Government Operations Committee on Oct. 25th, 2011

[Bernard Trottier, Conservative, Etobicoke—Lakeshore, ON]

So maybe to describe an evolution, one way to simplify it and look at it is that companies could start out as early stage companies and then, once they're successful, they could become members of CFIB.

[Corinne Pohlmann]

Absolutely, or the other way around. They start with us when they're young, as RIM did. RIM was a member of ours up until 1998, when they went public, and they no longer could be a member because we don't represent publicly traded companies; we only represent privately owned Canadian corporations.

[Bernard Trottier, Conservative, Etobicoke—Lakeshore, ON]

I just want to change direction a little, Ms. Scarborough. You mentioned 1,500 angel groups within your organization. Is that the right number in your statement?

[Michelle Scarborough]

It was 1,500 angels within groups represented; 2,000 members in total.

[Bernard Trottier, Conservative, Etobicoke—Lakeshore, ON]

I see.

[Michelle Scarborough]

It's nearly 500 individual angels.

[Bernard Trottier, Conservative, Etobicoke—Lakeshore, ON]

Okay.

I know it's hard to generate really precise statistics on this, but of all the investments—you mentioned three or four typical investments per year—is there a typical definition of success? What constitutes a successful investment versus unsuccessful? This could be in terms of return on investment but also the duration of that return on investment. So it might have one year of positive ROI but then not be around three or four years later. Do you have any definitions like that within your group?

[Michelle Scarborough]

That's very interesting. It varies across the country and between groups and individually, so it's a little bit tricky in terms of measurement. We're actually working on some ways in which we can survey members at various points in time over the course of years and then start a map of that so we can trend it. Anecdotally, I can give you sort of notionally what happens.

If we were to look at a good return on investment or a good success from an angel perspective, that success would be a seven-year investment in a company that went through several cycles, grew to be a global player, and ultimately had an exit of sale and/or public markets.

That's typically what happens.

[Bernard Trottier, Conservative, Etobicoke—Lakeshore, ON]

The reason I want to explore that with you, just to explore a bit further...what would you describe as the success rate typically within your organization? Out of four or 40 investments, how many are successful versus unsuccessful?

[Michelle Scarborough]

The average would be that about 10% are going to be out of the ballpark winners, and then you're going to have a number of companies, let's say another 30%, that are going to return two to five times.

[Bernard Trottier, Conservative, Etobicoke—Lakeshore, ON]

Right. That's just the nature of the business. As you mentioned, it's high risk, and you're bringing a lot of expertise to the table when you do that.

There's always the dangerous thing--and maybe this goes back to Ms. Pohlmann. Sometimes when government gets involved in angel investment or venture capital, it might not have the skills and the networks that you bring to the table. So the likelihood of enjoying a 10% success rate is probably lower. Would you agree with that statement?

[Michelle Scarborough]

I think it depends. If we're talking in the case of CICP, as an example, and the government is acting as a facilitator of introductions for a very specific reason, i.e., the procurement scenario that makes the pathway for one of my investments to get to that customer faster and actually secure a contract, that's a different scenario than the government getting into playing the role of investor. That is something that needs to be monitored. Certainly we've had that experience.

Talking about DFAIT, as an example, when we go out globally with a company, we will leverage DFAIT's trade commission offices in order to identify targets that we can then go and talk to directly so that we're not having our entrepreneurs spin their wheels trying to find the right resources.

In terms of developing a network that's very defined in that way, I think that is a role that can be very beneficial, particularly if we're looking at the programs that we're talking about here today.

[The Chair, NDP, Pat Martin]

Thank you, Madam Scarborough. That concludes your time.

Bernard, thank you.

That also concludes the first round of questioning.

I'm wondering if I can ask for clarification on one issue from both of the witnesses. We heard previous testimony that some small entrepreneurs/small businesses find it difficult to get government procurement or access to government contracts because of the way some IT contracts, especially, are bundled and the tender is put forward. It sort of precludes the participation of some of the smaller companies. Could I ask either of you, is this something that the businesses you represent have brought to your attention as a frustration or a barrier in achieving contracts with the government?

[Corinne Pohlmann]

Yes, we have had that comment come to us, and not just when it comes to technology but in other areas of procurement as well. We call it bundling. It has been occurring for the last few years, and we have seen it in things like temporary health services and translation services, which is partly why those two areas are feeling a little bit more in dire straits than they have in the past, and certainly in the technology as well.

It does exclude smaller companies from being able to bid. Often these bids are put together as well with very specific technology requirements, and this is beyond even just in the technology sector. It could be in other sectors as well that are very specific to perhaps one or two companies, so it becomes very clear that it seems to be targeted at a larger company, and everybody in the industry kind of knows about it.

Those are the types of things that a lot of small firms--I wouldn't say a lot, but some small firms will come to us raising concerns about this bundling idea, and certainly have tried to push back a little bit to recognize. That's why one of our recommendations has been that one role that OSME could play is to look at some of these larger contracts and determine whether they should be cut up into smaller contracts. This is something the U.S. Small Business Administration does in the United States, and we believe it's something that could be applied here, just to make sure. Some contracts have to be big--we understand that--but some don't, and perhaps we need a second piece of oversight to see whether or not they really need to be as big as they are.

[The Chair, NDP, Pat Martin]

Do you have any input on that, Ms. Scarborough, before we move on?

[Michelle Scarborough]

I agree.

We've had enough anecdotal conversations with some of our companies within the network to assume that the procurement process is long and complicated and that the bundling does inhibit smaller companies, particularly at the beta stage, or first customer, or “two or three customers in” stage.

The biggest thing, I think, is to streamline the process, make it easier, and make the process a bit more competitive for small or medium-sized enterprises across the board to participate in.

[The Chair, NDP, Pat Martin]

Thank you.

Our next round of questioning goes to Annick Papillon from Quebec.

[Annick Papillon, NDP, Québec, QC]

Thank you, Mr. Chairman. I also want to thank the witnesses for having travelled today in order to help us find some solutions together.

Let's talk about the Canadian Innovation Commercialization Program. Can you tell us what criteria might be used to highlight the value of SMEs and what they are offering rather than only considering the lowest bidder?

Could you answer that question, Ms. Pohlmann?

[Corinne Pohlmann]

Yes.

Some of the criteria we were thinking about include, for example, reputation within the industry for that product, permitting them to go to other clients with the same product to find out whether they have a good reputation, what type of after-sale service might be available, and what the supplier can do.

We have a really good example in the case of a member of ours in northern Alberta who is in a little town just outside of Wood Buffalo National Park. Wood Buffalo National Park is a federal park. At the time, the national park system had a contract with Dell out of Texas. The system in the main office in Wood Buffalo National Park went down. This small company in the town of Fort Chipewyan could have gone in to fix it. They were computer consultants and would have been happy to do it; however, the office had to wait three weeks for someone from Texas to fly up to Wood Buffalo to fix it, because it was on contract. It may have cost a little less, but ultimately they waited three weeks to get it fixed, whereas our member could have done it in 48 hours. It would have cost a little more, but it would have been done.

These are the kinds of things we're talking about. It's about looking, sometimes, at whether there are other things you need to factor into the equation, such as proximity to where the products are serviced and so on. Those are some of the things that are often neglected in the case of these larger contracts.

[Annick Papillon, NDP, Québec, QC]

Very well, thank you.

Proximity, and the fact of being able to offer the service or not allows them to examine that.

I would like to know something else. Which OSME requirements cause problems for the SMEs? Perhaps you have some examples to give us of that. We heard from one organization that talked about unreasonable requests for references. Do you have any examples of that type you could share with us?

[Corinne Pohlmann]

Do you mean reference requests from OSME?

[Annick Papillon, NDP, Québec, QC]

Yes.

[Corinne Pohlmann]

Was there a reference request from OSME?

[Louis-Martin Parent]

I'm not entirely certain.

[Corinne Pohlmann]

I'm not sure. To my understanding, OSME is there to help facilitate getting people through the contracting process. Our members are not really using OSME in that capacity. We're hopeful that when they do use them they are able to get some of that information from them, but OSME, from what I understand, isn't the agency requiring references. They're just there on behalf of the government trying to facilitate for the small business owner.