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The Missing Part in Canada’s Industrial Strategy

The following article by Owen Matthews first appeared on the Globe & Mail website Oct 10th, 2018

 


There is a massive change happening everywhere around the world in businesses of all kinds. It doesn’t register in political debate. It has not come up in any innovation agenda. There are no subsidies to support it and it isn’t taught in any university.

It is the key tool that has played a part in driving the success of practically every billion-dollar company that has come up in the past 10 years. It has made Jeff Bezos the world’s richest man and turned Apple into the first trillion-dollar public company. The music industry has been totally transformed because of it. Traditional retailers have never been on shakier ground because of it, but they look to it for their salvation.

I am talking about digital customer acquisition.

Netflix would never have beaten the traditional distributors, pay-per-view boxes, TV channels and video stores if it didn’t acquire customers at a rate that made it impossible to stop. We would never have heard of Uber, if it wasn’t an expert at getting people to sign up easily and using the service often.

Most people don’t really know what it is, but they have certainly experienced it. Think of Amazon.com’s personalized recommendations or a daily e-mail of special discounts. The little reminder on your phone to rate an app. There are thousands of strategies to get users signed up, get customers to buy a bit extra, get the crowd to rate something to gain market credibility or to keep you logged in and using for a little longer. Unicorns (billion-dollar-valued private companies) have only been around for 10 years and globally, they are the most successful rapidly growing young companies. At least 80 per cent of them use digital customer acquisition as their primary strategy for going to market.

I am in the venture-investment business and our entire language revolves around gaining customer traction, the speed of customer growth and valuations based on these metrics. When I started in the business (more than 20 years ago), everything was about salespeople, channels to market and dealers in foreign countries. If anybody mentions any of those things to me now, I immediately lose interest.

We should be teaching digital customer-acquisition skills to the young entrepreneurs who are coming into the business world and promoting them in our established enterprises. We should be overhauling our traditional industries to get more sales and higher margins by influencing the customers directly. We should be subsidizing these go-to market strategies to boost exports.

I would like to see government support that could make a huge difference to all of our industries and prepare us for the reality of the world’s incredible increase in competition. Digital customer acquisition needs to be a central component of our national industrial strategy. Government intervention is always a tricky business. Even the most well-intentioned program can create chaos and distortion in the market. I am generally in favour of programs that are simple, easy to run without an administrative burden and, most importantly, generate a long-term return to taxpayers to enhance the government ability to lower tax or spend on social programs.

I would look to existing government programs that can be extended to include this key component. The Industrial Research Assistance Program is well established and professionally run. Extending it or adjusting its focus could easily accomplish the goal. A team of federal employees already exist to evaluate proposals to meet various funding criteria.

The Scientific Research and Experimental Development (SR&ED) Program is a Canadian technology industry support program for developing intellectual property in Canadian businesses. Although supporting research is fundamental to business, it takes a lot longer to affect the taxpayer.

The development of any technology, by itself, does not generate a return to taxpayers. Only the commercialization of that technology, and ultimately the successful sales associated with that technology, generates a return to Canada. Supporting customer acquisition is at the sharp end of that stick. The return to taxpayers is less risky and certainly faster when you help make sales. I could imagine a commercialization subsidy as an extension of SR&ED. If the company commits to a qualifying activity (spending on digital customer acquisition) and commits company cash, the government can evaluate that spending and repay a percentage of those expenses. If the spending leads to more customers, then companies will spend more and the grant scales accordingly.

Changing the criteria to include customer acquisition doesn’t have to be complex, but would signal a shift in federal thinking toward customers over (often wasted) research. If successful, it would have a broader impact on the country and will improve the quality of life for all Canadians.

 

Owen Matthews is a successful technology entrepreneur and investor. He is a general partner at Wesley Clover and chairman of the Alacrity Foundation.

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