The State of Entrepreneurship in Canada

1. Introduction

Entrepreneurs have always existed in Canada. From the earliest days, Aboriginal people traded among themselves, and when Europeans arrived on these shores, a lucrative global fur trade was launched. Vast fortunes were later amassed by Canadian entrepreneurs who have become household names, such as Roy Thomson, Timothy Eaton and John Molson.

But in recent years, more people than ever are becoming, or thinking of becoming, entrepreneurs. What are the reasons for this trend? Three stand out.

• The implicit understanding between employers and employees has changed. In the past, people expected to be retained as employees as long as they did their jobs. Recent economic downturns, though, have been accompanied by downsizing and people want to regain control over their pay cheques by starting their own business.
• People — especially younger people — increasingly prefer an independent lifestyle. They want to do work they like and have autonomy over their hours and working conditions.
• Entrepreneurs have become influential. Canadian entrepreneurs are celebrated in their communities and in the media, and, in an age where people are cynical about many public figures, they are becoming new role models.

Entrepreneurial activity, though, is not just good for entrepreneurs themselves. It benefits all Canadians. Entrepreneurship is a powerful force driving innovation, productivity, job creation and economic growth.^{Footnote 1} Countries with a high level of entrepreneurial activity tend to be better off economically.

At the same time, entrepreneurship is challenging. Young firms face uncertain markets, unproven technology, and uneven organizational processes. The fate of entrepreneurial firms is at least partially determined by characteristics of the business environment, such as access to finance, access to international markets and consumer spending power. Individual entrepreneurs have little control over these characteristics. As a result, the survival rate of young firms throughout the world is low, and the proportion of firms with high-growth rate is even lower. Given the significance of entrepreneurship to Canada, it is important to understand how well Canadian entrepreneurs are meeting these challenges.

How does Canada fare in comparison with other countries, and how is this changing over time? Opinion on the matter is divided. For example, while a recent study of Canadian competitiveness suggests that we lack "entrepreneurial ambition"^{Footnote 2} as a nation, a study published in 2006 by the Danish government identifies Canada as one of the top countries in terms of entrepreneurial activity.^{Footnote 3} Which of these assessments paints a truer picture of Canada's entrepreneurial activity? This is the question that has prompted this report.

In order to paint this portrait of entrepreneurship in our nation, this report:

• identifies relevant entrepreneurial performance indicators by which we can judge the state of entrepreneurship in Canada;
• provides an overview of Canada's level of performance on these indicators over the recent past;
• compares Canada's performance on these indicators with the performance of other countries; and
• presents a profile of the key characteristics of Canadian SMEs and their owners, and how they are changing over time.

The latter point is included even though the goal of this report is to examine entrepreneurship in Canada, rather than small and medium-sized firms (SMEs). This is because SMEs drive much important entrepreneurial activity in all countries. This is particularly the case in Canada where there are a relatively small number of very large multinational corporations.

Footnotes

Footnote 1

Zoltan J. Acs, Entrepreneurship (what's the big deal) and the Macroeconomy in the 21st Century, Understanding Entrepreneurship: Issues and Numbers  (130 KB, 14 pages)
(Paris: OECD, 2005).

Zoltan J. Acs, "How is Entrepreneurship Good for Economic Growth?" Innovations, 1.1 (2006), pp. 97–107.

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Footnote 2

Competition Policy Review Panel, Compete to Win: Final Report June 2008 (Ottawa: Industry Canada. 2008).

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Footnote 3

National Agency for Enterprise and Construction, Entrepreneurship Index 2006: Entrepreneurship Conditions in Denmark (Copenhagen: Danish Enterprise and Construction Authority, 2006).

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