of green technologies, including wind power and electric vehicles."

    2. Electrovaya (TSX:EFL)

    What's behind the recent run-up in Electrovaya shares? The long answer is a more than a decade's worth of pioneering work and 150 patents on its lithium ion battery technology. The short answer is Chrysler. On March 24, Electrovaya announced that it had been selected by Chrysler to supply the battery for a hybrid version of the Dodge Ram pickup. The Company also appointed former Chrysler CEO (and Windsor Ontario native)Tom Lasorda to help guide them through the process. While the automobile market is probably the most immediately addressable area for Electrovaya to commercialize its battery technology, some think the company is not limited to that sector. "Electrovaya is really just scraping the surface" says Puneet Malhotra, who covers Electrovaya for Dundee Securities. "There is always execution risk, but there are applications for Electrovaya's technology in other areas. In fact they have already begun to demonstrate its viability in electric utilites in demonstration projects." Could Electrovaya's technology power the vaunted Smart Grid? Some think so. Electrovaya recently signed an MOU with a Japanese manufacturer of power distribution equipment named Nippon Kouatsu Electric to use Electrovaya's battery storage systems for both stationary power and smart grid systems applications, initially targeted for the Japanese market.

    3. Resverlogix (TSX:RVX)

    Shares of Resverlogix rose after a Bloomberg BusinessWeek article on March 5th speculated that the company "may accomplish what Pfizer Inc., the world’s biggest drugmaker, couldn’t: Creating a new medicine that fights heart disease by raising so-called good cholesterol." See this months cover story for a "5 Questions" interview with Resverlogix President and CEO Donald McCaffrey.

    4. DragonWave (TSX:DWI)

    You downloaded an app on your iPhone 3G today. Or pinged a friend using your Blackberry Bold. Or PVR'd a movie. Our appetite for wireless data has become unquenchable. And Ottawa's DragonWave is at the gate, taking a toll. Dragonwave's products provide wireless microwave transmission of broadband voice, video and data, which has become cheaper and easier than fiber. The Company's primary clients are service providers. Well, more to the the point, Clearwire. DragonWave suffered its first real setback in more than a year when its recent fourth quarter results showed that 87 percent of the company’s revenue in the quarter came from Clearwire. Still, the resulting analysts cuts were not that deep for a stock that had risen so sharply. Many believe that as large carriers like AT&T and Verizon roll out into suburban and rural areas, where microwave equipment has natural advantages over fiber, DragonWave will have little trouble achieving a more healthy diversity to its client base.

    5. Westport Innovations (TSX:WPT)


    Westport's Demers with Jim Cramer on CNBC's "Mad Money, June 3, 2010

    "You know I'm excited about this...I need you to check my enthusiasm..." On June 3rd of this year Jim Cramer of CNBC's Mad Money's was positively gushing in an interview with Westport Innovations CEO David Demers. Cramer felt the political winds of change were behind the Vancouver based developer of natural gas engines. Demers, clearly not as prone to bombast as the volcanic host conceded that "The spill in the gulf is a wakeup call that we need to do something now." That something, the adoption of natural gas as what Cramer called a cleaner "transition fuel" that could bring energy independence to the United States, will be helped along by Westport Innovations, which has already partnered with three of the world's top four top engine makers. It would have been hard to imagine such "A" grade exposure years ago. Founded in 1996, Westport grew out of a research project by Professor Philip Hill at the University of British Columbia's Mechanical Engineering Department. Hill was developing a concept called high pressure direct injection (HPDI) of natural gas.
    In 1994, through UBC's University-Industry Liaison Office, Hill met current Westport CEO David Demers. In 1995, with HPDI technology as its principal strategic asset, Westport Innovations Inc. was formed.

    6. Zarlink Semiconductor (TSX:ZL)

    Ottawa's Zarlink has been around for quite some time, but has subtly shifted focus of late, entering more specialized markets that leverage expertise the company has gained over three decades. Like most Ottawa based telecom companies, you don't have to go looking too far for Terry Matthews fingerprints on The Company. Zarlink was born out of the telecommunications division of Mitel, its name derived from the phrase "tsar of links" reflected its early history in networking equipment.

    Recent acquisitions and joint ventures illustrate Zarlink's move away from general chip business and into more specialized business, in particular businesses that leverage the company's leadership position in low-voltage technology. Situations where low power requirements are important is Zarlink's wheelhouse, and those seem to be everywhere now, including specialized items to medical devices, devices used in smart phones and in the companys' most recent venture -a deal with CADEKA Microcircuits to tackle the CCTV and video surveillance market.

    7. Theratechnologies (TSX:TH)

    It has been a wild ride of late for Theratechnologies. In May, the FDA released documents showing that The Company's new drug, Egrifta, might increase the risk of Diabetes. Share of Theratechnologies plunged, losing $2.28 on May 25th to close at $2.09. But in a 16-0 vote in Maryland, the Food and Drug Administration approved the experimental treatment for patients with HIV-associated lipodystrophy, a side effect of medications used to fight the AIDS virus that causes excess fat to accumulate in the abdomen. After being halted May 27th, shares of Theratechnologies rebounded to close at $4.85 on May 28th, approximately where the stock has traded since.

    8. Sensio (TSXV:SIO)

    With the possible exception of DragonWave, Sensio was the market darling of 2009. After closing 2008 with a stock that went for little more than a dime, Sensio closed the following year at $3.18.
    The story behind the rise? Late in the summer of 2009 Sensio received a US patent for its 3-D technology. The patent was very wide-ranging, giving Sensio "...exclusive operating rights over its whole method of compression, decompression, formatting and playback of stereoscopic content for various 2-D and 3-D screens, and applies to the markets for home theatre, professional movie theatres, personal computing and mobile telephony". Sensio then went on to make deals, signing agreements with ViewSonic, THX and a recent deal with Cinedigm to broadcast the 2010 FIFA World Cup final in 3-D in Cinedigm theatres.

    9. Isotechnika Pharma (TSX:ISA)

    Timing. Shareholders of Isotechnika thought they had it in 2002 when The Company signed a major deal with pharmaceutical giant Roche around their drug voclosporin, which is designed to organ rejection in transplantation surgery. After a painful and drawn out process that saw shares of ISA fall from north of $5 in 2002 a share to mere pennies, Roche got out of organ transplantation altogether in 2008, returning the rights to the drug to Isotechnika. A major partner completely backing out might be the worst news possible for a junior looking for FDA approval, but as it turned out, this was far from the final chapter for ISA. The treatment started to show promise for reat uveitis, a chronic inflammation of the eye that causes vision impairment, ocular pain and loss of vision. And then voclosporin started showing promise for treating psoriasis. It's too early to label voclosporing a wonder drug, but with a new partner, Lux Biosciences onside ISA has every chance to move beyond a pure R&D performing company and into the realm of revenue generator.

    10. Zecotek Photonics (TSXV:ZMS)

    Dr. Faouzi Zerrouk, Founder CEO President of Zecoktek, with a prototype of the company

    Dr. Faouzi Zerrouk, Founder, CEO and President of Zecoktek, with a prototype of the company's glasses-free, multi-viewer 3D Display

    3-D is everywhere right now. James Cameron's Avatar seems to have been that Tipping Point moment. Now every major movie, it seems, has at least a limited 3-D release. 3-D televeision has become the must have item for tech geeks on the cutting edge, even though there is little 3-D programming available. Shares of IMAX have tripled. Too many junior stocks involved with 3-D technology have doubled or tripled to mention. Now what about those glasses?

    Granted, 3-D glasses have become a little less goofy looking, but donning a pair of heavy shades is still basically the same experience that patrons of It Came from Outer Space had in 1953. Couldn't someone just invent 3-D without the glasses? That feat is easier said than done, but when you view Zecotek's 41-view 3D2D Display, as I did last month at their UBC headquarters, you realize this company may be on to something big. Walk right up to a Zecotek image of a vase of flowers. Now angle yourself to the side and you can look behind flowers in the front of the vase to see those in the back. This is called occlusion effect. It's not only light years ahead of your local Cineplex experience, it's also safer. The "motion parallax" and freedom of position for the observer inherent in Zecotek's solution eliminates the sense of imbalance and dizziness during normal observation which can occur with polarized and shutter glasses.

    Too a degree, Zecotek's business plan will only move as fast as end users adopt it. A full 3-D movie using this technology, for instance, would reproduce many more views from different angles. It would require two or three more cameras to shoot additional angles, but not forty as data conversion software would fill in the blanks. With the right partner, (earlier this year Zecotek displayed the product to select number of European display manufacturers, with an eye towards a manufacturing or licensing partnership with a major original equipment manufacturer) there are no shortage of ways to commercialize this technology from here. Think 3-D signs and movie posters. Zecotek's technology may also be a game changer for geophysical data, medical imaging, scientific research, pharmaceutical industry other industrial and military applications.

    Disclosure: no positions
    Jul 29 4:33 PM | Link | Comment!
  • 10 Moments in Canadian Tech Stock History that Changed the World

    10 Moments in Canadian Tech Stock History that Changed the World

    Is it inevitable? No. Is it probable? Yes. If you are a Canadian inventor, and your work is of the highest importance, it will probably be commercialized in the United States. One way or another, this is the fate of many of the best Canadian inventions. Ask Henry Woodward, who sold US Patent 181,613 to Thomas Edison in 1874 -that was for the light bulb. Or talk to James Gosling, the Calgary tech geek who invented the Java programming language while working for Sun MicroSystems. Or even George Retzlaff, a CBC director in Toronto, who invented instant replay during a 1950 episode of Hockey Night in Canada and was actually prevented by the CBC from reusing it.

    Every now and then, however, a Canadian inventor not only hangs on to an invention, but the intellectual property ends up in a Canadian listed public company. Perhaps without even being aware of it, millions of Canadians have had a financial stake in some of our greatest achievements. This is the criteria we put forward for this list. What are the greatest Canadian achievements that we all could have, in some way, owned a piece of in our RRSP's (before the Canadian only ban was lifted on those savings plans)? Consolidated Edison (NYSE:ED), for example, is out. Even though The Company was founded on a Canadian invention, it's strictly a US listing. Although Research in Motion has a NASDAQ listing, it's also listed in Canada, so it's in. Many Canadian have owned, and continue to own RIM in their RRSP's. Now that we're clear on the criteria, let's get right to the list:

    1. "Mr. Watson, come here. I want to see you."

    Bell with an early precursor to the Blackberry Bold


    Although these famous words, spoken by Bell to his assistant Thomas Watson on March 10th, 1876 have secured their place in history, Watson was actually in an adjoining room when they were spoken. Later that summer, a less heralded -yet equally important- moment happened in Brantford, Ontario when voices could be heard clearly over a call placed over four miles away. This proved that the telephone could work over long distances. A decade later there were over 150,000 telephones in the United States and, with 1,497 shares, Alexander Graham Bell was the largest shareholder of The Bell Telephone Company. Bell Canada is now part of BCE Inc. and trades under the symbol BCE on the Toronto Stock Exchange.

    2. The Dynamic Duo Join Forces

    Jim Balsillie and Mike Lazaridis can text us at Cantech Letter all they want, they will still get no higher than #2 on our list.


    In 1989, Jim Balsillie graduated from Harvard with an MBA. He surprised some of his peers by taking a job with a small Kitchener tech firm called Sutherland Schultz.  It was here his paths would cross with Mike Lazaridis, as Sutherland Schultz bought circuit boards from RIM.  After Lazaridis rebuffed take out attempts by Sutherland Schultz, Balsillie joined RIM as VP Finance. He invested $125,000 of his own money for a 33% stake in the fledgling company. It turned out to be a pretty good investment. Balsillie and Lazaridis would eventually become co-CEO’s and RIM would become one of the most successful and innovative companies in Canadian history, with revenues now near $15 billion.

    3. Nortel Rises and Falls

    At one point in the year 2000 Nortel represented 36% of the entire value of the Toronto Stock Exchange, less than a decade later The Company was bankrupt.


    It ended badly, very badly, for a staggering number of Canadians. At its peak, in 2000, Nortel had a market value of $350 billion. At one time, the stock represented 36% of the entire value of the Toronto Stock Exchange. It's likely that no stock has ever been owned by more Canadians, either directly or through pension plans and mutual funds.

    Out of nowhere, it seemed, cracks began to emerge. October 25, 2000, CEO John Roth warned, for the first time, that Nortel would not meet its sales targets. The stock fell from $96 to $71 that day. By 2002, half of the company's 90,000 workers had been laid off. And then it got worse. Debt downgrades, missed reporting deadlines and financial restatements killed a meager rally in the stock. It spun out of control and never recovered. Nortel declared bankruptcy on January 14, 2009.

    Now that we live in the post-Nortel world, what to make of this? It's cold comfort to those who lost their jobs, homes, savings or all of the above, but some believe that Canada will continue to derive benefit from Nortel. In an editorial in the July 14th, 2009 Financial Post, Sue Spradley, North American head of Nokia Siemens Networks talked about Nortel's legacy after Nokia Siemans had submitted a $650-million bid to buy certain Nortel assets. "Consider that over the years hundreds of companies have sprung from Nortel, generating immeasurable innovation and untold economic benefits for Canada.: she said. "Nortel's labs were destinations for the brightest and best students that Canadian universities turned out. It was a magnet for the brightest and best from many of the world's top universities as well. In fact, Nortel is largely responsible for the fact that Canada has one of the world's most enviable telecommunications systems, and that it is a global incubator for the industry."

    At year end 2007, Nortel had approximately 3,650 US patents and approximately 1,650 patents in other countries. It is estimated that these patents could garner over a billion dollars in revenue. Some speculate that Research in Motion may be an aggressive bidder in this process; RIM Co-CEO Mike Lazaridis has called Nortel’s fourth generation LTE or Long Term Evolution technology a “national treasure.”. In fact, RIM today owns approximately 1,300 patents and nearly 10% of these cite Nortel patents.

    4. Mike and Terry lose some Lawnmowers

    Mitel. “Mike and Terry Electronics” or “Mike and Terry’s Lawnmowers”? While Michael Cowpland has shot down the latter explanation of the origin of the company’s name, the reasoning is based on an actual event. In 1973, Cowpland and Terry Matthews, who had met at Nortel forerunner Bell Northern Labs, intended to import and sell cordless electric lawnmowers. Only trouble was their first shipment was lost at sea. This must have been taken as some kind of sign to the now-legendary partners, because they immediately forgot about the lawnmower business and began to produce a telephony tone receiver product that was based on Cowpland's Ph.D. thesis. By 1981, Mitel had reached the $100 million dollar annual revenue mark. In 1985 British Telecom acquired a controlling interest in Mitel, making Matthews a billionaire. Matthews then went on to form Newbridge Networks which was sold for more than 7 billion to Alcatel in 2000. Matthews, who emigrated to Canada in the 1960's became the first billionaire in the history of Wales. Cowpland went on to found Corel which, at one point, was Canada’s largest tech company.

    5. Roger That

    Edward (Ted) Rogers, Sr. who invented the world


    In 1925, Edward (Ted) Rogers, Sr. invented the world's first alternating current radio tube. This invention enabled radios to be powered by ordinary household electric current. This was a dramatic breakthrough in technology and it became the key factor in popularizing radio reception. Ted Sr. died young, at the age of 38. While his then five year old son didn't turn out to be the inventor his father was, his business acumen commercialized his fathers invention to a greater degree than he could have imagined. Ted Rogers Jr. founded Rogers Radio Broadcasting Limited, which became the earliest proponent of the FM signal in North America. A couple years later, Roger's CHFI-FM quickly became Canada's most listened to FM radio station and also became the most popular and profitable FM radio station in Canada. Rogers’ interests in radio led him to cable television in the mid-1960s. In 2009, Rogers Communications (TSX:RCI.A) did nearly $12 billion in revenue.

    6. Canada Lends an...Arm
    If you were a taxpayer in Canada in the 1970’s and early 80’s you may have felt that the Canadarm was built to deliver a solid uppercut to your pocketbook. The Government of Canada invested $108 million in designing, building, and testing the first one. The program, which was carried out by The National Research Council of Canada, featured an industrial team that was lead by Spar Aerospace, which was ultimately acquired by McDonald Dettwiler (TSX:MCD). The project also included engineers from CAE Electronics (TSX:CAE), who built the display and control panel as well as the hand controllers located in the Shuttle aft flight deck. The Canadian taxpayer eventually shook off the effects of the Canadarm’s intial hit; the original investment resulted in nearly $700 million in export sales, including the sale and maintenance of 4 Canadarm systems to NASA, the sale of robotic components to Japan and Europe, the sale of simulators, and the development of robotic systems for the nuclear industry. It also helped stem the “brain-drain” establishing Canada as a world player in the fields of advanced manipulator systems and robotics.

    7. Ski Dog

    In 1937, a Quebec mechanic named Joseph-Armand Bombardier dreamed of dreamed of building a vehicle that could "float on snow." A few years later schoolchildren in rural parts of that province were among the first people in the world to ride snowmobiles, which began as large, multi-passenger vehicles. Bombardier's invention was actually called the "Ski-Dog" as it was intended to replace dog sleds. A painter actually misread the info and painted "Ski-Doo" on an early model. By the time of Bombardier's death, in 1964, his eponymous Company had sales of $20 million. Bombardier's later ventures into aerospace and railway grew the company to the internationally recognized giant it has become, now nearing $20 billion in rev

    8. Open Text becomes a Synonym for Innovation

    Before there was Google, there was Open Text. In January 1985, the University of Waterloo established the Centre for the New Oxford English Dictionary, a collaboration with the Oxford University Press to computerize the OED. This engineers on this project realized that it required developing search technologies that could be used to quickly index and retrieve information. The search technology developed for this project, which incorporated full-text indexing and string-search technology, was recognized as being useful for other electronic applications. In 1991, at about the same time the Internet was emerging, the results of this project were commercialized by a private spin-off called Open Text Corporation.

    As the Internet expanded in usage, Open Text grew as organizations found they needed to index and search their existing and growing stores of electronic information. In 1994, Open Text began hosting its Open Text 4 search engine on the World Wide Web, competing directly with the AltaVista Web search engine. In 1995, Open Text provided the search technology used by Yahoo! as part of its Web index.

    By 2009 Open Text had $725.5 million USD in revenue, and is recognized as a world leader in enterprise content management (ECM) software solutions.

    9. SXC Health goes Public.

    Since 2006 SXC Health, founded in Milton, Ontario has experienced the kind of growth we see perhaps once a decade in Canada. The Company's revenues have gone from about $80 million in 2006 to more than $1.4 billion in 2009. But if it weren't for the unique way that Canada's venture markets operate, this Canadian success story might never have happened.

    Frequent Cantech Letter contributor, and Caseridge Capital boss Adam Adamou, who as a fund manager in the mid-1990's was an early private equity investor into SXC and later as an investment banker worked with the broader public market and venture capital participants to finance the company through various acquisitions and restructurings, says that estimates of the size of Canada's venture capital market almost always miss the mark because they fail to understand our hybrid system.

    "In Canada, the venture capital market and the public equity markets need to work in tandem for technology companies to have access to the capital that they need in order to compete globally", says Adamou. "Private equity companies in Canada often attempt to replicate the Silicon Valley venture model, the all private equity to a huge IPO model, and that model just doesn't exist here in the same way."

    Many investors in SXC today may be unaware that the seemingly unconventional method that SXC used to go public -a reverse takeover of a publicly listed shell, allowed the Company to raise $10 million in 1997 which was followed by further and larger rounds by venture capitalists and institutional fund managers over a period of over 10 years before SXC finally “hit it big” with a sizable initial public offering on the NASDAQ exchange in 2009. This is actually a very common method of raising venture funds in Canada and in this case the hybrid system provided not only the capital but also the support from the greater investment community of venture capitalists, investment bankers, research analysts, retail brokers and institutional fund managers that allowed the company to build a sustainable long term business model over an extended period of time. SXC Health stands today as perhaps the best example of the flexibility and the value added by the Canadian hybrid system.

    10. Canada's Immigrant Experience -A Graphic Example.

    In 2006, the City of Toronto was home to 8 per cent of Canada's population, but hosted 30 per cent of all recent immigrants. One would be hard pressed to come up with a better GTA rags-to-riches story than that of K. Y. Ho, who co-founded ATI Technologies in Markham, ON with fellow immigrants Lee Ka Lau and Benny Lau. Born into poverty in mainland China, Ho moved to Canada in 1984 and founded ATI (originally called Array Technologies) the next year. Throughout the next two decades ATI would become a world leader in 3D graphics chips, competing with Nvidia and Intel for supremacy in the graphics industry. In 2006, after posting revenue of (US) $2.22 billion the previous year, ATI was acquired by Advanced Micro Devices for $5.4 billion.

    Disclosure: No positions
    Jun 28 1:55 PM | Link | Comment!
  • Why are Canadian Tech Firms Disappearing?
    Why are Canadian Tech Companies Disappearing?

    Nick Waddell of the Dollarton Cantech Letter talks to Jeffrey Crelinsten of Toronto's Impact Group. Mr. Crelinsten, along with Gennum (TSX:GND) founder and former CEO H. Douglas Barber recently completed the fourth in a series of white papers examining Canada's innovation performance and culture. These gentlemen interviewed former CEOs and investors from 18 R&D performing companies that are no longer part of Canada's business landscape - and came to some sobering conclusions.

    Nick Waddell: Your study, (Understanding the Disappearance of Early-stage and Start-up R&D Performing Firms) examines Canada's innovation culture. One of the findings that might surprise some is that Canadians can be "too" focused on technology and don't concentrate enough on finding customers. Do you think having customers early on in a business plan can actually improve a businesses technology?

    Jeffrey Crelinsten: It depends on what you mean by "improve". When Intel was still a young company its engineers developed the 8080 microprocessor. When they were ready to launch, they discovered that Motorola had just developed the 6800 microprocessor and that it was technically far superior. Intel's senior management huddled with their sales, marketing and research heads and asked themselves "how can we overcome the fact that our product is technically inferior to Motorola's" They brainstormed and came up with the idea that they should make their chip so easy to use for customers that they would prefer the Intel chip over the Motorola one. The Intel team developed a list of ways to make their product the easiest to use, implemented the ideas and the rest is history. Intel has over 90% of the chip market to this day. A similar story evolved with video tape. Beta was the superior product, but VHS was better marketed and was adopted by the vast majority of consumers. So, attention to customers early on helps a company develop the best product or service that has the best value for the customer. And there is more to value than just technology. Early customer engagement "improves" technology in the sense that it maximizes the technology's value to customers who will then more likely pay for the product or service based on the technology. And that does not necessarily mean that the technology is the best in a technical sense.

    Nick Waddell: One of the things we find out by reading your study is that some of the cliches are true. For instance, the majority of CEO's you interviewed felt that Canada's Venture Capital community is too risk averse and
    inexperienced to properly assist companies. Why do you think we try to hit singles when the US is swinging for the fence, so to speak?

    Jeffrey Crelinsten: To be fair to Canadian investors, they'd prefer to hit home runs as much as their colleagues south of the border. So everyone is swinging for the fences, but in Canada we have rookies whereas south of the border we have veteran players. The venture capital community in Canada is populated primarily with people with financial backgrounds. Few have the enterprise skills that come with running a company, talking with customers, meeting the payroll (or not!), creating value and figuring out how to out perform competitors. In the US, many VC firms are populated with serial entrepreneurs who have run companies successfully and are now investing and mentoring others. So Canadians have been hitting singles because they lack enterprise experience. Rather than focusing on how to grow a company, they see their role as monitoring their investment and seeking an exit. Canadian firms tend to spread their investments widely and thinly in order to "diversify their portfolio." The result is that they don't have enough funds left for the firms that prove successful and they tend to stay too long with those that don't get any traction. So it's no surprise that they are content with selling firms early for a small multiple – a single – instead of cutting off the losers early and sticking with the winners for the long term home run.

    Nick Waddell: One finding that struck me as particularly sad was reported in a table later on in your report. It showed that one factor in firms that had a strong element of success was the presence of "foreign born entrepreneurs
    who were free of the "Canadian Culture of Commerce". This sounds endemic! Are we stuck with this culture or do you think we can "unlearn" it?

    Jeffrey Crelinsten: Entrepreneurs are people who can tolerate risk. If you're too comfortable, why take unnecessary risks? Immigrants to Canada who have nothing will more often take the risk of starting a company and trying to grow it profitably. They will do what it takes to succeed. The Canadian culture of commerce has developed within a rich endowment of natural resources and a huge market just south of us that speaks the same language and has similar customs and history. The world comes to us for our natural resources because we have something they need. We haven't had to go out and engage them to find out their needs and figure out how to help them and convince them that our solution is better than anyone else's. But things are changing. Other countries are competing to provide the world with natural resource products. The world has opened up to companies from anywhere to sell to anyone. While the new global reality means intense competition from the outside, it also brings opportunity. I'm hopeful that more Canadians will realize that they too can seize these opportunities and grow global, profitable businesses that sell to the world.

    Nick Waddell: Why do you think technology happens in "clusters"? A large portion of the companies we cover come from the "tech triangle" in the Kitchener-Waterloo area. Ten years ago Ottawa had a vibrant telecommunications scene. Can these situations be encouraged or incubated?

    Jeffrey Crelinsten: I think these so-called clusters evolve organically over long periods of time. You need critical mass - population, higher education institutions, financial institutions, cafés, meeting places, good schools, culture – all in an area that is easy to move around in and connect with other people and institutions. It requires a community where people can work and play together, where the human skills required in commerce are nurtured and developed. I know that there are many initiatives to try to create clusters in different parts of the country. I'm not sure that you can force people to engage in this way, but time will tell. If the focus remains only on research, technology and money, they will fail. If there is an equal focus on value creation, understanding, respect, listening and other human skills, then they may have a chance.

    Nick Waddell: The Dollarton Cantech Letter recently hosted a roundtable discussion about the demise of Nortel and the future of technology in Canada. Of course it didn't take long to get around to the topic of government policy. Does our government send mixed messages about supporting R&D in this country? We have flow through tax credits, but only for resource companies. We bail out auto makers, but not Nortel, who contributed significant intellectual property to the country...

    Jeffrey Crelinsten: Some of the people we interviewed spent a significant part of their career in Nortel. They told us that the company was imbued with a research culture, not a business culture. The focus was on technology and research. Remember, Nortel grew out of Bell Northern Research, the research division of Bell Canada. So, when Nortel employees left to start up a company, they lacked the enterprise and customer-facing skills to succeed. Government policy is similarly focused on research and technology. There is an implicit science policy that if you put enough money into research, something good will happen. There is a reluctance to support companies that are already meeting the needs of customers and helping them grow. I call it an "unholy alliance of the right and the left". The right is ideologically opposed to government playing a role in the market, so they refuse or severely limit direct support to companies. They invoke the dreaded mantra of "picking winners", not realizing that if they "back the players" the winners will emerge from the pack. The left simply mistrusts companies and refuses to provide direct support to firms, calling those that do get support "corporate welfare bums." The other problem is that politicians are obsessed with jobs in the short-term. So they tend to prop up industries that already employ a lot of people. That can be myopic and destructive, but as they say, "that's politics."

    Nick Waddell: What do you think governments need to do to address the problems you raised in your paper?

    Jeffrey Crelinsten: There is no quick fix. Unfortunately, that's exactly what governments look for all the time. Governments want to be able to announce programs with budgets that will fix things and make everyone want to vote for them again. They also don't want to kill programs that have been going for awhile because the constituencies that have benefited from them might not vote for them again. So today we have a patchwork of programs that have evolved and proliferated over time. Although they were all created to help Canadians and enhance prosperity, as a whole they are ineffectual. The best way to overcome these obstacles is for governments to articulate a vision for Canada's prosperity in tomorrow's global economy and embrace a model for success. The current model that provincial and federal governments use is "ideas to market" or "ideas to jobs". This model is flawed. It leads to a preoccupation with research and technology and the belief that with enough money, they will lead to success in commerce. A better model recognizes the importance of understanding and creating value for the world. Only then will governments and other institutions such as universities nurture and support the right combination of human and technical skills required to succeed in the 21st century.

    Disclosure: No Positions
    May 12 11:46 PM | Link | Comment!
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