Strategies for Growth

13TH WISDOM EXCHANGE CONFERENCE

The Estates of Sunnybrook, Toronto, OntarioJune 2007

WISDOMEXCHANGE

2007

Highlights from the forum for CEOs and presidents of Ontario’s highperformance firms

Event Report

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We hope this report provides an overview of the insights shared by CEOs, topic experts and workshop presenters at the event.

In this reportGoing global: opportunities abound for Ontario growth firms 2

Transformational leadership: look to the bard for inspiration 4

Competitive success: it starts at the top 6

Innovative marketing: Web 2.0 technologies 8

Organizational excellence: the seven keys to making your organization great 10

Lean culture: techniques for business growth 12

Financing growth: some capital ideas 14

Defining success: learning from the best practices of Ontario’s high performance firms 16

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TSOn June 5, 2007, CEOs of Ontario’shigh performance, innovative growthfirms met at the 13th Wisdom Exchangeforum to network and explore Strategiesfor Growth.

For many of Ontario’s high performance firms, globalexpansion and staying on top of constantly changingmarkets can be a challenge.

In his opening remarks to CEOs and presidents ofleading growth firms at June’s Wisdom Exchange, theHonourable Harinder Takhar shared his observationson India’s rapid growth and ensuing opportunities forOntario’s small and medium enterprises (SMEs).

“I was born in India and have returned every year ortwo since the mid-1970’s. During Ontario’s businessmission to India earlier this year, I saw things thatreinforced for me that India has changed more in thepast five years than in the previous 25 years,” saidthe Minister. India’s economy averaged 7% annualgrowth for the past 10 years and grew another 9.2%in 2006. Home to one-sixth of the world’s population,India has an estimated 350 million middle-classconsumers who want the same products and servicesthat are popular in Europe and North America. Inrecent years, the country has also accelerated itsengagement in global trade by opening its domesticmarkets and increasing its investments overseas.

“Ontario companies have an advantage that makesus very competitive,” the Minister explained: In everyOntario community we have people from China,India, and Pakistan who know these countries as well as Canada. This helps us undertake partnershipsaround the world and we should build on thisdiversity. In addition, business people will find acommunications infrastructure in India supported by ademocracy where the legal system is based onEnglish common law, English being the mostimportant language for commercial enterprise andnational and political communications.

Recognizing India as one of the world’s fast-growingemerging markets, Minister Takhar accompaniedPremier Dalton McGuinty and more than 100business delegates on a trade and investment mission

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Going global:

opportunities

abound for

Ontario growth

firmsThe Honourable Harinder S. Takhar,MINISTER OF SMALL BUSINESS AND ENTREPRENEURSHIP

to India and Pakistan in January 2007. With two-waytrade expanding at a rapid pace, Ontario’s missionwas designed to build on this enormous potential.Canada’s 2005 exports to India surged 25% over2004, and India became Canada’s 14th largestexport market in 2006. As a major contributor toCanada’s increase in export growth, Ontario goodsexports to India have more than doubled in the pastthree years. Looking ahead, bilateral trade betweenCanada and India is targeted at US $20 billion ingoods and services within the next five years. It is alsoexpected that India will spend between $150 and$330 billion over the next 5-10 years on infrastructurealone and will not have the internal capacity to do itwithout help. “This will open up new opportunities forIndian and Ontario companies to work together incritical areas,” said the Minister.

The Minister also cited examples of major Indian firms such as ICICI Bank, Ranbaxy Pharmaceuticals,Satyam Computer Services, and the Aditya BirlaGroup that have invested millions to start or expandtheir businesses in Ontario. “The Chairman of Infosys,India’s largest software company, told me that Ontariois the right place for them to invest,” he said.

The India-Pakistan trade mission is part of thegovernment’s embrace of globalization andaggressive action to attract more investments andcreate more avenues of distribution across the globefor Ontario’s world-class products. “It takes more thanjust thinking globally for us to remain competitive inthis changing environment,” said the Minister. “Wemust go global and show the world what Ontariohas to offer.” A strong example of this was whenPremier McGuinty presented the politicians andbusiness leaders he met on the mission with aBlackBerry. The Premier made sure everyone knewthat the world’s most popular personal communicationdevice comes from the Ontario-based companyResearch In Motion, as proof of Ontario’s leadershipin the global economy.

On how to build relationships with foreign buyers,Minister Takhar advised, “If you get to know thepeople and culture, work with your contacts in newmarkets, and build win-win partnerships, thedividends coming out of these countries can begreat.” The Ministry’s Ontario Director for the MiddleEast agreed, offering his hands-on description of theexport process: “You visit your target market, and you meet people. Then you come back and meet the same people again, plus new people. When you come back the third time, you meet the oldpeople and some new people. On your fourth trip you can ask the first people that you met for an order.”

Thanking the audience of growth-firm leaders for theircontributions to the Ontario economy, Minister Takharsaid, “You are the innovators who create newproducts and services, high-value jobs, andpartnerships around the world.” To help Ontario firmsenter into some of the world’s hottest markets, theprovince has established 10 International MarketingCentres, in New Delhi, New York, London, LosAngeles, Munich, Paris, Mexico City, Beijing, Tokyo,and Shanghai. These centres, located in Canadianconsulates, are there to assist Ontario firms to makelocal contacts, participate in trade shows, andexplore the opportunities of new markets.

For more information on programs and services tosupport Ontario businesses at any stage along theircontinuum of growth, visit the Ministry’s new andimproved, one-stop website at www.sbe.gov.on.ca.

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It takes more than just thinking globally for us to remain competitive in thischanging environment.

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When Jim Fisher, Vice-Dean of MBA Programs andExecutive Education at the University of Toronto’sJoseph L. Rotman School of Management,searched for an example of outstanding leadershipto discuss at this year’s Wisdom Exchange, hereached back more than 400 years and brought tolife Shakespeare’s Henry V – only it was a verydifferent Shakespeare than the CEOs in theaudience had studied in high school.

Leadership has fascinated Fisher throughout hiscareer. Over the last 30 years, he has workedclosely with some of Canada’s top corporate andpolitical leaders, including Pierre Trudeau and GalenWeston among many, many more.

Why should Shakespeare be of any interest to theCEOs of some of Ontario’s fastest-growing firms?

As Fisher explained, half of all today’s English-language live theatre productions are ofShakespeare’s plays, which were all written around1600. “In other words,” Fisher said, “Shakespearestill has 50 per cent market share after 400 yearswithout introducing any new products.”

And why is the Bard so successful? “Shakespeare’senduring appeal lies in his tremendous insights into people’s inner motivations,” Fisher said.“Shakespeare asks why people do the things they do. And why other people let them.”

“He understood that you are not a leader whenyou just take a courageous stand, or when youstate the great vision, or when you have greatcharisma. You are a leader when people arefollowing you in a direction where they would nototherwise go,” said Fisher.

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Transformational

leadership:

look to the bard

for inspirationJim Fisher, VICE-DEAN, MBA PROGRAMS AND EXECUTIVE EDUCATION, JOSEPH L. ROTMAN SCHOOL OF MANAGEMENT, UNIVERSITY OF TORONTO

Take the character of Henry V as a case in point.The year is 1415. King Henry V of England hasinvaded France. In late fall, after months ofwarfare, his army of approximately 6,000 troopsbegins the long march back to Calais, France, so they can be home for Christmas. They aretired, sick, injured, wet and hungry. On October25, at Agincourt, they come face-to-face with25,000 fresh, well-rested and well-fed Frenchtroops. On the morning of the battle, Henry hasone chance to rally his troops and turn near-certain defeat into an English victory.

History books don’t record exactly what Henry said that morning, but whatever he said workedextraordinarily well. The battle of Agincourt hasbeen immortalized as one of the greatest Englishvictories of all time.

Shakespeare, that master of inner motivations,crafted for Henry a speech that galvanized the English troops. He did it by appealing to their honour; he appealed to their sense of fellowship; he promised them fame andimmortality, depending on whether they lived or died.

”The focus was on values – not money, notauthority – because values are what motivatepeople,” said Fisher. “That’s as true today as it was 400 years ago.”

Henry also had a revolutionary battle plan, Fisherpointed out. He chose a wide muddy field as his battleground. The French troops, as theycharged across the field in their heavy armour, got bogged down and became easy targets for the English bowmen.

“Henry gave his troops a plan and a vision,” said Fisher. “All my experience tells me thatleaders have to have both. Bringing the twotogether gives power to both of them.”

In Fisher’s leadership paradigm, motivating theorganization is just as important as setting targetsand direction, creating organizational structuresand monitoring results.

Motivating employees inspires them to make a commitment to go beyond the minimum andempowers them to help the company achieve itsobjectives. It is about articulating and bringing tolife the values that are consistent with the visionand give meaning to the work. It is aboutconnecting emotions with the job at hand.

“Treat your employees like volunteers and they will go the extra mile for you,” said Fisher. “Leadwith your heart, as well as your head. Create avision. Have a plan. Energize your people.” InFisher’s view, that is the essence of leadershipwhether your battle is for market share or for theEnglish throne.

It worked for Henry V. In fact, it made him a hero whose fame has lasted more than 500 years.

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You are a leader when people arefollowing you in a direction where they would not otherwise go.

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The success of high performance firms can begrounded in some down-to-earth attitudes. That’s whatCEOs discovered at the 2007 Wisdom Exchangewhen Art Church, President, CEO and Partner ofMancor Industries Inc. in Oakville, Ontario, begandescribing his company’s successful approach togaining and maintaining competitive advantages inNorth America’s hard-hit manufacturing sector.

Church is a down-to-earth guy, even if he does havean MBA in finance from McMaster University and a bachelor of applied science in mechanicalengineering (P.Eng.) from the University of Waterloo.Over the past 10 years, Mancor, a precisionmanufacturer of metal components and sub-assembliesto original equipment manufacturers (OEMs) in themid-volume transportation-equipment industry, has seengrowth in their employee numbers, plant locations andsales. Major clients include John Deere, Freightliner,Caterpillar and Volvo. “Basically, we’re hole drillers,”Church said. “We learned that if we drill the holes inthe right place, people pay us more.”

His description of Mancor’s approach to business wasdown to earth and his opinions on major issues wereequally up-front. The company’s operating philosophyis based on three principles:• Decentralized plants are run by stand-alone

management teams with full profit-and-lossresponsibility. “We get far better results,” saidChurch. “Customer relations are better, as is therate of technology innovation.”

• Head office develops systems infrastructure andfacilitates best-in-class performance. “Responsibilityfor the company’s success lies with the CEO,”Church stated firmly. “The reasons for success haveto do with having good employees, good systemsand equipment, good suppliers, good customersand good fortune, but the responsibility rests with the boss.”

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Competitive

success:

it starts at the topArt Church,PRESIDENT, CEO AND PARTNER, MANCOR INDUSTRIES INC.

• Continuous improvement is embedded deeply andfirmly into the corporate culture. “It means we’renever satisfied, that we’re always looking for abetter way,” he said. “It also means we’re notafraid to make mistakes.”

The search for innovations, improvements and new ideasis never-ending. Every quarterly management meeting, forexample, includes a visit to a customer or other businessin the city where the meeting is being held. “You caneven learn from a well-run restaurant or dry cleaner,” said Church. “But don’t do something just becauseToyota does it. Do it because you understand the logicand the wisdom and can see how to apply it successfullyto your own business. Make the idea your own.”

In addition to ideas, good plans are absolutelyessential. Church’s observation is that many ‘get stuck’at the plan and repeatly re-do it; to make the planwork, you must work through the cycle and continuallyimprove it. At Mancor, new ideas have to pass twocritical tests. The One Page Test means they must beable to be described on a single sheet of paper. TheBar Test means they have to be simple enough to bedescribed and understood in a crowded, noisy bar. “If an idea is good, people can usually just explain it,”said Church. “If it’s not so good, they usually say, ‘Weshould do it for strategic reasons.’”

Church is a big believer in the 80/20 approach, whichsays that 80 per cent of the value is usually generated by20 per cent of the activity. It is a rule he applies in manyareas of the business, including training. “Training planswith high value result in people acquiring skills that helpthe business improve,” he said. “We develop most of ourtraining programs ourselves. First we identify the 20 percent of the concepts or skills that will generate the 80 percent value to Mancor, then management teaches theprogram. We have learned that shorter is better: thetarget time for most training is two hours.”

Church’s focused, down-to-earth approachcharacterizes his views on two major issues facingCanadian manufacturers today.• The high Canadian dollar:

“Stop complaining,” Church told the businessleaders in the audience. “The Canadian problem is not a high dollar but wage and service costs that are too high. We need to reduce manpowerexpenses with automation. Wage rates are a complex problem to solve. We may need some help with that.”

• Competition from China:“China is almost impossible to beat so we’veadopted the ‘bear in the woods’ solution,” saidChurch. “Everyone knows you can’t outrun a bearin the woods. But I don’t need to run faster than thebear, I only need to run faster than you.”

Despite the competitive threats posed by China andother emerging nations, the high Canadian dollarand other pressing issues, Mancor is growing. Part of the spirit driving that growth, is his firm belief in the importance of focusing on the customer andcombining good business with a little fun. “Have fun”is embedded right in the company vision, along withbeing “Best-in-Class”, “Profitably Growing Mancor”and “Being Safe.”

As Church explained, “If people like to come to workand people like to do business with us, we thinkthat’s cool.”

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If an idea is good, people can usually justexplain it. If it’s not so good, they usuallysay, ‘We should do it for strategic reasons.

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During the past 15 years, the Internet, e-mail andthe World Wide Web have revolutionized thebusiness world, yet many experts believe the realtransformation has just begun.

As the Internet transforms from an informationsource to an interactive site for collaboration, newopportunities are emerging for businesses of allsizes. New Web-based technologies such asblogs, wikis, social networks and a remarkablenew breed of collaborative software suites hold thepromise of changing even more dramatically howbusinesses operate. Yet these second-generationInternet capabilities, collectively known as Web2.0, also raise a number of questions voiced byCEOs at the innovative marketing workshop.

How can SMEs benefit from opportunities arisingfrom new technologies? What precisely ischanging? How can these advances in technologyhelp companies reach customers? What businessmodels offer the best chances for success? Whatare the implications of not being Web 2.0 ready?How can businesses prepare? Who has time for all this?

These are questions that Dr. Cindy Gordon,Founder and CEO of Helix Commerce InternationalInc., has come to grips with on behalf of early-stage growth companies and industry leaders suchas Amdocs, Astra Zeneca, Bell Canada, CIBC,Microsoft and Rogers.

“Where Web 1.0 emphasized connectivity andinformation retrieval, Web 2.0 stresses socialinteraction,” explained Gordon. “Collaboration, inthe form of a marriage of social networking and new media technologies, is the strongest force shaping business practices today. It is now mission critical forbusinesses to create organizational structures that

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Innovative

marketing:

Web 2.0

technologies1. Dr. Cindy M. Gordon,

FOUNDER AND CEO, HELIX COMMERCE INTERNATIONAL INC.

2. Ron McKenzie,CEO, OCTOPZ

2.1.

make collaboration the cornerstone of highperformance workplaces. Collaboration, globalization and diverse teams will characterize how and what work is done.” This Open Sourcemovement, as it has been called, promotes easycollaboration and improvisation.

One of the most remarkable aspects of these leading-edge technologies is that users can muchmore easily change and re-shape the tools to meettheir evolving needs. One of the easiest, simplest and least expensive ways for a company to beginWeb 2.0 applications is through a CEO blog. A blog (short for “web log”) is like an informal, online diary or newspaper column. A blog can be written daily or even more often by the CEOand posted on the company’s intranet whereeveryone can read it. Anyone can comment, add information, ask a question or respond to a comment or question. It becomes an open, ongoing conversation in which people across thecompany can participate equally. Blogs also allowthe sharing of direction, can be tracked, and are searchable.

“One of the side benefits of blogs is that they have astrong appeal for the next generation of workers,”said Gordon. “The next generation of workers will beseeking a sense of ownership of their work and willexpect to have a level of input in every segment ofthe company.”

Ron McKenzie, CEO of Octopz, provided workshopparticipants with a real-time demonstration of the kindof technology available to companies that embrace the collaborative potential of Web 2.0. From the workshop floor via the Internet, he contacted acolleague at another office. They could see eachother on the screen and they could discuss and makechanges to a document in real time.

“What this means is that you can work withcolleagues anywhere in the world, any time, together or individually, without ever leaving your office,” said McKenzie. “The result isimproved decision making and acceleratedspeed-to-market, which can create a hugecompetitive advantage in today's fast-pacedbusiness environment.”

“So-called smokestack industries – financialservices and world-leading brands – are adopting these technologies because they addvalue,” added Gordon. “They link people so theycan open doors both within and on behalf of your company.”

For CEOs looking to grow their companies, Web 2.0 applications can provide a set ofpowerful tools with far-reaching potential. Theirflexibility and ease of use add to their appeal,especially for executives whose 24/7 schedule is already fully booked.

On the issue of online security, it should bemanaged and monitored like any asset in your company. The recommendation is to startinside your company with social networking tosee the results before launching external tool kits.In Gordon’s expert opinion, there is absolutely noquestion that, when it comes to Web 2.0, “thebenefits far outweigh the risks.”

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The next generation of workers will beseeking a sense of ownership of their workand will expect to have a level of input inevery segment of the company.

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A curious thing happened with the shift toknowledge workers and team-focused environments.Companies realized that how people felt about theirwork and how co-workers related to each other hada direct, bottom-line impact. Emotions in theworkplace could no longer be ignored. Thechallenge was what to do about them.

The concept of emotional intelligence, defined asthe ability to understand and manage the emotionsof oneself, of others and of groups, began to gaintraction among people who were trying to buildhigh performance organizations. Some people,Steven Stein, CEO of Multi-Health Systems, amongthem, came to believe that great organizationsthrive by winning the hearts and minds of theirpeople. “It was a tough sell for about 10 years,”said Stein, a leading expert on psychologicalassessment and emotional intelligence.

Multi-Health recently completed a study involvingmore than 2,000 employees from a variety oforganizations in several countries. One of the corequestions was “what makes a workplace great?”

In Stein’s analysis of the survey results, three coreelements emerged:• The fit between a specific individual and a

particular job: “There are a lot of square pegstrying to fit into round holes,” said Stein.

• The importance of good relationships in theworkplace: “The most productive people are theones who have a best friend or friends at work.”

• Having a sense of purpose and feeling that whatyour company does is important.

Organizations can boost their performancedramatically by improving one or more of those elements.

The U.S. Air Force, for example, came to Multi-Health with a serious employee issue. It was under

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Organizational

excellence:

the seven keys

to making your

organization

greatDr. Steven Stein,CEO, MULTI-HEALTH SYSTEMS

pressure to increase recruitment. One of its biggestchallenges was that the turnover rate amongrecruiters was very high – about 50 per centretention rate after one year. Multi-Health studiedthe emotional intelligence of high-performingrecruiters. They found that the Air Force’s best andhappiest recruiters had, among other attributes,high levels of empathy. The Air Force startedscreening potential new recruiters for empathy andother key attributes linked to emotional intelligence.The retention rate is now 92 per cent, generating$2.7 million annually in savings because the AirForce no longer has to find, train and replace somany recruiters.

“Connecting people with the right jobs, connectingco-workers together, and connecting all of them to a sense of purpose is the path to building a greatworkplace,” Stein told delegates at the WisdomExchange. “What we want our employees to feelis TGIM – Thank God it’s Monday.”

The links between emotional intelligence andsuccess can be adapted and applied toorganizations, resulting in higher performing teamsand workplaces. Stein has identified seven keys tocreating a more emotionally intelligentorganization:

1. Hire capable people who love their work:Match people to the job and show them howthey can be part of something larger than the organization.

2. Compensate people fairly: Since “fairness” is aperceived value, paying people more money isnot always the answer. Sometimes job flexibilityor training opportunities are valued more highlythan a raise.

3. Don't overwork (or underwork) people: Studieshave shown that high performers often work

fewer hours than their colleagues and thatpeople who put in long hours – workaholics –can be less productive than you would think.Again, match people to the workload.

4. Build strong teams with shared purpose andvisible goals: Recognizing and celebratingmeasurable achievements helps to validaterelationships and a sense of purpose.

5. Make sure managers can manage: Ensuremanagers have the right skills. Employee surveysshow that only about 50 per cent of managersand supervisors are seen to be dealingeffectively with underperforming team members.

6. Treat people with respect and leverage theirunique talents: Studies have shown a linkbetween lack of respect for diversity and angerin the workplace.

7. Be proactively responsive by doing the rightthings to win the hearts and minds of yourpeople: Stay in touch with the issues that areimportant to your employees. Pub nights, bagelbreakfasts and town halls can all help to identifystaff issues – and solutions.

These insights are explored further in Stein’s latestbook, Make Your Workplace Great: The 7 Keys toan Emotionally Intelligent Organization, along withstrategies that organizations can adapt to take theirperformance to the next level.

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Connecting people with the right jobs, connectingco-workers together, and connecting all of them to a sense of purpose is the path to building a great workplace.

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Companies searching for ways to sharpen theircompetitive edge are looking closely at leanmanufacturing techniques, and for good reason.Pioneered by Toyota, then spreading to aerospaceand other industries, lean processes have beencredited with helping some companies gain hugeefficiencies. Reductions of 50 per cent or more in such areas as manufacturing lead times,inventory and overhead costs and improved qualityand productivity have been reported.

Improvements of that magnitude have caught theattention of business leaders everywhere, includingWisdom Exchange delegates who participated inthe Strategies for a Lean Culture workshop. Onecompany was eager to adapt lean strategies butlacked a coherent plan. Another company wasmoving to a new plant and wanted to set it up asa lean facility. A third firm wanted to learn how tosustain its lean approach after initial successes.

Scott Smith, President of High PerformanceSolutions Inc., brought 20 years’ experience in lean implementation, continuous improvement and supply chain management to help workshopparticipants understand what “lean” really meansand how they could start or expand their leanapproaches to manufacturing.

One of the myths that many people (especiallynervous employees) believe about lean productionis that it is just another euphemism for cutbacks.Nothing could be further from the truth. “Lean isabout growth, not about reducing head count,”said Smith. “Lean is about eliminating waste. Ifemployees come to believe it’s about head-countreduction, the lean program is dead.”

The main drivers of ‘Lean’ are people (to foster leanthinking), processes (to eliminate waste), technology(to provide tools that support people andprocesses, and the end-result (customer success).

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Lean culture:

techniques for

business growthScott Smith, PRESIDENT, HIGH PERFORMANCE SOLUTIONS INC.

First and foremost, the lean approach is holistic.“It’s a whole enterprise tool that encompasses acompany’s entire business, from preparing thequote to collecting the cash,” said Smith. “It shapesboth the manufacturing value stream [things thatdirectly add value] and the customer value stream[what the customer is willing to pay for].”

Secondly, because the lean approach involves theentire company, responsibility for implementing it isshared throughout the organization. Everyone has a responsibility to spot where waste is occurring.Everyone has a responsibility to identifyopportunities for improvement.

“More than 95 per cent of opportunities for cuttingwaste are found in production activities that don’tdirectly add value from the customer’s perspectivesuch as downtime, too much inventory,overproduction and product defects,” said Smith.

This company-wide sharing of responsibility and hands-on involvement needs to bechampioned, supported, rewarded and sustainedby management. It requires learning new skills. It involves significant investments of time and money.

For many firms, adopting lean techniques means adramatic change in corporate culture. “Companyculture plays a key role in moving toward lean,”Smith said. Creating and sustaining a successfullean culture requires company commitment in fivekey areas:• Vision: Without vision, there will be confusion.• Skills: Without skills, there will be employee

anxiety.• Incentives: Without incentives, change will be

at best gradual.• Resources: Without adequate resources, there

will be frustration.• A plan: Without a plan, there will be false starts.

Finally, energizing the lean culture is an unwaveringcommitment to continuous improvement. Smithsuggested that companies focus on four improvementobjectives in their order of importance:• Increased safety, which removes waste,

avoids injury costs and fosters employeecommitment to lean processes. Increased safetyleads to . . .

• Increased through put, by reducing downtime.Slowing down to get the job done rightincreases safety and also leads to . . .

• Increased product quality. Higher product qualityleads to . . .

• Lower costs, by reducing the need for rework tocorrect flaws.

Adopting lean manufacturing approaches is not aquick fix. “Changing to a lean culture can bechallenging and can’t be accomplished overnight,”said Smith. “Your company should plan ondevoting three to 10 years to the effort.”

In fact, the job of creating a lean production systemis never complete. The most advanced leanpractitioners (such as Toyota) continue to seekimprovements, even after many years ofimplementing lean.

On the other hand, the benefits continue to grow.Lean techniques helped Toyota become one of theworld’s largest and most profitable companies. Andthat is a pretty solid endorsement of the power ofthinking lean.

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More than 95 per cent of opportunities for cuttingwaste are found in production activities that don’tdirectly add value from the customer’s perspective suchas downtime, too much inventory, overproduction andproduct defects.

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“There’s more money and more sources of moneyavailable to Ontario businesses than ever before,”said moderator Rick Spence in setting the tone forthe Financing Growth workshop, a crash course in how to identify the right type of capital forgrowing businesses.

Spence offered a few recent statistics to show why capital is more abundant than manyentrepreneurs think: • According to the Canadian Venture Capital

and Private Equity Association, private capitalinvested $5.1 billion in 36 disclosed buyouttransactions in the first quarter of 2007, nearlyhalf of the total amount invested in all of 2006.

• Venture-capital investment in the first quarter of2007 totaled $598 million, a 61% increase overthe first quarter of 2006. The growth in dollarsinvested was even stronger in Ontario, where$302 million was invested in 42 companies.

• The Toronto Stock Exchange’s Venture Exchangefacilitated $590 million in business financing in2006, more than double the 2005 total.

The new PROFIT 100 list of Canada’s Fastest-Growing Companies shows today’s top growthcompanies tap many kinds of financing. Accordingto the June 2007 issue of PROFIT magazine, manyPROFIT 100 companies use the following sourcesof financing: • Banks (76%)• Leasing (60%)• Friends or relatives (35%)• Public stock issues (28%)• Private investors (25%)• Venture capital (23%)• Foreign banks (17%)• Angel investors (16%)• Asset-based lending (9%)• Employees (8%)• Supplier (6%)• Commercial paper (4%)• Bond issues (2%)14

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Financing growth:

some capital

ideas1. Moderator: Rick Spence,

SMALL-BUSINESS CONSULTANT2. Dennis Ensing, Director,

WISE MENTOR CAPITAL3. Ryan Kovac, Vice-President,

MMV FINANCIAL INC.

1.

2.

3.

Another theme from this year’s Profit 100 list wasexplored: many growth firms advocate conservativefinancing. These companies try hard to minimizeexpenses and boost cash flow, so they are lessdependent on outside financing. Some companieskeep business plans and financial plans up-to-dateand meet regularly with bankers, venture capitalistsand other financial sources in order to understandwhat capital is available to them should they everdecide to use it.

In the workshop discussion, detailed questionsabout financial alternatives were answered by Ryan Kovac, a former venture capitalist who nowsupplies “venture debt” as vice-president of MMVFinancial Inc., and Dennis Ensing, an experiencedCFO who now helps other companies raise moneyas director of finance with Wise Mentor Capital.

Here are some of their key observations:• Web 2.0, health care and “clean tech”

(environmental technologies) are currentlyconsidered “hot” by investors.

• In discussing the cost of capital, Ensing plotted achart of financial alternatives based onanticipated annual rates of return and the risksinvestors are willing to assume. He said angelinvestors (private individuals making high-risk,early-stage venture investments) usually target50% to 60%, venture capitalists expect about40%, while private equity about 25%. Expect topay 18% to 19% for venture debt (subordinateddebt for growth companies). The banks look for5% to 6% a year.

• There is another price to be paid for equity,Ensing noted: “The higher you go on this curve, the more intervention is sought by yourfinancial partners.”

• Ensing emphasized that business owners shouldfocus more on the terms of a deal (and theshareholder’s agreement) than the cost offinancing. Conditions could include penalties forfailure to achieve a “liquidity event” within adesignated time period or for poor performance.

These penalties could be as severe as forcedsale of the company or replacement of themanagement team.

• How long should your business plan be? “As a marketing document,” said Ensing, “20 pages should be enough. In fact, he said it is your one- or two-page executive summarythat will (or won’t) earn you a meeting withpotential investors.

• “When pitching investors, entrepreneurs should focus on three key areas in the business plan: management, the marketopportunity and what’s unique about yourproduct or business,” Kovac advised.

• To identify investors most likely to be receptiveand interested in your business, Ensing advised:“Do your research. Use a rifle, not a shotgun, tofind investors,” added Ensing. Don’t go to an ITventure-capital firm if you’ve got a biotech deal.”

• Kovac offered more details on venture debt, agrowing form of financing that is secured againsta company’s assets and intellectual property.Mainly targeted to growth firms in technologyand life sciences, venture debt includes an equity kicker, but no financial covenants, saysKovac. “We just want you to pay us back every month.”

• “Going public ideally should be an event of liquidity [i.e., cashing out of a company], not a financing event,” said Ensing. “Because of the cost and complexity, going public is the option of last resort; however, it can generate financing where other options havebeen exhausted.” 15

When pitching investors, enterpreneursshould focus on three key areas in the business plan: management, the market opportunity and your product or business.

“ “

The Ministry of Small Business andEntrepreneurship released a new report atthe Wisdom Exchange on June 5, 2007.

Defining Success: Learning from the BestPractices of Ontario’s High Performance Firms provides an overview of the importanceof Ontario’s small and medium enterprises (SMEs) that employ 2.8 million people inOntario and generate $120 billion in annualeconomic activity.

The report then focuses on high performanceSMEs as major contributors to Ontario’s economic vitality. High performance SMEs, have:• Sales growth of at least 50 per cent in

three of the past five years;• Between 10 and 500 employees; and• A global head office in Ontario.

To determine what critical businessapproaches led to high performance andgrowth of Ontario firms in today’s globalmarketplace, Defining Success measuresbest practices used by leading SMEs tosuccessfully grow their businesses. For thisstudy, Deloitte interviewed 130 businessowners, presidents, CEOs and other seniorleaders in a variety of sectors across theprovince and identified the impact of more

than 12 ‘best practice’ business activities.Respondents also provided insights into focusareas such as the nature of innovation,challenges for the future and importantbusiness lessons learned.

Notably, of the four best practices that more than two-thirds of the CEOs rated asmost important, three were people-focused.Having empowered employees with the right skills and winning their commitment to growth were seen as key reasons for their success.

The other top-ranked factor was theimportance of developing and implementingproduct- or service-innovation strategies.Many of the respondents said thatgovernment programs had helped themconduct research and develop innovativeproducts and services.

To read more about the success factors ofhigh performance firms in the DefiningSuccess report, and to access WisdomExchange program updates, all of thepublications in the Leading Growth FirmSeries, the Ontario Business Program Guide,and more, visit the Ministry’s new andimproved website at www.sbe.gov.on.ca.

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NDefining Success:

learning from the best

practices of Ontario’s high

performance firms

Printed in Ontario, Canada on recycled paper © Queen’s Printer for Ontario, 2007

Contact:

Ministry of Small Business

and Entrepreneurship

Business Advisory Services Branch

Partnership and Business Development

56 Wellesley Street West, 4th Floor

Toronto, Ontario, M7A 2E7

www.sbe.gov.on.ca