Tales of Woe - Today's Ottawa Tech Scene

September 28, 2010

Ottawa has for years touted itself as Canada’s high tech capital, the home of such iconic firms as Mitel, BNR, JDS, Cognos, Newbridge, Corel and countless others. But something has changed in the last few years and there is decidedly less bravado up and down the March Road corridor. Locals speak of a certain malaise, of fewer new and exciting companies, and our search practice is seeing an increasing number of executives actually open to move from Ottawa for jobs in other cities. In fact, the Ottawa tech sector has become so hungry for good news that a local newspaper recently trumpeted ‘home town’ SiGe Semiconductor’s IPO as evidence that the sector was ‘back’, this despite the inconvenient fact that SIGE hasn’t really been an Ottawa-based company for years. Instead, SIGE uses Ottawa as an engineering lab while its business operations are now headquartered in Boston and previously in Europe. This model mirrors that of many other firms including Alcatel, RIM, Nokia, Avaya, IBM, Adobe and others which have either acquired Ottawa-based companies or set up R&D facilities there in the past. So what is going on? Is Ottawa’s tech sector in a funk or is it just witnessing a shifting of sands, one which relegates Ottawa to an R&D or branch plant town? From the cheap seats in Toronto, here’s my uninformed take.

Three theories are most frequently floated to explain the muted vibes in the Ottawa tech sector. Quite understandably, the sinking of the SS Nortel is at the top of most lists. My old Doyletech genealogy poster shows a truly impressive array of companies that trace their roots to BNR and Nortel. And while the Nortel juggernaut may now be a ‘juggernot’, many of its Ottawa labs remain open for business under the auspices of their garage sale buyers. Presumably the engineers employed by these firms are no-less capable of generating ideas for new technologies and companies than they were in the past. Now it is true that as the epicenters of these firms have shifted elsewhere including the core marketing, sales, strategy and even product management roles. This in turn has a negative effect on the range of local skills available to scale new businesses which in turn increases the likelihood that they will look to Boston or Toronto or Silicon Valley for their leadership setting off a disquieting cycle of incubation and departure. It is also true that the foreign owners may or may not entrust their most leading-edge research to their subsidiary labs. All this said, the techies remain in Ottawa, and to the extent that they started some of Ottawa’s most esteemed companies, many under the auspices of the decidedly non-entrepreneurial Ma Bell no less, the demise of Nortel/BNR cannot be held up as ‘the’ cause of any real softening of entrepreneurial activity.

The second prominent theory postulates that Ottawa is a hardware town competing in a ‘new’ software/internet/ecommerce/wireless world. At some level this theory has appeal in explaining the virtual disappearance of so many of the photonics and infrastructure crowd who were so hot and prominent in Ottawa just a few years ago. But this is too facile an explanation as firms such as Bridgewater, Cognos/IBM, Protus, Entrust, Adobe, Corel, Halogen, QNX/RIM and many others are evidence of a breadth of capability in Ottawa well beyond a simple ‘hardware town’ characterization.

The decline of the venture-capital sector is the third most-popular whipping post. While it is true that the poor performance of the labor-sponsored funds and other elements of the sector have earned many venture firms a one-way ticket to oblivion, it is wrong to suggest there is no money available for promising startups. Canadian and U.S. sources of capital remain available including a number of US-based funds which have opened for business in valuation-friendlier Canada. There is also a whole new class of über angels which have popped up across the country. As a recently funded, very successful entrepreneur said in an article, “there’s no shortage of money out there, just a shortage of businesses and entrepreneurs into which they want to invest”. Thus while it may not be as easy as it was, with fewer venture firms and syndicates to put together deals, funding issues alone cannot be blamed for whatever people perceive is the level of entrepreneurial activity in Ottawa.

Though the venture capital sector cannot be blamed for whatever state Ottawa’s tech sector finds itself in, it is not exactly an innocent bystander. While venture capital has fueled many successful companies, its guiding principles have set many others aflame. Venture capitalists must generate returns on deployed funds in order to reward their investors and to raise subsequent funds. Despite the reality that it takes, on average, a decade to build a stable, successful company (think Dragonwave, Bridgewater and March Networks as examples), such a maturation process is an eternity for win-hungry ten-year venture funds to contemplate. And since the conditions for IPOs are not always favorable, the pressures to trigger alternative liquidity events drives venture capitalists to sell their companies, especially when they suffer the inevitable bumps and bruises on the road to success. This pressure has been particularly high in the past few years as funds have been desperate for positive results to support their case to raise new funds. The net effect has been company after company being sold and eviscerated. And while this phenomenon is by no means unique to our nation’s capital, it has had a decidedly hollowing-out effect of its hard-earned, coveted telecom cluster or hub, a phenomenon which requires companies of all sizes and shapes to thrive.

While all of these theories continue to circulate, it could be argued that they all pale beside the biggest reason that the Ottawa tech sector is softer than it once was. That reason is simply that there is only one Terry Matthews and only so much weight his entrepreneurial shoulders can bear. Everyone remembers that after the experience of losing entrepreneurial employees as Mitel grew large, Mr. Matthews openly encouraged Newbridge employees to spinout new businesses, funded them and provided a big-name, anchor customer from day one on which to build their businesses. That led to dozens of new companies and to the creation of the venture capital firm Celtic House. Many of those startups have persevered and come into their own (eg. Dragonwave, Bridgewater), while others have completed their organizational lifecycles. And though Mr. Matthews continues to incubate scores of companies, his platform has evolved as has the geographical pallet on which he paints his masterpieces. To my knowledge no one in Ottawa, including the legions of Mr. Matthews’ lieutenants and Nortel alumni show any promise of filling his massive entrepreneurial shoes.

It bears noting that Mr. Matthews is a transplanted Brit, who along with another newcomer, Michael Cowpland, followed the pattern of so many other immigrants who make their mark in their new homeland by striking out on their own. The founders of JDS, Consultronics and many more Ottawa companies were also immigrants to Canada (I can name 20 in Toronto off the top of my head) who started their own businesses. There was a time when Ottawa was a major destination for European tech-sector folks seeking relief from moribund economies, high taxes and limited career opportunities. They were recruited aggressively to Ottawa to populate the engineering labs of the BNRs, the Leigh Instruments, Canadian Marconis, Computing Devices, Microsystems Internationals and others. But that rush became a trickle as other destinations competed for this talent and in the case of the UK, the economic situation improved. It is not clear to me that Ottawa is as popular a destination for today’s new tech sector immigrants who are more likely going to Silicon Valley or even multicultural Toronto. If this is true, it represents a major loss as immigrants and their first generation offspring continue to build some of this country’s greatest businesses.

While on the subject of restless, ambitious and driven citizens, I spoke several weeks ago to a former Ottawa-based CEO who is now running a start-up in Silicon Valley. When I asked his opinion on the Ottawa tech-scene he labeled it as ‘sleepy and sad’. When asked to explain, he observed that relative to Silicon-Valley everyone in Ottawa is simply “too comfortable”. In his view, Ottawa is a beautiful city with a quality of life that few cities can match. ‘Govies’ are everywhere and their quality of unionized life is from another planet altogether. In this executive’s view it is that the public sector ethic which has become the defacto Ottawa ethic and he lamented the lack of a palpable Silicon-Valley or Israeli-styled sense or urgency, drive and hustle (Read the excellent book Start-Up Nation by Dan Senor and Saul Singer to understand why Israel’s tech sector is moving in the opposite direction to Ottawa’s).

A related issue is the important waterfall phenomenon in which employees depart from successful or sold companies to strike out on their own. RIM is a good example of this today, a company that in a very short period of time has grown to $15bb in revenues. Young executives are now flowing out of that organization in Waterloo and Toronto with the magical elixir of money, ideas, hubris and a desire to recreate the thrill of the RIM ride. Meanwhile, Ottawa remains home to Cognos, Canada’s most successful software company, a pioneer in the thriving business intelligence software space. But Cognos is a different beast. It is a mature, stable, non-entrepreneurial organization which has given birth to precious few new companies. When IBM acquired the firm, relatively few employees bolted since the IBM culture, despite the initial employee whining about the bureaucracy of ‘big blue’, was only marginally more bureaucratic than the Cognos culture had become. And if they did bolt, it was not for entrepreneurial pastures but rather pastures, period. Consider the importance of this, the largest software company in Canada has produced virtually nothing by way of startups. Thus, as Cognos/IBM has grown locally, adding people and jobs to Ottawa, it has been a contained phenomenon, somewhat analogous to a General Dynamics when it acquired Computing Devices. Imagine the Ottawa tech scene today if the world’s leading Business Intelligence software company had produced even a fraction of the spinouts of Newbridge.

Is Ottawa’s tech sector soft? Maybe it is maybe it isn’t. It certainly has a less exciting, pulsating feel, at least to this headhunter. And if it has become soft and comfortable what is to be done about it? As said earlier, the impetus for entrepreneurial activity is usually either opportunity or need. If opportunity isn’t getting the engineers off the Gatineau bike trails, perhaps the Ottawa tech sector will have to wallow for a while until the pain gets sufficiently noticeable that need kicks in.

About Author

Robert Hebert, PhD is Managing Partner of executive search firm StoneWood Group Inc. He can be reached @ rhebert@stonewoodgroup.com or at 416.365.9494x777

StoneWood Group is a Canadian executive search firm who specializes in executive recruitment by finding talented executive level candidates and matching them to the right organizations. Based in Toronto, Canada, we also have offices in Ottawa and Vancouver.