Before I get to the exciting news, on behalf of Ontario Immigrant Network and the communities that we serve, I need to say this: Thank You Libro Credit Union – for selecting OIN from a long-list of very worthy causes, and for recognizing the role that you can play in a very important issue: financial literacy and entrepreneurship for both Canadian and newcomer youth.
For any business owner, the challenges are many – marketing, business growth, profitability and (amongst others) the ever-present challenge of financing. While financing can be a challenge to existing businesses, particularly those looking to expand, in this blog entry I’d like to examine how it impacts start-ups.
Prior to coming to OIN, I spent nearly 7 years in the financial services industry. While I focused heavily on insurance and investments, I did spend a significant amount of time with mortgages and leasing. I was in the industry during a very interesting time, the beginning of this economic shift or recession. All throughout I also managed to see how financing has changed and what it means for business owners.
It seems that these days money is free flowing for tech startups that may have weak (or no) revenue models. Quite simply, millions of dollars are being poured into products that may or not pan out. Of course, the ones that do are phenomenal successes, but these high stakes gambles lead me to ask what about everyone else?
The recent startup visa seems to be geared towards these gambles. While the start-up visa does not specify tech, it is most likely that hi-tech will be the main beneficiary of these venture capital funds. Again, while some of these multi-million dollar projects may create a few jobs, many tend to be short-lived, or absorbed by larger entities. Some may be shelved entirely with their assets stored away to pad a portfolio of patents. Long-lasting benefits to our communities, and are economies as a whole just tend not to happen as a result of these projects.
On the other side, we see small “Ma and Pa” type businesses that require long work hours, have capital needs of their own, and (the successful ones) tend to generate jobs and value for their local communities. These businesses tend to stick around over the long-term, diversify the local economy, and really form the bread and butter of our national economy – in the past 10 years, almost 60% of our new jobs were created by small companies like these. How much do these ventures require?
Many were started with less than $10,000. There succession does require significantly more financing, yet still far less then what the latest App may need, and with far less risk of failure. These are the types of businesses that we need, and unfortunately we are not finding effective ways to give them the capital that they need.
Within my work at OIN, I am constantly looking at ways that immigrants & newcomers can finance business succession opportunities. While traditional lending may work for some, it may not work for all. Sometimes an individual may not be deemed credit worthy, maybe the business is too risky, or some other factor influences. Regardless, there are likely cases where good businesses cannot start, expand or continue because of this barrier.
We are examining several different ways to counter these effects; first, by working with lenders to understand the challenges and potential rewards involved in these transactions. By using the mentorship component of our business succession program, we can reduce the risk to lenders by tapping into the tacit knowledge of experienced entrepreneurs.
Second, we are looking at exciting new finance models. Crowd funding and social impact bonds certainly top the list, although I am sure that new instruments will be created as the economy forces more of us into entrepreneurship and as traditional lending tightens. While it may sound silly, and possibly limiting today, the days of raising equity through a website $10 at a time are likely not far off. And, if our legislation catches up to that of the U.K., we may see Social Impact Bonds becoming a feasible instrument for transitioning businesses.
I hope this will not be taken as an attack on banks; I deal with them in personal and professional life, and without them economic growth would be at a standstill. However, I do feel that we need to look at new models if the old models cannot sold old problems. Please feel free to leave your comments and thoughts on any of these points.
The current state of the economy has driven many to entrepreneurship. In the wake of massive lay-offs in the manufacturing sector, downsizing across all industries and renewed vows to create sustainability, SME’s are a powerful to create diverse, real, and sustainable communities. Although entrepreneurship is not all rewards, here are 5 reasons why SMEs will continue to grow.
1. Generation Y
Brought up to value their own individuality, talents and skills, research has shown that as this generation matures they are more entrepreneurial than those before them . They value the flexibility of entrepreneurship and bring passion and tech skills that allow them to work anywhere at anytime. In addition, this generation has lived at home longer, and has been less likely to purchase major assets (from cars to homes) permitting them to bootstrap and live on less income than generations before. In pure numbers, they represent a major “wave” of demographics, and the impact of their generation is just beginning to be felt.
2. 3-D Printing and Changing Nature of Manufacturing
These changes quietly started over 50 years ago with the advent of the CNC machine, and within a decade you may have 3D printer in your home. Imagine printing up toys that your children have designed, jewelry, chocolates, medical supplies, circuits, a new component for a broken piece of equipment or a piece of art for your home. The possibilities are endless. Greater still, is the impact that this will bring to the nature of manufacturing. No longer will massive warehouses dot the landscape, but a manufacturing facility could sit on 2500 square feet or less, producing made to order components, warehousing only enough to fill a small truck. The revolution of desktop manufacturing is near.
3. Increased Environmentalism & Sustainability Awareness
Environmentalism over the last hundred years has come and gone. Over the last two decades, the awareness and trend towards “green” has not diminished, but rather increased in importance, diversified, and increased in scope. Corporations are adopting “sustainability” as a way of life, incorporating these concepts into their Strategy Maps and Balanced Score cards. Consumers are demanding that the companies they do business with be environmentally aware and sustainable. It is far easier to develop a sustainable operation with a low carbon footprint as an SME owner. Many small businesses start off as home based businesses. This makes for businesses with shorter (or no) commutes, lower utility consumption, less or smaller equipment, and growth in Internet communications technology (email and social media) permit SMEs to connect to the world from a smartphone.
Beyond this, there is growing dissatisfaction with the income that CEOs earn. The erosion of our middle class has created calls for egalitarian pay distribution which recognizes the value that all bring to our workplaces and society. Generally speaking, most founders are not making millions, but earn incomes far more modest than the CEO of Goldman Sachs or Citibank.
4. Increased Social Responsibility
SMEs are connected to their local communities. Many times entrepreneurs are involved community leaders and advocates, volunteers for local charities/non-profits, and catalysts for local change. SMEs are tied to their local communities because these communities support them and are where they work and live. Large corporations stay connected to the public via social media, howeverthese cannot replace local, human ties.
Add to this, the enormous growth in social entrepreneurship over the last decade and the awareness that you can do good, while earning a living. The social innovation landscape domain is currently dominated by the non-profit sector and SMEs, but as the continued demand for Corporate Social responsibility (CSR)grows, so will SMEs.
5. Worsening Financial State of Western Governments
From the USA and Canada to Europe, governments are increasingly facing fiscal pressures and inabilities to manage their own budgets. In Canada, government funding for social programs and welfare are decreasing. Cuts further erode the quality of life of individuals caught in cycles of poverty. Social justice advocates will always work to secure funding for those most in need, but many will fall between the cracks. Consider the role of microenterprise and SMEs can play in alleviating poverty.
Studies show that median household income of self-employed microenterprisers increases 78% in two years, and 91% over five years. In another guided program (Welfare to Work) participants’ business assets and their net worth grew by nearly 250% during a two year period, and home ownership increased from 14% to 22%. Finally, in Washington State a study by the Center for Economic Opportunity showed that over 50% of microenterprises moved toward self-sufficiency by completely reducing all forms of public assistance over 3 years. This reduced reliance on government programs has a significant impact on the burden the state carries to support low-income families. In this study participant unemployment decreased by 24% in the first year. Strong local economies can be created by fostering microenterprise in low income communities and encouraging the break from the cycle of poverty. Given that governments have less and less money to give, the growth of microenterprise and SMEs is predicted to grow at increasing rates in the coming years.
Last year, over 250,000 newcomers choose Canada as their new home. Often these newcomers flock to centres such as Vancouver, Montreal and Toronto. While these cities certainly offer diverse communities and a multitude of newcomer services, they may also be contributing to a substandard experience.
A recent study showed that Toronto was the most miserable city in Canada, and this was due in large part to the high proportion of immigrants. This is not to say that immigrants make others and themselves miserable, but rather that there is a mismatch between immigrant expectations and outcomes, particularly in larger centres. Each year, we actively seek the best and brightest from developing nations, and only a small percentage are able to find opportunities that match their skill sets.
Refereed to sometimes as “Taxi Driver Syndrome” many foreign trained professionals end up in low-skilled jobs. As newcomers adjust to their new lives in large cities, they often become entrenched in ethnic enclaves and from there, the integration process is seriously hampered. Credential recognition is an ongoing issue, and few fields allow for an easy transition into a career that is aligned with a newcomer’s past experience. We see this across all regulated professions, and across all ethnicities. However, there is one unregulated profession that does not care about your ethnicity or where you obtained your credentials: entrepreneurship.
Many immigrants come to Canada seeking a better life, and often they turn to entrepreneurship to do so. Why? Because if they have the business accumen, courage and the right idea, they need not be limited in what they can achieve.
Newcomers are naturally risk takers, having given up so much to come to a new country. Poverty, persecution and even death are just some of the risks faced by many immigrants. The risk of business failure is likely miniscule in comparison, and with the motivation to create a new life, immigrants are clearly an excellent source of new entrepreneurs.
Check back later this month for more on why immigrant entrepreneurship is just the boost that our communities need.