Canada has fewer entrepreneurs today than it did 20 years ago — and that’s a big problem for everyone

When James Lynn lost his job early in the COVID-19 pandemic, he decided to pursue his dream of becoming an entrepreneur.

It hasn't been easy.

"You know, entrepreneurship is like being in a maze, where you know where you want to go but you're not exactly sure how to get there," he said. "And there's a ton of pitfalls."

Lynn is the founder of Kalū, an independent pet food-maker in Montreal. He leads a team of three, selling online and in 20 shops across Quebec, with plans to expand into Ontario next year.

He makes cat and dog food, but as an entrepreneur, Lynn's an increasingly rare bird.

In a new report, the Business Development Bank of Canada (BDC) examined numbers from Statistics Canada and found that the country has 100,000 fewer entrepreneurs than it did 20 years ago — despite the fact that the population has grown by more than 10 million over the same period.

The Crown corporation says the decline puts the economy in danger, and it worked with researchers from the Université de Montréal to analyze the problem and what's causing it, and to consider solutions. Its recommendation: Some of the difficulties of entrepreneurship can be overcome by helping business owners develop "soft skills," such as grit, marketing and how to interact with people.

BDC, a financial institution for entrepreneurs that provides loans for small and medium-sized businesses, released the report for Small Business Week.

Why entrepreneurship is down

For its report, BDC defined an entrepreneur as a self-employed worker who hires employees to support their venture.

"Twenty years ago, there was three Canadians in 1,000 every year becoming an entrepreneur," Pierre Cléroux, BDC's chief economist, told CBC News. "Now we're down to about one for every 1,000 people."

The actual figure is 1.3 people for every 1,000, less than half the rate of two decades ago.

It's also far below the apparent public interest in entrepreneurship.

The popularity of TV shows like Dragons' Den, the growth of college and university entrepreneurship programs, and the creation of business incubators for entrepreneurs across Canada all suggest the appeal of starting a business.

A report by Global Entrepreneurship Monitor says 14 per cent of Canada's population has entrepreneurial aspirations; so there seems to be plenty of dreamers. Yet BDC says few of those dreamers are becoming doers for several reasons:

• People in their late 20s to early 40s are the most likely to start businesses, but that demographic is shrinking with Canada's aging population, leaving a smaller pool of candidates as potential founders.
• Low unemployment and high wages mean fewer people feel the need to start a new business.
• Business owners and would-be entrepreneurs face a barrage of discouraging factors, such as labour shortages, inflation, technological change and the increasing domination of large companies.

Why it matters

Cléroux said the entrepreneurship decline "simply can't be ignored," because new businesses are responsible for "almost all net new job creation in this country."

He said that "in any healthy economy, you need a good percentage of startups" to bring new products and services to market and "force mature businesses to do better."

Sarah Lubik, director of entrepreneurship at the Beedie School of Business at Simon Fraser University in Vancouver, agrees.

"There's so much at stake," Lubik said, focusing especially on entrepreneurs' role in creating breakthrough technologies.

"If you're not having entrepreneurship to take those ideas forward, then we're not going to get those ideas that we need to save the world."

A 'soft skills' solution to overcome tough problems

Another problem identified in the report is that a third of entrepreneurial ventures that do open close within just five years.

So what can be done to help more people get started as entrepreneurs and succeed? BDC recommends a focus on developing "soft skills" to help entrepreneurs through every stage of business.

Based on a survey of 1,250 entrepreneurs,it says marketing and finance skills are key to help a business get started, while administration and operations skills are needed to keep it going, and leadership and people skills are essential to create growth.

Relationship skills and grit — the ability to deal with stress, handle change and overcome setbacks — stood out as important in every stage of business.

The BDC report stresses that key skills are not innate personality characteristics, but traits and behaviours that can be learned through coaching and mentorship, reading, formal classes and engagement with peers.

Dominic Lim, an associate professor of entrepreneurship at Western University's Ivey Business School in London, Ont., says successful entrepreneurs evolve and learn to cover for weaknesses.

"You almost see how these people can reinvent themselves throughout the process," he said, "or sometimes they involve other people who can complement them."

But James Lynn, the founder of Kalū, said he isn't so sure the all-important grit can be taught.

"It needs to be within you," he said. "There's too many points where it's easy and tempting to give up."

What else might help?

At an event in Toronto for Small Business Week on Thursday, Rechie Valdez, the federal minister of small business, said a "full solution" is needed to ensure entrepreneurs feel there's "an actual possibility for them to grow and thrive."

To help cultivate young business founders, Simon Fraser University's Lubik said she would like to see scholarships for entrepreneurship at colleges and universities — just as there are for academics and athletics.

Lim agrees education is crucial.

He also points out that "hyper growth" startups have a new role to play and that the scale of companies like Wealthsimple, Shopify and Aritzia can offset some of the decline in entrepreneur numbers.

Lim said he hopes that entrepreneurs from older demographics will emerge as an offset, because they have skills and resources that could be "a blessing for the entrepreneurial ecosystem."

But enticing some of those workers to become entrepreneurs like Lynn will be a challenge so long as the labour market is strong.

"I wish sometimes that I would have chosen to just taken a regular job and gotten a regular paycheque," he said, "but I snap out of it after five minutes and I keep going."

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