Don’t Stop ‘Til You Scale Enough

Don’t Stop ‘Til You Scale Enough

Taking a closer look at what scale ups are and why they matter to Ontario’s economy
Don’t Stop ‘Til You Scale Enough
Annalise Huynh
Policy Analyst + Designer
Viet Vu
Economist
May 28, 2019
Print Page

In the past two decades, there has been a tremendous amount of investment and attention directed towards fostering entrepreneurship in Canada. From the establishment of incubators, to the development of entrepreneurship courses, there has never been a better climate for Canadians to learn how to start a new business. When we explored entrepreneurship activity in Ontario using individual attitudes and behaviours as a basis, we found that as many as 15 percent of Ontarians engage in early-stage entrepreneurial activity (from thinking about starting a business, to forming a business plan, to registering a business).

But we know less about happens after an entrepreneur starts a business, hires their first employee, and gains their first client. Assuming that they’re interested in growth, how large can their business grow? How large do businesses have to be and how quickly do they need to grow to be considered a “scale-up”? There are indications that scale-ups make up a growing part of Ontario’s economy, but definitions differ, and there isn’t much known about which firms these are, where they are located, and how their growth can be nurtured and replicated by other companies. We sought to take a closer look at who these companies are, what their impacts are, and why their growth is closely tied to the success of Ontario’s economy in our report: Scale-up Activity in Ontario.

What makes a scale-up a scale-up?

You’ve likely heard of a number of different ways that scale-ups have been described and defined—some terms include high-growth firm, gazelle, and strong-growth firm. The Organization for Economic Co-operation and Development (OECD) produced a popular definition in 2007 that defined high-growth enterprises based on employee growth or turnover.

In our latest research, we chose to take a similar yet slightly different path to defining scale-ups. Our definition focused on two specific dimensions of growth:

  • Employment-based scale-ups, companies that grow by hiring employees—which for data availability reasons, we’ve restricted to companies that are 10 years old or younger in this analysis—and
  • Revenue-based scale-ups, companies that grow primarily by rapidly increasing revenue.

While some companies straddle these definitions, many are big revenue generators with a relatively small or slow-growing number of employees, and some may be big job creators with only minimal increases in revenue.

Share

In 2015, over 1,600 young companies across the province scaled their employment, and almost 11,000 companies scaled their revenue.

Putting the “up” in “scale-up”

Based on these definitions, we found that scale-ups make up a tiny proportion of Ontarian companies, but they contribute enormously to job creation and growth. In 2015, over 1,600 young companies across the province scaled their employment, and almost 11,000 companies scaled their revenue. Revenue-based scale-ups generated $282 billion in revenue in Ontario (which constitutes 15.7 percent of the revenue generated by all companies in the province).

Collectively, employment-based scale-ups employed 1 in 10 employees working for young companies, and revenue-based scale-ups were responsible for more than one eighth of the revenue collected by Ontarian companies—an outsize impact knowing that both employment and revenue scale-ups represented just 1 in 100 companies in their respective groups. There have been signs of growth as well. Since 2011, Ontario has experienced a growth of  3,000 additional revenue-based scale-ups.

Scale-ups are driving growth across industries in all corners of the province

As we looked more closely at both types of scale-ups, we were excited that what we saw went beyond the image that people usually associate with successful high-growth company—that is, they weren’t all tech companies. Employment-based scale-ups were most highly concentrated in the retail trade and food and accommodation industries, whereas companies in the finance and insurance industry dominated in the revenue-based scale-ups department.

Although (perhaps predictably) we identified Toronto as a hub of scale-up activity in the province, many other regions exhibited sizeable scale-up activity. For instance, in almost every region of Ontario, the share of revenue scale-ups has also been growing: Windsor-Sarnie, Toronto, and Kitchener-Waterloo-Barrie are home to the largest share of revenue-based scale-ups. For employment-based scale-ups, London, Windsor-Sarnia, and Northwest Ontario hold the greatest share. But these regions aren’t too far ahead of the rest. The rate of scale-up creation is similar across all regions in Ontario. London, Toronto, and Thunder Bay, for example, are producing scale-ups at levels proportional to their size.

What could this tell us about cultivating scale-up activity?

From a policy design perspective, cultivating a scale-up-friendly environment can vary widely depending on what the goal is: from supporting scale-ups overall, to supporting scale-ups in a particular growth dimension, to focusing on specific region or industry (encouraging the growth of a tech company may require a very different approach from encouraging the growth of a retail company). Unlocking the potential of a company to scale could benefit from policies that are designed with the type of company and where it is situated in mind.

We started our analysis with Ontario, but there’s potential to use this approach on a national scale, to gain a better understanding of where scale-ups are (both by geography and industry), what their impacts are, and what they need to survive and thrive.

For media enquiries, please contact Coralie D’Souza, Director of Communications, Events + Community Relations at the Brookfield Institute for Innovation + Entrepreneurship.

Annalise Huynh
Policy Analyst + Designer
Viet Vu
Economist
May 28, 2019
Print Page

Share