NEW DATA SUGGEST SURGE IN STARTUPS. CARMICHAEL,
Economic capacity rebuild is underway
shopify inc. paid tribute to its current (and potential) customers at the end of 2020 with the sort of video montage that advertisers typically use to recruit soldiers or sell pickup trucks.
the three-minute film begins with tears, but swiftly moves to scenes of determination and resolve. eventually, a cork pops and a team of workers celebrates the successful pivot to a line of business it likely hadn’t imagined when the year began. the final shot belongs to harley Finkelstein, shopify’s charismatic president. “to all of the entrepreneurs out there, you’ve got this.”
that’s easy for Finkelstein to say. he’s protected by a cushion of about 150,000 options to buy shopify shares, which increased in value by around 180 per cent last year. his company, which makes e-commerce websites for smaller companies, is now Canada’s most valuable by market capitalization.
But last year wasn’t as romantic as shopify’s propaganda makes out. there were seven per cent fewer active businesses in Canada in october than in February, according to statistics Canada’s most recent data on openings and closures, so if the country’s entrepreneurs “have this,” they barely have it.
this winter’s COVID-19 lockdowns will likely force even more companies out of business, given the Bank of Canada’s prediction that the restrictions will cause a second economic contraction in the first quarter.
still, shopify’s evangelism might be closer to the mark of what’s happening on the ground than what is implied by some of the grimmer headline data. animal spirits are stirring.
More businesses opened than closed in October for the fourth consecutive month, so the rebuild of Canada’s economic capacity was well underway. “We are going to have more startups,” said Pierre Cléroux, chief economist at the Business Development Bank of Canada, the Crown lender that specializes in small-business lending and startup capital.
A similar set of data from Canada Revenue Agency (CRA) supports that view.
If you want to legally conduct business in Canada, you need business and GST/HST numbers. Upon request, CRA provided a tally of the new GST numbers that it issued monthly between the start of 2007 and the end of 2020. The numbers sketch the contours of creative destruction, the idea that big shocks destroy legacy companies, creating space for newer, nimbler businesses to thrive.
CRA’S data suggest that Canada’s entrepreneurial spirit was initially crushed by the pandemic, along with employment and so many other things. But in September, the agency issued 27,450 GST numbers, a five per cent increase from a year earlier and the most in any September in at least 13 years.
The upsurge continued through the end of the year, pushing the total for 2020 to 304,650. That’s a 14 per cent drop from 2019 and a four per cent decline from 2018. But it suggests Canada is on track to restore its economic capacity faster than it did after the Great Recession.
Last year’s total of new numbers was bigger than the total in 2017. That’s a strong rebound in momentum. It took seven years to recover from the shock of the Great Recession, as the annual issuance of new GST numbers stayed below the 2008 mark until 2016, reflecting the lacklustre growth that resulted from a premature shift to austerity in countries such as Canada, Germany and the United States.
“COVID-19 was bad for a lot of people, but it was also an opportunity for some of those people to sit back and think about what they wanted to do with their lives,” said David Walcott, a former banker who was doing marketing for a mortgage brokerage when the pandemic swept into North America almost a year ago. His position was among the three million jobs that vanished between February and April.
Walcott’s two young sons used to ask him why he worked for that guy at the mortgage company and not for himself. “They inspired me,” he said.
Instead of seeking a new salary, Walcott emptied his savings account to start Hustleandfit, a web-based maker of four-in-one duffel bags that have separate compartments for workout gear, office clothes, lunch and a laptop. He found a contract manufacturer in China, raised some money on Kickstarter, turned to Shopify for e-commerce and used influencers to promote Hustleandfit on social media sites such as Instagram.
Walcott said sales have been better than expected, and yet he can’t help but think they should be higher.
“You are always on an emotional roller coaster,” he said. “I don’t think everyone should be doing what I’m doing.”
Probably not, but we still need as many David Walcotts as we can muster. Canada has one of the lowest startup rates among rich industrial countries, according to the Organisation for Economic Co-operation and Development. That partly explains why the country’s productivity rate is so poor. New companies disrupt, forcing legacy firms to keep up or die. The economy is made stronger.
“The fast eat the slow,” said Suzanne Grant, a former startup CEO who currently runs the Canadian Advanced Technology Alliance, an Ottawa-based industry group. “We need to move.”
Cléroux believes entrepreneurship rates will climb as former salary men and women see opportunities in the shift to a digital and carbon-neutral economy. This time should be different than the aftermath of the Great Recession because the nature of the collapse is different. The federal government has kept the economy afloat, so there’s lots of money to invest on good ideas.
That makes sense in theory, although, as Walcott, the former banker, noted, Canada’s lenders are notorious for their reluctance to back entrepreneurs.
“We need a culture shift,” Grant said. “A culture to embrace change.”