PROFIT 500: The Revolution Continues

The founder of PROFIT's annual ranking of Canada's Fastest-Growing Companies looks back on 25 years

Written by Randall Litchfield

They still call 1989 the Year of Revolutions. Tiananmen Square signalled an awakening Chinese population tiring of communism; Poland’s decision to negotiate with a striking Lech Walesa in the Gdansk shipyards foretold the end of the Soviet bloc and ensuing rise of globalization; Tim Berners-Lee invented the web; and someone sent the first text message. Here at home, we had our own revolution happening—an entrepreneurial one.

  • 2013 PROFIT 500 Launched June 3

    This year’s ranking of Canada’s Fastest-Growing Companies is available on the PROFIT 500 site. View the full ranking, plus sort by region and industry and access success profiles and tips and tactics from PROFIT 500 CEOs.

That was the heady atmosphere in which my editorial and research team at Small Business Magazine assembled the first ranking of Canadian entrepreneurs: The 50 Fastest Growing Companies. The idea emerged from a broader trend we’d been writing about for several years. Canadians were becoming risk-takers: starting more businesses, selling abroad, developing new products and investing in R&D. We saw a surge of interest in anything entrepreneurial, so we labelled the trend “Canada’s Entrepreneurial Revolution.” The rankings of fast-growth companies were to be its scorecard.

Big things have happened since 1989: the magazine has changed its name to PROFIT, the scorecard has expanded ten-fold from 50 to 500 companies and Canada now is an utterly remade, entrepreneurial nation. Wish I could take credit for any of this, but I left journalism several years later to join the revolution and become an entrepreneur myself.

Slideshow: A Look Back at the No. 1 Companies Over 25 Years

Much water under the bridge for me, but nothing compared with how entrepreneurship has changed over these 25 years—and how it has changed Canada. Take technology, for instance. We didn’t even have that as an industry category for the Fastest 50 in 1989, but IT products and services firms and software developers combined make up 23% of the PROFIT 500 today. In 1989, the largest tech company was a 93-year-old behemoth called Northern Telecom (renamed Nortel in 1995), which at its peak accounted for a third of the total valuation of companies listed on the Toronto Stock Exchange. Today, Nortel no longer exists, and Canada’s largest tech company is BlackBerry (formerly Research in Motion Ltd.), which debuted on the PROFIT ranking in 1999 with $33 million in sales. Only a dozen years later, when it last appeared in the 2011 ranking, RIM’s revenue was just shy of US$20 billion. Yet now even BlackBerry fights to survive.

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Where are they now?

Such is the Darwinian cycle of entrepreneurship—Schumpeterian if you’re an economist—and the 1989 list tells the story. Of the 50 firms, 18 continue today under the same name. The picture isn’t quite as harsh as this 36% survival rate suggests, because companies that were sold or wound down aren’t taken into account. Still, our lists show the limited lifespan most businesses have. Many of those no longer operating leave the usual digital traces of deceased firms—fleeting references in LinkedIn bios and expired listings on websites such as 411.ca and profilecanada.com.

One of the apparently defunct is our 1989 winner, Kita Industrial Controls Ltd. of Delta, B.C. No. 2, on the other hand—F&D Scene Changes Ltd. of Calgary—thrives as a global leader in making movie and theatrical scenes. F&D’s work was recently featured in the Hollywood blockbuster The Bourne Legacy and in Broadway’s Mary Poppins musical. My wife, daughter and I saw the latter last November and, as strong as the cast was, the dynamic scene changes stole the show. The entire second floor of a house—replete with actors—quickly swings down to stage level and back up again with every scene change. Now I truly get the company name!

Other companies on the 1989 list went on to become household names, such as Newalta and Hillebrand Estates Winery. One firm that was already a cultural icon at the time—Key Porter Books—closed its doors in 2011 after many years of stagnant growth. Some of the 50 went public and seriously enriched their founders, while another ran afoul of regulators and got delisted, only to rise again under a new name. It takes all types to be a PROFIT Fastest-Growing Company, but I can safely say that persistence is the most common attribute.

What they overcame

Entrepreneurs certainly need persistence. All that change exploding out of 1989 created plenty of opportunity, but also very rough conditions. Canadian entrepreneurs were about to encounter three big, concurrent waves of change hitting them from all directions. It was these trends that fundamentally changed entrepreneurship from what it was in 1989 to what it is today.

Free Trade: 1989 capped a very troubled decade for the Canadian economy, which saw federal debt more than double to 55% of GDP (vs. today’s 32%), inflation peak at 12%, unemployment hit 13% and mortgage rates reach 21%. The businesses we profiled constantly cited government protectionist policies and fiscal mismanagement as their chief challenges. National consensus grew around the inevitability that something radical needed to be done.

If Canadian companies needed a jolt, they got it on January 2, 1988, with the signing of the Canada-U.S. Free Trade Agreement. This single document replaced 110 years of protectionism as a national economic strategy. There was no question of where our magazine’s readers sided on this issue. As editor, I participated in public debates representing the pro free trade side. Many of these debates were emotionally charged, sometimes rancorous exchanges revolving around a latent Canadian fear that we would end up as “the 51st state.” It was the last time I recall when a national issue captured everyone’s attention, and it climaxed in a bitter 1988 federal election to settle the issue.

Once decided, Canadians never looked back and confidently extended the agreement to embrace Mexico under NAFTA in 1994. Free trade, more than anything else, set the stage for the entrepreneurial success we enjoy today. Practically overnight, Cana-dians became risk-takers. And in a way, we all became entrepreneurs.

Globalization: The collapse of the Soviet Union, starting in 1989 and culminating in 1991, ended a bipolar world locked into a trade-killing cold war. Borders opened, economies loosened, state-owned enterprises privatized and investments broadened—all leading to a huge increase in international trade. Having already embraced free trade, Canadians had a psychological head start and adapted admirably.

Again, the PROFIT rankings tell the tale. When it comes to exports as a percentage of company sales, I marvel at comparing our 1989 list to recent ones. Of the top 10 companies on the list back then, only four posted any exports at all. This doubled to eight out of 10 in the 2012 ranking, with exports for most of these comprising at least 90% of the firm’s total sales.

Technology: Of course, a great enabler of export growth has been the ongoing revolution in technology and its unforeseen pace and scope—especially communications technology. In 1989, making a foreign pitch meant either an expensive plane ticket or a very communications-limiting phone call. Now, you have videoconferencing, webinars, email, text messaging and an entire arsenal of tools that virtually get you in front of your clients without physically having to be there. What’s more, you can do all of this on a smartphone if you need to. The result is that smaller and smaller companies now can compete on an international scale.

Technology has had the further effect of creating more precise niches in which to specialize. A classic business strategy is to apply relative strength against relative weakness. Technology makes it increasingly easy for entrepreneurs to find a niche, hone the needed skills and open a breach in a large company’s defences. A side effect has been to heighten M&A activity. Large companies find it easier to buy than to build and innovate, and this trend has created many an exit strategy for entrepreneurs.

What’s next?

Clearly, Canada’s entrepreneurial revolution is far from over as technology advances at a quickening pace and globalization raises more and more of the world’s population out of poverty. Trends such as these create opportunity, and this revolution will continue to reshape our economic landscape, perhaps even more profoundly than in the past 25 years. I am confident that the PROFIT rankings not only will be the most telling scorecard of this process, but a great influencer.

On Monday, June 3, the 2013 PROFIT 500 ranking will be online, along with rankings by region and sector.

Randall Litchfield was the editor of PROFIT from 1986 to 1990 and has been an entrepreneur ever since. He is most recently co-founder of Inbox Marketer Inc, an email marketing services firm. His ventures have landed on the list of Canada’s fastest-Growing Companies more than once.

More from Randall Litchfield

Originally appeared on PROFITguide.com