President and Chief Executive Officer, Business Development Bank of Canada
THE POWER OF INNOVATION: DRIVING SMALL BUSINESS GROWTH
Chairman: Bill Laidlaw
President, The Empire Club of Canada
Head Table Guests
Charles S, Coffey, Executive Vice-President, Government and Community Affairs, Royal Bank of Canada and Director, The Empire Club of Canada; Rev. Dr. John Niles, Victoria Park United Church and Director, The Empire Club of Canada; Anastasia Baczynskyj, Honour Student, Humberside Collegiate Institute; Elyse Allan, President and CEO, Toronto Board of Trade; John Smith, Senior Vice-President, Commercial Banking, Laurentian Bank; Cedric Ritchie, O.C., Chairman of the Board, BDC (Business Development Bank of Canada); Catherine S. Swift, President and CEO, Chair of the Board, Canadian Association of Independent Business and Director, The Empire Club of Canada; Ryan Kalt, CEO, Nu Media Inc.; Ruth Fothergill, Regional Vice-President, Ontario, EDC (Export Development Corporation); and David Smith, Senior Partner, Fraser Milner Casgrain LLP.
Introduction by Bill Laidlaw
The Business Development Bank of Canada has certainly had some notoriety of late.
I believe that this bank has a very important role in Canada's economy in helping small businesses in Canada wherever they may be.
As a former president of the Ontario Chamber of Commerce, I very quickly learned how important small business was to Canada and that they needed all the help that they could get.
As our economy in Canada evolves and becomes associated with the world economies and we develop more warehouses and sales and marketing operations, it will be those small businesses that become increasingly more important and it is an institution like the Business Development Bank that will be helping them.
Michel Vennat is currently President and Chief Executive Officer of the Business Development Bank of Canada.
The Business Development Bank of Canada is a financial institution wholly owned by the Government of Canada.
The BDC plays a key leadership role in delivering financial and consulting solutions to small businesses here in Canada, with a particular focus on the technology and export sectors of the economy.
With a varied and distinguished career in both the private and public sectors, Mr. Vennat began his political career as Foreign Affairs Officer with the Department of External Affairs. He then moved on to the role of Special Assistant to the Minister of Finance. He also served as Special Assistant to the late prime minister Pierre Trudeau.
Michel moved to the private sector in 1970 when he began to practise law for Stikeman Elliot, one of Canada's prominent legal firms of which he eventually became a senior partner.
A staunch defender of Canada, Mr. Vennat acted as Chairman of the Council for Canadian Unity from 1994-1996 and in 1995 he was made an Officer of the Order of Canada. In addition he is also an honorary Lieutenant-Colonel of Les Fusiliers Mont-Royal Regiment.
His academic achievements are equally as accomplished as his career. A Rhodes scholar, he has studied at the University of Montreal, Faculty of Law and Oxford University, where he studied politics and economics.
It is my pleasure to welcome Michel Vennat as our guest speaker today.
Distinguished guests, ladies and gentlemen:
Thank you for the opportunity to be here with you today. This week, we are marking Small Business Week, an event the Business Development Bank of Canada (BDC) has been organising for the last 22 years. The BDC is proud to be part of this full week of activities during which we celebrate small business successes, share insights on the business strategies of the day and look to the future.
Given the tragic events of September 11 and their repercussions around the world, one might wonder if we really have anything to celebrate this year.
We would be deluding ourselves if we were to ignore the impact of those events on our clients, their businesses, and indeed the global economy. We are currently in a period where uncertainty is affecting both consumer and entrepreneur confidence, with the result that economic growth in Canada in the second half of 2001 will be close to zero or slightly negative.
How quickly growth will resume in 2002 will depend on geopolitical developments and on how soon consumer and business confidence return to normal.
However, Canada is better positioned than at any other point in its history to face this difficult period. The remarkable progress made over the last 10 years, in strengthening our public finances, in taming inflation and in the quick reaction of governments and the Bank of Canada, as demonstrated, for example, by the Bank of Canada's lowering of its rate by 0.75 per cent just two days ago, will stand us in good stead. Income tax cuts and the lowest interest rates in 40 years will help restore confidence and provide additional support for internal demand throughout 2002. And after seven years of uninterrupted growth, our businesses are showing stronger
balance sheets and improved productivity, especially in the small business sector.
Our financial institutions are in excellent financial health, and I urge them to be flexible with their clients, so they remain real partners with our small businesses, during this period of slowdown and uncertainty.
At the BDC we have deliberately increased our general provisions from five to seven per cent of our portfolio over the last three years. We are better capitalised than ever and are well prepared to be flexible as we support our clients over the next few months.
At the bank, we responded quickly, as of September 22, by offering all our qualified customers the option of postponing principal payments for a period of four months starting October 1, 2001. As I pointed out in a letter to customers, we are confident the disruption is temporary, as the fundamentals of our economy remain strong. The four-month postponement is expected to give entrepreneurs who need it a reasonable delay to get back on their feet and plan for the future.
But we can't allow ourselves to be paralysed by the terrorist attacks and the events that have followed. Instead, we need to be confident about our economic future. I was encouraged by the recent Business Barometer update of the CFIB that small business owners remain optimistic about the prospects for the economy and their business performance. Small business is known for its resiliency and is often more flexible than large business when the economy slows.
The globalisation of markets and growing competitiveness remain very real business issues affecting all sectors of the economy. To be successful in this environment, companies must continue to focus on productivity and change. Our firms must seize new opportunities to increase their global reach and pursue their growth.
And that's precisely why the theme of this year's Small Business Week is "The Power of Innovation: Driving Small Business Growth."
Innovation is everyone's business, and not just that of large companies like Celestica, BCE or Biochem Pharma/Shire. Innovation is just as important for small business.
Because small business is important to Canada. After all, 75 per cent of all Canada's businesses have fewer than five employees and 97 per cent of all businesses have fewer than 50 employees. In the past decade, it's been the small firms that have displayed the greatest job creation during both downturns and times of economic expansion. At the bank, we are working very hard to raise the profile of issues that are important to the small business environment. And one of those issues is innovation.
Innovation is relevant to all sectors of the economythe new and the traditional. It applies not just to the high-tech or biotechnology sectors, but to every sector from manufacturing and mining industries, to service industries and farming.
During this week, then, we applaud businesses that develop new ideas and innovations and we also support those companies that are prepared to adapt innovative processes and methods to their own operations.
But I'm not telling you anything you don't already know. Innovation is far from a new concept.
Today the technological revolution that has brought us sophisticated computer and telecommunications technologies has had a significant impact on work, leading to intensely competitive open world markets and instant global communications. It has created a constant need to develop unique new products and more efficient and original ways of conducting business.
Why should the average entrepreneur be concerned with business innovation? Because it's essential for
growth. Because it pays off. Because the business that doesn't innovate is risking its eventual demise.
But what does innovation mean for a small business? Well, it doesn't have to have a big department dedicated to research and development or to come up with the invention of the century to be considered innovative. Ask yourself these questions:
Does your company include both young employees and more experienced employees? Do you promote your employees' original ideas? Do you constantly seek new markets for your existing products? Do you adapt your products to market needs? Are you planning new means of financing? Are you focused on marketing? Productivity increases have been found to be six to nine times higher in innovative companies than in those that are not particularly innovative. And that increased productivity means more and better jobs, increased buying power and a healthier economy. In other words, a better standard of living for us all and healthier profits for you, the entrepreneur.
Small businesses play a very important role when it comes to Canadian productivity. In fact, the small business sector is the backbone of the economy and the country's main driver of job creation. In the 10-year period between 1988 and 1998, small businesses--that is those with fewer than 100 employees--were responsible for 86 per cent of the job creation. That translates into 2.4 million jobs out of a total of 2.7 million. In 1998 alone, they accounted for 71 per cent of new jobs.
And that trend is continuing. Most of the growth in net business creation, which has accelerated since 1998, has been among firms with fewer than five employees. And it's the new start-up companies that are among the strongest job creators and innovators in today's economy. In fact, small businesses now account for 43 per cent of Canada's GDP.
Canada's productivity levels have been the subject of intense scrutiny lately with comparisons made to our American neighbours whose standard of living has pulled ahead of ours. But major investments in new technologies and equipment over the last five years are starting to pay off. In fact, last week, the World Economic Forum announced that Canada had moved from sixth place to third this year on the Growth Competitiveness Index, just behind Finland and the United States. This improvement is largely attributable to our investments in post-secondary education, a key factor when it comes to technological innovation. Countries that consistently invest in their post-secondary education systems, in patents and in research and development are those that will win in the future. We're still behind the Americans; however we have the capacity to vault ahead of them. If Finland can do it, then so can we.
With disbursements of $6.3 billion in 2000, the Canadian venture capital industry plays a critical role in the development of the innovative businesses that are making a significant contribution to our economic growth and the creation of new wealth.
Venture capital-backed companies are proving to be high-growth companies. The rate at which they increase their employment, sales, R&D expenditures and exports far exceed that achieved by the economy as a whole.
The innovation race requires being constantly on the lookout for the latest innovations and the winners are those who adapt and integrate them into their management methods, their marketing strategies and their production lines. For a small business, innovation is mainly about being able to apply new, but already existing, technologies and techniques.
As a complementary institution, dedicated solely to SMEs, the BDC plays a critical role by offering venture capital, higher risk financing and affordable consulting services to this country's small business owners.
Our Venture Capital division supports seed and early stage knowledge-based new ventures. Our Innovation Financing targets innovative businesses seeking to carry out Research and Development, develop new export markets or establish a website. And our national network of consultants can help businesses plan their technology strategy, implement e-business solutions or become ISOcertified. With the bank's Growth Potential Assessment, business owners can obtain a comprehensive review of their strengths and weaknesses in a variety of areas, including productivity-related issues.
Another way we are able to encourage and support innovation is through alliances, which we have with more than 40 partners ranging from chartered banks and venture capital investment funds to government departments. One of our most recent ones is with the National Research Council, a vital R&D source in our country. This alliance allows us to leverage the funding capability of NRC's Industrial Research Assistance Program to help enterprises develop and exploit technology in a competitive, knowledge-based economy.
At the BDC, we also practice what we preach. We're taking the innovation message to heart, constantly on the look-out for new ways to improve our own business, make it more responsive and more attuned to today's realities.
We are justly proud of our productivity ratio which is the best in the Canadian financial services industry and now lower than 50 per cent, while the average of Canada's banks is 62 per cent. Our most recent annual customer satisfaction survey results show that 88 per cent of our customers are satisfied with the service they receive from the BDC, compared to a 69-per-cent industry average for their SME clients. But while these results are good, we must do better. We have just completed a fundamental review of our loan delivery and administration processes to enhance the customer experience. We have adopted an
aggressive customer-service improvement programme that will decrease by half our response time and internal processes and which will further decentralise our credit decision making. Within a few months, 95 per cent of our loans will be approved and processed within our 18 areas across the country, because we know that the most effective decisions regarding credit are those made close to the markets and clients concerned.
So we take innovation to heart. But in one essential way, we will remain old-fashioned bankers. We will continue to take risk and support our clients in good and bad times.
Events like Small Business Week where we zero in on small business provides entrepreneurs with opportunities to meet fellow entrepreneurs and potential investors, to share ideas and to gather information on the help that is available to assist businesses to grow and prosper.
As part of Small Business Week, we also celebrate the achievements of Canada's young entrepreneurs at the annual Young Entrepreneur Awards ceremony, honouring successful business leaders, aged 30 and under from every province and territory. This reinforces and encourages the entrepreneurial spirit across the country.
I'm pleased to salute this year's winner for Ontario, Ryan Kalt, CEO of NuMedia Internet of Kingston. Ryan is a true entrepreneur and I am proud that BDC has honoured him with this year's award.
During this week, as we celebrate the success of small and growing businesses, we recognise the inroads made by creative entrepreneurs right across the country. Their original ideas and innovative spirit are a major driving force of our economy.
Congratulations to those of you who represent Toronto's small businesses. You are making a valuable contribution to the economy of this city, of Ontario and of Canada. You have played an important role in the creation of thousands of jobs. You have found the winning
formula that enables you to deal with a constantly changing marketplace and intense global competition.
It takes an innovative mindset to launch and run a business. And it takes determination and dedication to make it work. This week, as we celebrate small business success, it's time for you to give yourselves a pat on the back and for us to encourage you to carry on.
You have shown that you know what innovation is all about. And you can count on the BDC to be there for you with timely and relevant solutions to your needs.
The appreciation of the meeting was expressed by Catherine S. Swift, President and CEO, Chair of the Board, Canadian Association of Independent Business and Director, The Empire Club of Canada.