A new study by the Business Development Bank of Canada (BDC) found that when compared to 15 years ago, Canadian small and mid-sized companies are experiencing difficulty scaling up and expanding in size.
The study, conducted by BDC, revealed that only 0.10 percent (one in 1,000) of small businesses were able to grow past the 100-employee mark in 2013, representing a 40 percent decline from 2001. In addition, mid-sized business are also struggling to scale up as only two percent of them succeed in becoming large businesses with 500 or more employees. In 2013, mid-sized companies made up 0.93 percent of the total number of Canadian companies, indicating a drop from 1.04 percent in 2001.
“Canada needs to see more small businesses transitioning to medium-sized firm level and more mid-sized companies achieving large status,” said Michael Denham, the president and CEO of BDC. “It is therefore essential to focus on the conditions that favour their growth by supporting investment in capital spending and productivity improvements to help growing companies expand across Canada and beyond.”
When looking at the growth rates of small and mid-sized business in various provinces, the study found significant regional disparities across Canada. Only three provinces, including Ontario, Alberta, and British Columbia, indicated favourable business growth rates, while the remaining provinces were all below the national average. In addition, some regions in Canada have seen an overall decline in the number of businesses that start and grow there as well.
The study shows that although mid-size companies are struggling to grow in employee size, they are ahead of small businesses and large companies in revenue growth, with a 43 per cent growth in average revenue from 2001 to 2013. Canadian mid-sized companies generate 12 per cent of Canada’s GDP and 17 per cent of private sector research and development spending.
While small and mid-sized companies have struggled to grow in the last 15 years, the study reveals that micro-enterprises, which generally consist of one to four employees, are the only business category that have seen a one per cent growth in their portion of the total — from 75.66 per cent in 2001 to 76.55 percent in 2013.
The discussion around Canadian businesses struggling to scale up has been a bigger conversation as of late, with the Lazaridis Institute announcing that it is launching a program specifically to help startups ready to scale, and firms like iNovia identifying barriers to scaling, including a lack of executive talent.
In response to the findings of the study, BDC is planning to increase its financial support from $4.8 billion in 2016 to $5.2 billion in 2017, as well as advisory services, to help Canadian businesses scale up and become more profitable.
“Helping entrepreneurs expand their operations is one of our top priorities. We are taking tangible measures to ensure that Canadian companies that are ready to scale have access to the financing and advice they need,” said Denham.
BetaKit has reached out to BDC for further comment on the study.