Outsourcing the boss

For many Canadian tech start-ups, the only place to find a good chief executive is the United States

Outsourcing the boss

Photograph by Andrew Tolson

Morgan Solar is a Canadian tech start-up. Its founders are Canadians, a former fibre-optic designer and his brother; its team of engineers and physicists working on a new, cheaper kind of solar panel are mostly drawn from Ontario universities. Its CEO, though, comes from the States.

This combination of Canuck brain power and U.S. top management is not unusual among small enterprises in the science sector. “I know a handful of companies in Canada, high-growth companies in high technology, and a lot of those have brought up CEOs from the States,” says Morgan Solar’s co-founder John Paul Morgan. In the case of his own company, “we were looking all over,” says the 32-year-old engineer and physicist, who used to be CEO himself but felt the need to hand over the reins to a more seasoned manager last year. “It just so happened,” he says, that the best fit was Asif Ansari, a California-based executive.

American bosses are also a popular pick among young enterprises in the biotechnology and health care sectors. “Even if you’re based in Mississauga, Ont., hiring in Boston or New York is an opportunity to get the expertise necessary,” says one person with close knowledge of the medical devices industry who asked to remain anonymous.

But why do Canada’s finest brains turn south for leadership? One of the reasons may be our “supply-side” approach to innovation. In 2009 Canada was second only to Sweden in university spending on research and development as a share of GDP, a study by the Organisation for Economic Co-operation and Development found. And Canada pumps out more science graduates per capita than the U.S. “The feeder system of great technology platforms is very strong,” says Ilse Treurnicht, CEO of the Toronto-based MaRS Discovery District, one of Canada’s largest start-up incubators. But when the time comes to bring those ideas to the market, there are few chief executives to lead start-ups to the money, customers and connections they need to morph into fully grown companies like those that regularly spring up from Silicon Valley.

It’s not that Canada lacks talented managers, says Morgan, but there simply aren’t enough with experience in turning a scientist’s brainchild into a high-growth enterprise. Managing that trick is no easy feat, says Jim Hatch, a professor of finance at the University of Western Ontario’s Richard Ivey School of Business. Start-ups in general have dishearteningly high rates of failure—a U.S. non-profit calculated that only one in 10 survives—but in the science sector the challenge is even greater, as companies face high starting costs and delayed returns. Having a CEO who’s well-known to the industry, and has a proven track record of doing what he’s been hired to do, “might just get investors over another risk hurdle that might prevent them from making that investment,” says MaRS’s Treurnicht. That’s why a CV like Ansari’s, who has founded and headed a number of successful clean-tech start-ups, looked so attractive to Morgan Solar.

The tech community in Canada is relatively small, as are the pools of venture capital here. According to a study by Thomson Reuters and Canada’s Venture Capital and Private Equity Association, in 2009 Canadian-based companies obtained on average less than 40 per cent of the funding secured by comparable firms in the U.S. A U.S. executive hire is a quick fix. Bosses who hail from high-tech hubs such as San Francisco and Boston can link Canadian start-ups to the rich pools of money, large markets, and extensive social networks that are a small company’s lifeblood, say Shannon Wells and Geordie Hungerford, two fellows at Action Canada, a Vancouver-based non-profit, who have extensively researched the issue.

But there are risks as well, warns Ivey’s Hatch, as executives may not want to relocate to Canada to lead a smallish enterprise, choosing instead to act as off-site CEOs. And outsourcing the boss to a far-off place might mean that nascent companies won’t get the kind of constant care they need. “Because start-ups are so thin in management, the president has to be hands-on,” says Hatch. “When something isn’t coming out of the other end of the factory, somebody has to walk in there and say, ‘What the heck is going on?’ ”

Luckily, with Canada’s prestige rising after the recession, U.S.-based CEOs are increasingly willing to move north. Morgan Solar is one example. Its new CEO agreed to leave California—that most heavenly of tech hubs—to make Toronto his new home. If more like him follow, Canada may soon finally be getting more bang for its generous R & D bucks.

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