Canadian small business will become more global in the next few years as seniors, immigrants and the Internet change the way companies operate, says a CIBC World Markets report.
But most firms will opt to stay small as Western Canada continues to lead small-business growth, says Benjamin Tal, the report's author. Tal predicts small firms will boost their exports substantially over the next decade as seniors and immigrants capitalize on their experience and expertise, cultural ties overseas, and comfort using the Internet.
Small and medium-sized enterprises now account for 10 per cent of Canada's annual exports, but Tal expects that percentage to grow as more Baby Boomers retire and immigration increases.
People over 55 years old represent the fastest-growing group of new-business owners, says the CIBC World Markets report released last month.
"In fact, it has accelerated faster than we expected," says Tal, a CIBC World Markets economist in Toronto.
Seniors are "benefit-bridging" by opening small businesses after taking early retirement from other careers and choosing self-employment for life- style purposes.
"They're basically sacrificing income for flexibility," says Tal. "This is happening more and more and older Canadians are becoming much more comfortable with the Internet."
Immigrants are already helping to expand Canadian exports while accounting for 20 per cent of new businesses, he adds.
"They have ties to their countries of origin. It's hugely easy for them to start exporting or importing to their (home) countries."
Immigrants helped Vancouver lead all major Canadian cities in small-business startups last year with a 3.1-per-cent increase, while Victoria ranked second with a 2.4-per-cent boost. Calgary, a city that prides itself on its entrepreneurial spirit, placed third with a 1.5-per-cent rise. Montreal (1.1 per cent) and Edmonton (one per cent) rounded out the top five.
Kitchener's 0.9-per-cent increase, which ranked sixth nationally, was the best in Ontario where, outside of Toronto and Ottawa, most cities experienced declines in small-business startups.
But Tal contends expansion is not a priority for most small-business owners.
He says government policy should assist small-company operators' lifestyles rather than help expand their empires.
"The government and everybody who talks about small business always want to try to help small businesses grow - but nobody asks if small businesses want to grow," says Tal. "For about two-thirds of the operators, that's their lifestyle. They don't want to be the next Bill Gates. They don't want to be the next Microsoft. They want to stay small and they want to stay where they are."
But he also agrees with a recent Canadian Federation of Independent Business (CFIB) report, which contends that increased global competition makes it harder for small firms to grow their operations.
The CFIB's pre-federal budget report makes several recommendations designed to lower barriers to growth.
The group, which represents 100,000 small and medium-sized enterprises (SMEs) across Canada, wants Ottawa to reduce personal income and fuel taxes along with the GST, increase the $500,000 lifetime capital gains exemption by $100,000 in each of the next five years, freeze payroll taxes, reduce the federal debt, streamline the regulatory process and provide incentives to offset skilled labour shortages.
But Darcy Rezac, managing director of the Vancouver Board of Trade, does not believe it's more difficult for small companies to grow.
"The fact of the matter is that the biggest companies have gotten big through mergers and acquisitions over the last 10 to 15 years," says Rezac. "What happens to successful small companies is that, certainly in the high-tech sector, they tend to be purchased by the larger firms."
He says it's no more difficult for small businesses to grow than it was 10 years ago, with the exception of dealing with the labour and skilled worker shortage.
Tyler Gompf, president and CEO of Winnipeg-based Tell Us About Us (TUAU) Inc., which provides customer feedback to primarily U.S.-based firms, says there are opportunities for small firms to expand - if they want to.
"You just have to really focus and go after one," says Gompf, one of three finalists for an Ernst & Young Prairie Entrepreneur of the Year award. The national Entrepreneur of the Year will be announced on Nov. 2 in Ottawa.
Gompf, 33, launched the business in 1997 - despite having no previous business training or experience - after receiving poor customer service when he wanted to buy a stereo one night because an employee was more intent on closing the store.
After starting with just Gompf and his brother Kirby and a modest $5,000 investment, TUAU has expanded to 55 employees and remains focused on U.S. business.
"We'll continue expanding our U.S. initiatives, but also have our sights set on Europe and elsewhere. Canada is definitely on our horizon, but opportunities keep presenting themselves from other nations," he says.
Another Ontario-based small-business owner disagrees that smaller companies have a harder time growing into bigger firms.
Bill Dowd is president and CEO of Hamilton-based Humane Wildlife Control Inc., which removes raccoons, skunks, bats and other animals from homes in southern Ontario and parts of Quebec, and he's looking to expand into Western Canada and the U.S.
Dowd, a former New York Islanders' farmhand who launched the company in 1990 with $15,000 left over from his National Hockey League signing bonus, says small firms can compete with larger companies by taking proper care of their customers.
"People want good customer service and we've built our reputation on providing exceptional customer service, going above and beyond what homeowners expect," says Dowd.
Humane Wildlife fields 3,500-5,000 calls per week during its busy March-October season and 2,000 calls per week the rest of the year.
"We use technology now to stay one step ahead of the small one-man companies," says Dowd. "We're using solutions from Microsoft CRM (customer relationship management), BlackBerries and mobile CRM.
"So when our field technicians go to a home that somebody else in the company has been to two or three times previously regarding the animal situation, they have all of that information right at their fingertips."
Quintin Prinsloo, president and CEO of Vancouver-based Quinix Technologies Inc., says taxes pose some of the biggest challenges to small business.
"Canada is not very small-business friendly," says Prinsloo, who launched Quinix in 2002 after emigrating to Canada from South Africa.
Quinix provides network services, software development and Web hosting primarily to companies that have fewer than 25 employees.
Prinsloo bases the comment on government obstacles and a lack of business-to-business services available to small firms. He would like the federal government to introduce a "closed corporation" company structure, similar to one used in South Africa, which he says simplifies the company-registration and reporting process.
The only fundamental difference between large and small companies is resources, says Prinsloo. "(Large companies) receive more capital and have access to more people, so they can afford more people. (As a small business), you're always growing beyond your cashflow or beyond your resources and beyond your office space."
Quinix operates a small office in downtown Vancouver where it stores a computer server and other hardware, and conducts training sessions and meetings. But the firm's three full-time employees and temporary contractors work from home.
"One of the things we try to do is just focus on what we're good at," says Prinsloo. "That means sometimes we have to say no."
The CIBC's Tal predicts Calgary and Vancouver will continue to lead small-business growth in the next few years as Alberta benefits from high oil and gas prices and B.C. gains from Olympic-related construction projects and the province's proximity to the rapidly expanding Chinese market.
He contends that Canada actually has two economies.
"It's the West versus the rest," says Tal.
(Monte Stewart can be reached at monte@businessedge.ca)
