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Why Quebec needs more entrepreneurs

Leading CEO Michael Sabia and Concordia researcher Alexandra Dawson weigh in on what it will take to build business in the province
May 7, 2014
By Découvrir, the official Acfas magazine

Michael Sabia Michael Sabia, president and CEO of La Caisse de dépôt et placement du Québec: “Entrepreneurship is a major pillar of our strategy.” | Photo courtesy of La Caisse de dépôt et placement du Québec

There’s no doubt that entrepreneuship is a major concern in Quebec.

As Michael Sabia, president and CEO of  La Caisse de dépôt et placement du Québec, points out, a thriving entrepreneurial culture has a positive impact on any economy. And in this province, where some estimates suggest that approximately 70 per cent of small and medium-sized businesses are family-owned, it may be even more important.

When the time comes for the principals of these companies to step down, many don’t have a plan in place for a successor.

Furthermore, entrepreneurship rates in Quebec are lower than those in the rest of Canada. That’s something that concerns Sabia. “Between 2013 and 2018, the number of business owners is expected to fall to 155,600 — a drop of 20,200,” he says.

Sabia wants the province to avoid the sobering outcome these factors may produce. This month, he’s serving as the honourary president of 82nd Congress of the Association francophone pour le savoir (Acfas), the largest multidisciplinary gathering of knowledge and research in the French-speaking world.

From May 12 to 16, more than 5,000 scholars from 30 countries will descend on Concordia to take part in 172 colloquia and 3,000 conferences addressing all aspects of academia and society.

With Acfas’s mission of connecting researchers and other key social stakeholders in mind, Découvrir — the association’s magazine — sat down with Sabia and Alexandra Dawson, an assistant professor in the Department of Management, to discuss the future of entrepreneurship in Quebec.

Mr. Sabia, to get us started, could you share your views on how institutions like La Caisse de dépôt et placement du Québec can play a role in entrepreneurship?

Michael Sabia: Entrepreneurship is a major pillar of our strategy in Quebec. As you probably know, La Caisse’s mandate is twofold: to generate returns for its 31 depositors and to contribute to Quebec's economic development. La Caisse is thus a global investor with deep roots in Quebec, where we want to help build strong businesses.

One of the ways we have decided to do this is to foster entrepreneurship. Why? Because entrepreneurship is one of the key drivers of development and growth in our economy. Recent studies show that, in advanced economies, a thriving culture of entrepreneurship has a direct and positive impact on GDP growth.

That’s why we believe entrepreneurship should receive greater encouragement. We work with various stakeholders to do just that, and all the more so since the current situation has revealed an alarming trend: a lack of enthusiasm for entrepreneurship in Quebec.

On one hand, there aren't enough qualified candidates to take over for the number of business owners preparing to pass on the torch. On the other, entrepreneurship rates here are lower than elsewhere in Canada. Figures from Quebec's Ministry of Finance and the Economy paint a startling overall picture: between 2013 and 2018, the number of business owners is expected to fall to 155,600 — a drop of 20,200.

To achieve our mission in Quebec, we set out to go beyond financial support and present a distinctive offer that includes expert coaching in finance and operations. We have also launched an in-depth study on entrepreneurship in tandem with various business community stakeholders. 

The purpose is to examine not only our own entrepreneurial practices here in Quebec, but entrepreneurial practices elsewhere. Various initiatives have been set up in cities like Tel Aviv, Israel, Boulder, Colo. and New York, N.Y., and yielded very successful results.

We want to inform our thinking with the best ideas out there, identify what we can do better and differently, and ultimately maximize our impact. In the medium term, this will allow us to implement new, innovative and concrete actions to further stimulate the entrepreneurial ecosystem and help develop the business owners of tomorrow.

Alexandra Dawson Alexandra Dawson, assistant professor at the John Molson School of Business: “Research shows that there is a correlation between entrepreneurship education and entrepreneurial intentions.” | Photo by Concordia University

Professor Dawson, what are the main factors behind the dwindling number of entrepreneurs? Do we have data on the matter?

Alexandra Dawson: An important factor is the generational change. Demographic trends, not only in Quebec but also in the rest of Canada and worldwide, mean that baby boomer business owners are getting older.

In fact, a recent study by CIBC shows that around 30 per cent of business owners in Canada will exit ownership or transfer control of their businesses within five years. This percentage goes up to 50 per cent over a 10-year period. At the same time, a majority of small and medium-sized enterprises in Quebec — about 70 per cent, according to some sources — are family-owned and managed. And the majority of these business owners don’t have a formal succession plan in place.

Studies show that the key to a successful business transmission is succession planning. This planning needs to start early and has to involve several activities. These include identifying the entrepreneur’s exit strategy, whether it involves a family successor or otherwise, formulating a vision for the business after succession and identifying the future role of the retired entrepreneur.

Due to the high number of business owners retiring, it is impossible for all the businesses to be passed on to the next generation — hence the downward trend. 

MS: In fact, studies on succession have reached some troubling conclusions. Not only are many business owners thinking of retiring, but there is also a serious lack of successors — a gap of approximately 38,000, according to the Fondation de l’entrepreneurship. 

Why is this reality such a concern? Not only does such a situation stand to decrease the number of businesses and jobs, it also hinders growth. Someone looking toward retirement with no succession plan will tend to focus on the survival of their business instead of investing in the development of new markets, innovation and improved productivity.

Succession planning is therefore essential, and a key consideration. It sets the stage for a successful transfer of ownership but also lays the groundwork for the company’s long-term survival and growth. In such a process, which often unfolds over a number of years, a long-term investor like La Caisse can be a preferred partner. 

We work closely with retiring business owners to facilitate the gradual and orderly transfer of the property, allowing them to collect a portion of their company’s value. In doing so, we aim to accomplish two things: to position the company well for the future and to allow the retiring owner to obtain maximum capital for retirement.

Over the years, we have been involved in the successful transfer of ownership of many Quebec businesses that have been taken over by either managers or family members.

Professor Dawson, your research shows that family members’ feelings of attachment and commitment to a family business are another determining factor in its survival. When planning for succession, do we place too much importance on managerial knowledge and skills?

AD: Taking over the family business requires the next generation to have both 1) entrepreneurial knowledge and skills, and 2) sufficient commitment to the business. Both elements are key for the success of family businesses. 

Knowledge and skills are certainly important. The next generation taking over the family business often knows a lot about the business, thanks to learning by doing and apprenticeships — for example, through summer jobs in the family business. This allows the next generation to develop tacit and highly specific knowledge about the business, which is not easily transferable to non-family members, and enriches the knowledge and skills that the next generation acquires through formal education.

In addition, family members often have a greater commitment to the business than do non-family employees. Several factors contribute to shaping this strong commitment to the family business. These range from encouraging next-generation family members to identify with the business early on to offering career prospects within the family business that are aligned with the individuals’ interests and aspirations. Even family expectations contribute to commitment to the family business.

Feeling pressured or even obligated to pursue one’s career within the family enterprise can create a form of commitment known as "normative commitment," which is not necessarily negative, because individuals often derive satisfaction from conforming to the expectations and desires of those they love and respect.

In fact, both types of commitment — respectively based on identifying with the business and on family expectations — are associated with pursuing a long-term career in the family business, being an inspirational leader, and engaging in activities that go beyond one’s job description, thus positively contributing to organizational performance.

Statistics bear this out: in Quebec, 18- to 24-year-old young adults show a strong intention of starting their own business (25 per cent) in comparison with the general population (14.8 per cent).

However, when it comes to putting this intention into practice, only 7.4 per cent of young adults follow through. What accounts for whether or not someone starts their own business?

AD: Research shows that intentions are the single-best predictor of any planned behaviour, including entrepreneurship. What shapes such intentions? There are three key factors:

First: personal attitudes towards the expected outcomes of the behaviour — for example, towards personal wealth, stress and autonomy.

Second: perceived social norms. In other words, what important people in the individual’s life — for example, his or her family or the community in which he or she lives — think about performing a particular behaviour.

And third: feasibility of performing the intended behaviour — that is, the degree to which one feels personally capable of starting a business (for example, the individual’s self-efficacy or a person’s belief in his or her capability to perform a task).

However, despite having entrepreneurial intentions, individuals may not actually engage in entrepreneurial behaviour due to factors that are outside of their control. Exogenous factors that may prevent an individual’s entrepreneurial intention from being put into practice include the availability of entrepreneurial opportunities and the availability of resources (financial, human and so on) needed in order to pursue such opportunities. 

Professor Dawson, what can financial institutions do to help entrepreneurs? 

AD: Research shows that the main source of financing for new businesses is the entrepreneur’s own money, followed by money from his or her family and close friends. Even if it comes from informal sources (family and friends), entrepreneurs must ensure that they manage this money professionally while respecting the expectations and requirements of the people giving them the money.

For example, is there an expectation that the money will be returned? If it is a loan, will interest be paid? When will it be paid back? If the business were to fail, what impact would this have on the family member or friend who has contributed the money? 

Many new businesses do not require external capital because they tend to be small (indeed, a great majority of businesses in Quebec are small and medium-sized) and tend to be in the service sector (which generally requires limited capital). 

However, additional capital may be needed for businesses that have higher start-up costs and it is generally required to grow an existing business. Difficulties in accessing external capital are the main reason why so many businesses fail to grow and create new jobs. Banks are the leading source of debt financing for businesses.

Furthermore, entrepreneurs, and especially young entrepreneurs, need more than access to money: they need a business relationship, industry expertise, guidance and mentoring, access to business networks and so on. This is where local financial institutions can play a crucial role, because they are closer to the local community and committed to the economic growth of their region.

MS: That is correct: many things other than capital, including access to networks and guidance from a team of experts and mentors, contribute to a company’s success.

We know a business’ first few years are critical. During this period, it is all the more crucial to be able to access expert advice and receive informed support. This is how we work with our partners to strengthen entrepreneurship.

Moreover, many initiatives that have inspired us around the world put the accent on networking, co-operation, mentoring and sharing expertise.

We believe these are powerful catalysts that must be effectively developed. This is what we offer the firms in which we invest, in addition to long-term capital. And it is also the goal we pursue through the partnerships we establish to advance entrepreneurship.

To conclude, Professor Dawson, what role do you think universities have to play in fostering entrepreneurship? Can you cite any stimulating approaches? Does Quebec face any particular challenges?

AD: Universities play a key role through the education they provide to young individuals. Research shows that there is a correlation between entrepreneurship education and entrepreneurial intentions. However, universities can do even more than providing formal education to their students.

At the John Molson School of Business (JMSB), we try to get our students out of the classroom. For example, through our Business Blueprints initiative, our students get to write business plans for Montreal-based entrepreneurs.

Through the Dobson Practicum, our students can participate in business plan competitions in which they are assigned an experienced mentor who helps them turn an idea into a business plan. They then present their business plan to a panel of judges and compete for seed money.

Through Concordia’s District 3 incubator, students can access the resources they need (office space, mentors and so on) to turn their ideas into potentially viable businesses.

Through our successful case competition teams, JMSB competes annually in over 30 regional, national and international competitions in which our students are asked to provide recommendations to entrepreneurs and business owners based on real-life case studies.

According to data from the Fondation de l’entrepreneurship in Quebec, Quebec has a lower percentage of business owners aged 35 or older than the rest of Canada. However, the percentage of young individuals living in Quebec who want to start their own business is double that of the entire population. This is a very clear signal that we need to guide and assist these young individuals to help them pursue their entrepreneurial dream. 

MS: All players, whether active in education, business or finance, would actually benefit from working together to foster entrepreneurship. Universities are often entrepreneurial incubators.

If promising entrepreneurs are identified at source and then guided appropriately, we’re already that much further ahead. Initiatives like those presented by Professor Dawson are good examples.

Training programs focused on mentoring can also be effective tools; at the university level, of course, but why not as early as elementary and high school as well? Why don’t we incorporate activities to promote entrepreneurship in the educational system overall? We need to work together to foster and develop a thriving entrepreneurial culture from every angle. Our society needs more successful businesses — and for that, we need more entrepreneurs.

About Alexandra Dawson and Michael Sabia 

Alexandra Dawson holds a PhD in management and business administration from Bocconi University in Milan, Italy, and a Master of Science in industrial relations and human resource management from the London School of Economics and Political Science.

Prior to her academic career, she was a manager with a boutique management consulting firm in London, England, where she provided strategy advice to corporate clients and investment advice to private equity firms. Dawson’s research focuses on entrepreneurial businesses.

Michael Sabia has been president and chief executive officer of La Caisse de dépôt et placement du Québec since March 2009. Before joining La Caisse, he was president and chief executive officer of BCE. He has also held various positions with the Canadian National Railway, including chief financial officer, and was a senior official in the government of Canada for 10 years.

Sabia holds a Bachelor of Arts in economics and politics from the University of Toronto and graduate degrees in economics and politics from Yale University.

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