Each spring, Invest Ottawa brings the capital’s innovators, creators and inventors together for a one-day conference called AccelerateOTT. This event is both inspiring and introspective, and this year’s edition was no exception.
The audience heard from Ottawa’s newest generation of entrepreneurs and business leaders – people like Klipfolio’s Allan Wille and Harley Finkelstein of Shopify fame – about their successes and how the world of business is changing.
Speakers also talked about the local tech renaissance that has been fuelled by firms such as Mr. Wille’s and Mr. Finkelstein’s. It made me think about the previous cycles of booms and busts I’ve witnessed in Ottawa’s tech sector – how highs just as dramatic as the one we’re experiencing today were followed by some tough reality checks.
Upon the recent death of Antoine Paquin, a star of the previous tech boom in the 1990s, I remembered him as the “it” guy of that growth cycle. I then thought back to legendary entrepreneurs such as Mitel founders Terry Matthews and Michael Cowpland, who were the poster boys of the first tech boom I witnessed in the late ’70s and early ’80s. It got me to wondering if the current surge is different from those previous ones in any way.
Ottawa has had three big boom cycles in the span of my career. I graduated from university in the early ’80s and joined an environment in which industry was adapting world-changing new technology in a massive way. Mini- and microcomputers were changing how companies were managed and operated. The Nortel/BNR digital switch was globally transforming voice and data networks.
Ottawa was well-positioned to thrive in this context, with its growing base of researchers from the private sector, federal labs such as the National Research Council and our academic institutions. That environment spawned a wave of new tech companies such as Mitel, Cognos, Jetform and Systemhouse.
These firms created thousands of jobs, but more significantly, they created wealth by being publicly traded. The bust did come eventually, but luckily for Ottawa, the underlying demand for these companies’ products and services remained. So while their stocks took a beating, most of the companies rode out the bust cycle. This was the foundation upon which Ottawa’s tech sector was built.
The next growth cycle was what became universally known as the “dot-com” boom of the late 1990s. However, if you lived and worked in Ottawa, it was really the “telecom” boom.
After the United States deregulated its telecom monopolies in the 1980s, the demand for new equipment and services in the sector exploded. This period featured some incredible successes for Ottawa firms, including the late Mr. Paquin’s Skystone Systems, which he sold to Cisco for US$87 million in 1997. This was also the era of Newbridge, Tundra, JDS and Nortel. Those who worked in the tech sector at that time could hardly believe the growth, the salary raises, the job offers and the availability of investment capital.
Between 1998 and 2001, more than $2 billion in venture capital was poured into Ottawa startups such as Zenastra, Innovance, Liquid Computing and other long-forgotten flash-in-the-pans. The subsequent bust happened before most of these ventures were able to monetize their businesses.
The difference between this boom and the previous one was that while we had some incredible early entrepreneurial successes and a massive inflow of VC dollars that created tens of thousands of jobs, the underlying business opportunities evaporated around 2001.
The subsequent crash was hard. Thousands of jobs disappeared over a period of just six to 18 months, and the city lost companies such as Nortel and JDS that had anchored the tech sector. Without a successful exit through a merger or IPO, Ottawa’s startups did not generate much lasting wealth in our city.
Still, was that ever a fun time to be in Ottawa. (Now I sound like my parents remembering the good old days.)
Which brings us to today – the mobile-enabled, shared-economy world. AccelerateOTT showcased the new talent and ideas that are propelling our current local boom. Hundreds of new companies are being launched in Ottawa every year by a new generation of entrepreneurs. Their excitement and enthusiasm is inspiring, with Shopify this boom cycle’s shining star.
Shopify has been able to create a large number of jobs and a supporting ecosystem, but it is the company’s hugely successful 2015 public offering that is creating lasting wealth. Currently, the firm has a market cap of more than $9 billion on about $400 million in annual revenue and no operating profits. The e-commerce giant has created more than 100 local millionaires thanks to successful business execution, market timing and the IPO. Although I am not one of those millionaires, I am glad I own some Shopify stock and have been able to share in its success.
Shopify is not alone as a successful Ottawa-based tech firm that went public. Prior to this week's earnings report, Kinaxis had a market cap of more than $2 billion on annual sales of just over $100 million.
Each of Ottawa’s boom cycles has been about 20 years apart, or one generation of separation. Although the current generation might not realize it, its success is built on the successes of the previous generations that created and grew the city’s tech sector.
During the previous boom cycles, we all thought that up was the only direction we were going. But history does repeat itself and eventually the cycle turns down.
I believe the difference this time around is that the underlying global opportunity of our current tech leaders will sustain any downturn. While the stocks could have shocks as they adjust to more historical norms, the businesses will continue to grow and prosper.
Why? The business models of the new generation of companies are driven and managed by what is essentially real-time analytics. This ability to access market intelligence and gather immediate customer feedback was not possible during the past boom cycles, and as a result companies in those eras often missed key indicators or responded too late to changes in the market. Companies such as Nortel and JDS, for example, did not have the real-time data to foresee the market collapse in telecom equipment in 2000.
From a wealth generation perspective, the success of today’s firms is a phenomenon we have not seen before. Emerging startups can expand into new international markets more quickly and with less cost than ever before. And mature companies are also demonstrating their ability to completely disrupt old business models with new technology, enabling them to launch new business lines while continuing to grow their existing customer base.
The rate of growth, ability to adjust to customer demands and the use of technology to disrupt old business models are giving companies unprecedented market valuations. The high valuations are being better realized in companies that are going public.
It’s great to see the city’s newest generation of business leaders celebrating its successes and accomplishments. However, history does have a habit of repeating itself, and Ottawa’s tech entrepreneurs need to be prepared to manage their way through the inevitable boom-bust cycles. The true measure of entrepreneurial leadership is how each new generation builds on the foundation laid by its predecessors to help leave the economy stronger for the next wave of Mitels and Shopifys and their creators.
Jeffrey Dale is the president of Snowy Cloud and the former president of the Ottawa Centre for Research and Innovation.