Business without Borders: Across the great divide

For many Canadian startups, wading into foreign markets is the only way to sustain growth.

Ray Newal, of Jigsee.

Ray Newal needs few words to describe his first attempt to conquer the Indian market. “What ended up happening,” he says, “was…nothing.”

The 35-year-old entrepreneur is the co-founder of Jigsee Inc., a Canadian startup whose technology enables video streaming on non-3G phones and shaky networks. India, he says, where mobile subscribers number 800 million but only a privileged few have BlackBerrys and iPhones, looked like the perfect target market. But a first attempt to reach out to consumers by partnering with a Mumbai-based powerhouse quickly fizzled.

Months after Jigsee teamed up with Hungama Digital Media Entertainment, the world’s largest distributor of Bollywood and South Asian entertainment content, in 2009, Newal knew something was wrong. It took a move to India to find out that Hungama was trying to pitch his company’s technology to high-end smartphone users, who plainly didn’t have as much need for it. “That,” says Newal, “is when the awakening occurred.”

Newal realized Jigsee would need to have its own boots on the ground in Mumbai and go it alone. Today, the company counts 25 employees and two headquarters—12,000 kilometres apart. Newal heads the marketing team in Mumbai, while co-founder Areef Reza, 40, oversees software developers in Ottawa. The arrangement involves some awkward routines to work around the time difference, but so far the duo has made it work.

Setups like Jigsee’s are a growing model among Canadian startups, says Benson Honig, a professor at McMaster University’s DeGroote School of Business. Honig calls these businesses “transnational enterprises” (TEs), which he says are out to capture market potential abroad while preserving the advantages of home.

Sometimes, says Howard Lin, a professor at Ryerson University’s Ted Rogers School of Management, wading into foreign markets is the only way to build economies of scale large enough to sustain growth. That was the case for Polar Mobile, which helps media outlets design smartphone and tablet apps. Founded in Toronto in 2007, the development shop already makes 70% of its revenue abroad—as much as 50% of it from the U.S., where it was recruited by top brands such as Bloomberg Businessweek, CNN, and Vogue. “Canada is a great market to pioneer a product,” says Polar CEO Kunal Gupta, “but not big enough to grow a business.” Currently setting up in San Francisco and New York, Polar Mobile is planning to incorporate in the U.S. in the fall.

Startups that decide to focus on foreign markets often feel the need for a physical presence in the country, in part to understand the needs of their customers in that area. This holds true even when one of the founders calls that foreign market home, says Danny Wang, a Chinese-born entrepreneur. Wang founded WeblishPal, a one-year-old Toronto-based startup that offers English-language training by connecting Chinese students with native speakers in Canada and the U.S. through online video calling. Despite Wang’s background, says WeblishPal co-founder Barbara Tassa, the company still needed to rely on a team of marketing experts in the People’s Republic to map the market and reach out to potential clients. Local sales personnel that can give a handshake are also key in enticing foreign customers, says Wang: “When people in China buy something new, they’re used to face-to-face contact.”

Keeping a close eye on faraway operations is another reason to have a physical presence abroad—particularly at the start. For Jigsee, that meant Newal had to relocate. Especially with a startup, where workdays are long and the future uncertain, it’s important to have the company’s founder “lead through the tough time,” he says. Being there shows the local team that the founder is personally invested in the company, and reduces the high turnover that is a classic headache for every early-stage business.

Cultural differences can provide surprises that would be difficult to deal with from far away. In India, for example, “people by and large don’t like to say no,” says Newal. As he learned when discussing strategy and assigning tasks in Mumbai, yes didn’t always mean yes. To avoid getting lost in cross-cultural miscommunication, he hired Indian managers who had experience working with exporters and foreign companies, and would be able to act as intermediaries between himself and the workforce.

Yet for all the lure of foreign lands, there are many good reasons for Canadian startups, especially in the technology sector, to keep a presence in their homeland as well. Some companies worry about leaving behind a treasured network of contacts of other Canuck entrepreneurs, bankers, investors and incubators. Reza says Jigsee benefited from being able to tap into Canada’s vast pool of software engineers with a knack for creative work. “It’s much easier to sell people on an idea in Canada,” he says, adding that top-notch developers here are more likely to embrace the challenge of an embryonic project that requires as much technical wizardry as imagination. In India, by contrast, an R&D workforce trained to carry out specific, well-defined tasks may struggle with unstructured work.

Invariably, though, the first reason tech startups give when asked “Why Canada?” is the federal government’s Scientific Research and Experimental Development tax incentives. That program, coupled with provincial-level financial inducements, has made Canada one of the world’s most generous countries in terms of R&D tax policy, according to the OECD. It means, for example, an Ontario small business that is a Canadian-controlled private corporation would typically earn about $73,000 a year in tax credits on $100,000 of expenditures in R&D, according to Bruce Braithwaite, president of Braithwaite R&D Tax Credit Consulting Group, which helps businesses in Canada, the U.S. and Britain file their tax forms.

For small Canadian companies, capturing opportunities abroad while preserving the homegrown advantage often requires stretching across borders, national legislations and tax systems without the legal and bureaucratic arsenal deployed by corporations. To manage this business equivalent of having one’s cake and eating it too, Trevor Doerksen, CEO of Mobovivo, a Calgary-based video app developer, says simply: “Overcommunicate, overstate and oversimplify.” With small teams working remotely, he says, one must be extremely clear about objectives and roles, and frequently verify that everyone is clear on such things as who is managing a project and what criteria are used to tell when a project is finished. At Jigsee, that means Reza calls the Indian team from Ottawa every day before going to sleep so that, 9½ hours away, they “start their day totally on the ball,” he says. It only takes a week to “find yourself completely off schedule.”

Doerksen also feels employees should meet their colleagues sooner or later. “Names don’t mean much to people,” he says, “faces do.” That’s why Mobovivo organizes a couple of company-wide get-togethers every year, usually on the sidelines of industry conferences.

Another common tip: don’t cheap out on the hiring process. If selecting the right team is key for any company, finding the perfect match at every hire is crucial for TEs. GreenMantra Recycling, a Toronto-based startup that’s found a way of converting plastic waste into industrial waxes, plans two or three rounds of in-person interviews for each new employee, even the most junior. Each new hire will get to meet every one of the company’s three partners, says founder Pushkar Kumar, whose company, after piloting in India, is planning to incorporate in the U.S. in the next 10 to 12 months. Flying in job candidates is expensive and time-consuming, he says, but hiring the wrong person could turn out to be much more costly for a geographically spread-out company with a small head count.

Numerous plane tickets are also worthwhile when considering where to locate an office abroad. Aiming to tap into California’s software industry, Mobovivo initially thought its U.S.-based office would have to be somewhere in Silicon Valley. The company started renting space at an incubator in Sunnyvale—a 10-minute car ride from Google’s headquarters, and just over 20 km from Facebook’s new base in Menlo Park—only to find out that “the city where young developers want to be is San Francisco,” Doerksen says.

That’s hardly reason to worry, though. Trial and error, after all, is as much a part of starting a new company as 12-hour-plus workdays and an almost religious belief in the possibility of success. Admittedly, when business stretches halfway across the world, the learning curve is even steeper—but growing ranks of tenacious, forward-thinking entrepreneurs, it seems, are climbing it.