Angel investors have pulled back as well. Rainer Paduch, a veteran of numerous Ottawa companies and a long-time angel, has stopped seeking new opportunities. Instead, he’s putting his efforts into building four companies he funded earlier this decade that haven’t burned out of cash. Ottawa still has enthusiastic entrepreneurs, he says, but they lack sophistication as to what it takes to build a business. One lesson is sinking in, though: Canadian companies are often too underfunded to compete in big markets. “What I’m hearing, and I support it, is stay away from Canadian venture capital. Focus on smaller opportunities, get the revenue faster, and once you have something substantial, find other ways to get the financing, in particular U.S. venture capital,” says Paduch. “In very fast-moving markets, that’s a challenging strategy, but if markets are moving a bit slower, or are a bit more niche, then you have a chance to get a business off the ground.”
In Michel Jullian’s business, he sees a lot of those tech companies targeting narrow markets. His 21-year-old OCM Manufacturing Inc. offers specialized product engineering and outsourced manufacturing, and just completed a 7,500-square-foot addition, doubling its manufacturing space. “It’s either the best timing, or I’ll blow my brains out,” he jokes darkly. His 40 active customers and nearly 250 different tech products cut across many end-markets, including oil and gas, clean tech, medical devices and security surveillance. Telecom equipment is only a small piece of his business. “What people don’t see is there is an underlying matrix of a lot of companies that make niche products and are very successful, but they will never become a JDS [Fitel], or even a Mitel or a Newbridge,” says Jullian, citing the three companies that along with Nortel, employed about half of all Ottawa tech workers at the turn of the century. “Some of them might, but a lot of them will remain successful, even global players, just in niche markets.”
Even the more prominent local companies are more modest. Take the up-and-coming DragonWave, which was founded in 2000 and makes high-capacity wireless backhaul gear, a less expensive substitute for fibre-optic networks. Its stock has rocketed almost 600% this year to a $190-million market cap, and projects it will top $100 million in revenue this fiscal year (ending February 2010). But it employs only about 180 people, all but 20 of them in Ottawa. Its CEO, former Nortel exec Peter Allen, who joined in 2004 after being put through the wringer at an optical networking startup that raised US$166 million and still flamed out, says one secret is designing technology products that can be manufactured inexpensively. “You can’t afford to be hand-crafted. You have to be able to access the capital investment made by bigger contract manufacturers around the globe,” says Allen. “The reason you’re in Canada is the quality of the talent base, but you have to implement that innovation on a global scale.”
Embracing that business model may be one key to Ottawa’s future success, but so too is the region’s shift away from communications equipment in favour of software, medical devices and clean technology. GridIron Software, for instance, is garnering buzz in the graphic design industry for its new workflow system, while DNA Genotek Inc. makes kits for collecting DNA from saliva, and venture-backed Group IV Semiconductor Inc. is developing all-silicon devices that generate light more efficiently than conventional bulbs. But some still worry that there is too much expertise tied up in telecom, and not enough growth capital. “There are lots ofsmall companies trying to make their way up the chain,” says Adam Chowaniec, a veteran entrepreneur in the region’s struggling semiconductor industry, “but I don’t see any huge growth here for a long time to come.”
Paduch, the angel investor, is of two minds about the tech community’s prospects. “We’ve lost a lot of momentum, and I think it’s going to take a while to rebuild the credibility, to get larger venture money in place,” he says. “But there is still lots of energy, and while the telecom [equipment] industry has shrunk dramatically, the software industry is alive and well. So we need to retool.”
Veterans of Nortel like Babiarz, Horsfall and their new business partners would like to prove Paduch wrong. They know it won’t be easy, though. “I’ve got very modest goals,” says Horsfall. “I would really like EnTeraSec to get to the point where the five co-founders are working full-time, generating revenue.” For now, though, he’s happy just to have a modest grant from the NRC Industrial Research Assistance Program to conduct a full market feasibility study. And that six-figure Nortel salary, now gone forever? “I kind of miss it,” he says. “You learn how to budget when you’ve got very little coming in.”
As for Babiarz, whose wife works at a department store to help make ends meet, he aims to hire on a few developers, just as soon as 3inova gets a customer. He’s given himself until year-end to line up a contract. “If I don’t have a customer by then, something is broken, and it’s time to look for something else,” says Babiarz. “And I like Ottawa, but if a career opportunity presents itself south of the border, I would move.”
Ottawa may not have long to try and salvage the last of Nortel’s fading legacy.
1. What company did Jozef Baviarz work for?
2. What was Jozef Baviarz position at the company?
3. What did the company depend on when they filed for bankruptcy protection?
4. Tech jobs were part of what sector in the company?
5. Why is IBM the top spot for tech jobs?
6. What happened to Jozef Baviarz on July 7th?
7. What type of economy is Canada moving away from?
8. What type of economy is Canada moving away from?
9. What is Babiarz doing now as an occupation?
10. What position did Frank Horsfall have at Nortel?
11. What type of business did Frank Horsfall co-found?
12. How does what Horsfall did at Nortel differ from the company he co-founded?
13. How is Carlton University helping new business teams?
14. What is the foal of the program at Carlton University?
15. What were the results of the Statistics Canada study?
16. What are the results of entrepreneurs that take the Lead to Win program?
17. Bailetti, the founder of the Carlton University program says “In 2002, starting a new tech company was an option; in 2009, it’s the only option.” What does he mean by this?
18. What type of development is Zeebu Mobile Inc focusing on?
19. What type of development is Smart Rotor Systems focusing on?
20. How many new businesses were launched within the first two sessions of program?
21. According to the article, “Venture capital was flooding into Ottawa; now it has mostly dried up” What does this statement mean?
22. How is Bailetti helping companies get the funding that need to start?
23. According to the article, what company use to endorse venture capital investments?
24. What is this company focusing on recently?
25. What does OCM Manufacturing Inc specialize in?
26. What type of markets does the company cut across?
27. What is your understanding of a “niche product”?
28. Accoding to the article, telecom equipment is only a small piece of OCM business, what does Michel Jullian say about “niche products”?
29. What type of company is DragonWave?
30. What kind of success has DragonWave experienced?
31. What is the key to their success?
32. Allen says “The reason you’re in Canada is the quality of the talent base, but you have to implement that innovation on a global scale” What does he mean by this statement?
33. What shift are businesses shifting away from?
34. What are businesses starting to favor? Give two examples of companies that are starting to go in this new direction, what is the focus of these companies?
35. Imagine you are a research engineers at Nortel Networks and you’ve just been let go, what are your next steps? Use the article to explain your answers?