Special Report: Creative City

The Potential of New, High-Growth Companies

If Hamilton wants jobs, it needs to support the creation of high-growth companies and foster the conditions that lead to them.

By Adrian Duyzer
Published April 27, 2010

Broke, indebted, with a high rate of unemployment and large numbers of people living below the poverty line. That's the United States in 2010. That's also Hamilton.

It's no surprise that in both places, job creation is of paramount importance.

In Hamilton, most efforts seem focused on convincing large, established companies that they ought to move here. We have acres of "employment lands" just waiting for companies like Canada Bread.

However, our efforts to bring large employers to the city are misplaced. We would actually gain many more jobs by focusing on creating new, high-growth companies right here in Hamilton.

New, High-Growth Companies Are Key

A study by the Kauffman Foundation released in the beginning of March, High-Growth Firms and the Future of the American Economy (PDF), points out that in any given year, about 40 percent of all new jobs are created by just the top-performing one percent of all companies.

Further, companies that are between three and five years of age comprise less than one percent of all companies, but they generate 10 percent of all new jobs each year.

Moreover, a certain percentage high-growth companies will grow to employ as many as ten thousand people, becoming the major brands that we're all familiar with. Look at what RIM has done for Kitchener-Waterloo, and imagine the effect a success like RIM would have on Hamilton.

The study concludes that:

The prevailing policy discussions around unemployment and job creation in the United States and elsewhere overwhelmingly focus on the recovery or restarting of job growth in existing companies. Because of their apparent dominance — in the public eye if not the real economy — large, established corporations are perceived by policymakers as the engines of innovation and job creation. Even the emphasis placed on “small business” defaults to those companies already in existence — measures aimed at expanding access to credit for small businesses assumes that the desired audience is currently established and operating. Mostly invisible on the radar screen are the new companies — the startups, the “nonemployer” firms that transition to employer companies, the spinoffs — that truly embody new job creation.

In fact, the positive relationship between young companies and job creation is mathematically inevitable, as Paul Kedrosky, a colleague of study author Dane Stangler, points out. His reasoning is simple: drunks tend to fall down eventually.

Let me explain.

Imagine someone who's just left one of a dwindling number of Hess Village bars that has drinks at reasonable prices. They're standing on the sidewalk alongside a wall. On the other side of the sidewalk is Hess Street, with a curb that's just high enough to pose a significant challenge to the balance of our inebriated Hess Villager.

Suppose that each step our partier takes is completely random, based on a coin toss. Heads, they step towards the wall, tails, they step towards the street.

The only direction they can go for their first step is towards the street, since they're already right next to the wall. After that, coin tosses might see them heading towards the wall or towards the street. But in every case where they go towards the wall, they are eventually stopped by it. The same is not true of Hess Street.

If enough time elapses, our drunk is guaranteed to end up in the street.

This probabilistic idea is called the Drunkard's Walk. As Kedrosky explains, it applies to job creation:

[In the beginning, young companies] stand at the bar wall facing the gutter. They can’t lose jobs because they haven’t created any yet. All they can do initially, other than fail, is stagger away from the zero employment wall. Now, we know that about half of young companies last five years, more than enough time for companies to stagger back and forth such that, even if we assume no managerial skill, the drunkard’s walk model tells us they will grow and add jobs, even if only because that left bar wall prevents them from going below zero jobs.

The same doesn’t hold for older companies. They have been in business long enough that at t=0 they are already some distance from the bar wall, staggering back and forth. They can create jobs, of course, but they can also lose many jobs, the latter being something young companies mathematically cannot do given how they start at the left wall of zero employment.

New Approaches Are Needed

Given that it is young, high-growth companies which have the greatest potential to create jobs, what should Hamilton be doing to help them?

There are two things that Hamilton could do that would help these companies immensely.

First, improve access to capital. Hamilton does not have the venture capitalists or the pro-startup mindset that new companies enjoy in entrepreneur-focused cities. Here, creative, technology-driven, innovative companies find it difficult to access the capital that would enable them to leap from startup to major company status.

In spite of our fiscal problems, Hamilton continues to find the millions of dollars for projects like Aerotropolis, stadium construction, road building, and so on.

Some of this money could instead be spent on creating an innovative public-private partnership focused on funding and fostering high-growth companies. This partnership should include the city as well as businesspeople and advisors from local colleges and universities.

Selection of a variety of participants from different sectors will help avoid creating a slush fund for well-connected insiders and ensure that good ideas are recognized and bad ones discarded. More than that, a true partnership would see matching funds from each participant. Perhaps participants could choose which ventures they personally wanted to support.

More than just money, a network like this would provide new businesses with crucial advice and connections.

What would happen if we allotted several million dollars per year to funding startups at ten or twenty thousand dollars apiece?

What if companies that needed fifty thousand dollars to help them leapfrog from small- to medium-sized could get it?

The second thing Hamilton could do - must do - to help create these companies is improve Hamilton's attractiveness to skilled, creative, educated individuals.

This is important because those individuals are the ones who are creating these companies, and because once these companies have been started they need to be able to hire employees with those characteristics as well.

Not everyone who works in the firm will need to fit these criteria, and a high-growth company will also spin off many jobs (and possibly other companies) that will utilize lower-skilled workers. But when it comes to leadership and core talent, these people are necessary.

Hamilton needs to start becoming a much more attractive place to these people than it is currently. We need to have dense neighbourhoods with mixed uses. We need excellent light-rail transit. We need more interesting options for entertainment and leisure.

We don't need sprawl, dreary warehouses by the airport, or truck routes. In fact, these have a directly negative impact on our chances of attracting and retaining creative people. They'll just move to Montreal, Vancouver, or Toronto instead.

Adrian Duyzer is an entrepreneur, business owner, and Associate Editor of Raise the Hammer. He lives in downtown Hamilton with his family. On Twitter: adriandz


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By Ryan (registered) - website | Posted April 28, 2010 at 10:21:20

Great piece, Adrian!

My first exposure to the Drunkard's Walk was in Steven Jay Gould's book Full House, in which he argued that the apparent trend of evolution toward greater complexity is really just a function of the fact that random mutation can't drift in the direction of less complexity than the simplest entity able to preserve its own integrity and reproduce. He points out that even now, the modal form of life is still the bacterium. (In fact, he goes on to argue that bacteria likely make up the majority of all life by mass.)

As for the idea that Hamilton should sponsor an early VC fund, I have some concerns:

  1. For maximum effectiveness, the fund should combine capital with coaching and support (think Y Combinator, which which I'm sure you're familiar). Merely handing money to startups without cultivating them and helping them work through their struggles and growing pains will yield a much lower return.

  2. Frankly, I'm not persuaded that either the City or local business possesses the expertise either to decide which companies are the most promising or to provide the coaching that will maximize the chance of success for such businesses.

    We've seen plenty of evidence lately that local business leaders are too locked into status quo ways of thinking to be able to accept, let alone promote, disruptive new ideas - or as Clay Shirky puts it, "Institutions will try to preserve the problem to which they are the solution."

To overcome these challenges, such a VC fund must at a minimum operate: at a strict arms-length from the political process; in an open, transparent manner; and under the leadership of a proven startup VC/facilitator, preferably from out of town and free of conflicts of interest.

Comment edited by administrator Ryan on 2010-04-28 10:37:45

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By Kiely (registered) | Posted April 28, 2010 at 10:40:18

To overcome these challenges, such a VC fund must at a minimum operate: at a strict arms-length from the political process; in an open, transparent manner; and under the leadership of a proven startup VC/facilitator, preferably from out of town and free of conflicts of interest. - Ryan

I share your concerns Ryan. Your suggestion above would be a good starting point. Maybe once this becomes a part of Hamilton culture we can take a different approach but at this time, I agree, this roll would most likely need to be done by an "out-of-towner".

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By synxer (registered) | Posted April 28, 2010 at 11:31:26

Great article, indeed.

It is encouraging and exciting to see others view Hamilton's potential. I am in the middle of writing (designing, really) a proposal for my company to introduce a project within this subject scope.

Light at the end of the tunnel, hopefully.

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By mikeonthemountain (registered) | Posted April 28, 2010 at 13:19:12

A really nice development to see : http://www.boxerontariobrewery.ca/ Wonderful news to see a good business taking an interest in Hamilton. Hope the Lakeport crew does get their jobs back. Support local (failing that, at least Canadian) wherever possible!

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By randomguy (anonymous) | Posted April 28, 2010 at 14:16:54

We've already got Trivaris, maybe the city could set up an angel fund with them managing although I am not sure of the legality of that.

I am a little less sure of your idea about improving the city as you wish helping with creating more high tech companies. Silicon Valley is sprawl city. Locally KW is strong for startups, but it certainly isn't particularly dense, have light rail (yet) or great entertainment options. Sometimes other factors are more important, in this case the style of the local universities.

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By Anders (registered) | Posted April 28, 2010 at 14:36:18

random guy, check out the Santa Clara LRT

and also try a vacation hopping south from San Francisco - it's swell. Santa Clara, Los Altos, San Jose - it quickly becomes pretty obvious how the urban environments and businesses nourish each other. Hamilton absolutely needs to become more interesting to attract creative people and businesses.

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By grassroots are the way forward (registered) | Posted April 28, 2010 at 19:56:34

Adrian writes: We don't need sprawl, dreary warehouses by the airport

Amen to that, it should be more to lift those who struggle out of poverty. Not everyone can go on to higher education because of various reasons but that does not mean that they cannot be people who contribute to the better well being of the community.

At the Aerotropols discussion the other night, those who are for this, talked about Brantford, yet Brantford, is the temp job capital, which pays low wages, no benefits, forget pensions or even having the ability to save for retirement.

How many jobs will come of big warehouses, not many and the cost to the community would be great in more ways then one.

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By Mr. Meister (anonymous) | Posted April 28, 2010 at 21:46:41

Sounds a lot like the small business incubator on Innovation Dr. although I do not know if there is loans or funding available or just low rent and some business expertise.

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By Northshore (anonymous) | Posted April 29, 2010 at 07:09:46


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By Disruptor (anonymous) | Posted April 29, 2010 at 15:02:57

Nice analysis Adrian, but there is one way the numbers might not add up. Most startups fail, and people trying to run startups that fail don't have 'jobs' that earn money (or else they wouldn't fail). If the number of people in startups that try but fail is higher than the number of jobs created by the startups that don't fail, the enterprise as a whole can produce a negative number of total jobs. That's why is's so important to get the right people running the VCs. If it comes down to Dave Mitchell deciding which tech startup to fund, then we might as well skip the fund and just set fire to the money.

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By Imperial (anonymous) | Posted April 29, 2010 at 22:52:22

Great thoughts all round folks.

I had a very interesting meeting with the Deputy Minister of Citizenship today and it sounds like the Provincial government is thinking in a similar direction. There must be funding models that work better than just straight grants or loans > and process is key in giving out funds.

GHVF is great and a potential source of funding if you're in a very specific field - seems mostly medical, tech, pharma, etc. Innovation Night (led by Trivaris) is a another great forum connecting with potential VC folks > opportunity for social enterprise businesses in this arena.

Personally, I see this as a place that the Community Foundation could be playing a great role. Organization is well respected for handling funds and endowments. Understands the varying needs of Hamilton (different industries, neighbourhoods, etc). The only issue is that they are likely risk adverse. Not that that's entirely bad.

The Deputy Minister had a great idea of creating some form of SE or VC bond. Public buys the bonds just like they buy Canadian Saving Bonds, but the interest is split. Say 75% to the bond holder, 25% to the VC fund (or some such equation) in the community the purchaser chooses. Bonds administered by the government, interest-based VC fund managed by local foundation. Everyone makes money, small businesses get a boost, foundation gains local credit beyond the non-profit sector, and the public learns that investing local business makes good sense.

I keep hoping someone with banking smarts will sort this out. Hamilton needs a VC fund program that normal citizens can buy into, and creative businesses can apply to.

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By Donald J. Lester (anonymous) | Posted April 29, 2010 at 23:49:16

I must agree, a wonderful ideology, but Job creation has been on to bottom list of priories for the past twenty years. While in the most recent years the focus has been on being a bedroom community, Most business in this city would tell you that dealing with City hall on any issue is the most cumbersome venture they have ever taken, compared to other cities they have dealt with.

What this City need is a broker to bring business to this city and to deal with all the red tape and barriers that are fundamental discouraging business to locate or relocate in this City. It has been apparent that the present councilors don't have the skills and anyone that does, has no intention of applying.

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By michaelcumming (registered) - website | Posted April 30, 2010 at 09:36:49

Great article. Hamilton needs to promote 'disruptive new ideas' but doesn't seem to know how to do this.

McMaster University needs to play a much bigger role in this process of re-imagination. How about a sparkling new campus in the heart of the Beasley?

Hamilton also needs to be much more attractive to creative young people, many of whom don't mind a bit of grit in their environment if fun, creative ideas are to be had.

The local music scene - e.g. the This Ain't Hollywood crowd seems very active, creative and able to produce disruptive new ideas as a matter of course. The music scene is a source of great ideas and energy, which the city should do more to promote.

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By toppler (anonymous) | Posted May 03, 2010 at 13:53:15

Aren't there already programs, such as at Mac's Innovation Park, to support local start-ups? It may be some time, however, before this results in employment growth. And it is very difficult to predict which start-ups will become employers. Politicians hate to be seen as guessing wrong when handing out funds, and with start-ups, statistically speaking, wrong is going to be the probable choice. So politicians are inclined to play safe and make selections based upon experience, which means throwing money at exisiting, successful companies, many who are just passing through.

Also, I'm not so sure that Hamilton is lacking all that much as a community to attract a talented, educated elite, if in fact you look at the amenities themselves instead of listening to what is said about them by so many local residents themselves. Not to stifle local criticism, but I think the city is vastly under-developed as a tourist centre. Many Hamilton-based tourist infrastructure assets are supported by government (the AGH, trails, waterfront parks, museums and more) but I don't get the sense that there are many local businesses building on this infrastructure.

Hamilton is sitting smack-dab in the middle of a major, international tourist region. People come from all around the world to visit Niagara and Toronto. And there are many more attractions to the north and west. I think the city needs a single, big, central attraction, some sort of theme park perhaps, to both advertise the city as it advertises itself, and to encourage tourists to make Hamilton the base for exploring the dozens of attractions that are within 1 hour of King & James. A waterslide down Stelco Tour, perhaps. Or a major theatre festival on the escarpment edge. Or a waterfall tower downtown on the face of the escarpment (at Charlton Ave. E.) or all of the above.

But the push to do such things should come from local entrepreneurs. Otherwise we end up with decisions based upon polical and bureaucratic expediency (corporate and governmental,) such as how to clean up a north-end brownfield, rather than decisions based upon commercial (and employment) potential, such as building a new stadium where people are most likely to see and maximize use of it.

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By Kiely (registered) | Posted May 05, 2010 at 12:13:28

Not to stifle local criticism, but I think the city is vastly under-developed as a tourist centre. - Toppler

The view from the Skyway bridge certainly doesn't help.

Many of Hamilton's assets are hidden from view, while everyday we show our collective ass to the tourists driving past us to get to Toronto or Niagara Falls.

And now the Germans are here to ensure that doesn't change.

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By highwater (registered) | Posted May 05, 2010 at 14:24:50

Don't forget Liberty Energy! Hamilton, the garbage dump of Southern Ontario.

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By Donald J. Lester (anonymous) | Posted May 07, 2010 at 14:04:44

In the past Hamilton defined it's self on the Steel industry, but that is what is crippling us today; it's this singular mental perspective that has stagnated growth. Though true the the steel industry did contribute much to this city. Having said that so did many other industries. Though to day we cringe at the aftermath of the steel industry and while we can blame this industry for many things we omit that this city failed to maintain or implement standards that would have prevented much of this aftermath.

Left with this bad taste in our mouths this City sticks it's thumbs up and everything that is not something that could be done in a bedroom. With regards to, "Liberty Energy" many want to close the door before it's open; without recognizing that technology has come a long way since, "SWARO" moreover in many European countries such industries operate injecting cleaner air into the atmosphere than what exists, there is also one in BC.

That being said, some who either oblivious to the aforementioned or are out of touch with reality propagate that one industry is what will define this City if this project proceeds. Which is a myth in it's self. One would hope that just because there are drugs and bricks crumbling downtown that this is not define the City, and if it does it certainly will have an impact on everyone within and those on the outside. What is interesting is the every City has some of the same issues.

What is central to Hamilton's need is jobs and a responsible council that insures the most proficient methodology to bring new buisness and providing an employment base that can sustain the long term needs of the City. Such demands diversity and flexibility and encouragement of new business with the utmost care to new technology; not closing the door to such industries that may in the long term provide sustainable jobs and tax returns for the City. If this City can be defined by a single industry it only speaks loudly of the narrow mindedness of our perceptions.

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By Ryan (registered) - website | Posted May 07, 2010 at 14:12:00

I don't have a problem with an incinerator if:

  1. It is net neutral or better on air quality, i.e. it spends at least half the year putting out exhaust that is cleaner than the ambient air; and

  2. It receives all of its inputs via barge/rail rather than 18-wheelers.

My understanding of the Liberty plan is that it meets neither criterion.

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By Donald J. Lester (anonymous) | Posted May 07, 2010 at 17:20:13

Ryan, " 1.It is net neutral or better on air quality, i.e. it spends at least half the year putting out exhaust that is cleaner than the ambient air;

2.It receives all of its inputs via barge/rail rather than 18-wheelers."

Firstly, I agree to your #1, position
With regards to #2, In the beginning this may not be possible but perhaps there could be some compromise. For the sake of discussion that in the first year and a half, we let is ride as said company may use what ever means to receives all of its inputs. followed by a decrees of 25% each consecutive years to minimum of 50% excluding the inputs from Hamilton, or something to this affect.

With regards to, "My understanding of the Liberty plan is that it meets neither criterion." If this is the reality, which I am not sure, then Hamilton should begin actively looking for a company that can meet these requirements; including attempting to negotiate with Liberty and if comes down to cost, perhaps this would be a place where the City could invest as there is little doubt that there are years of returns including employment.

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By Anon coward (anonymous) | Posted October 05, 2012 at 12:52:42

A lot of the current government "startup funding" seems to be chunks of $30k which goes to two guys in a garage. I can only assume that they are either recent grads with no experience in doing anything for real or people who for some reason have no need to work (wealthy? unemployable?). What does 30k get you in business? A new minivan is 30k.

I'm a 15 yr experienced pro in my field making 100k+/yr with kids and a mortgage. I have a lot of ideas and experience that I could contribute to an innovative startup but how am I able to participate in this model? I am a wage slave to the banks for my house and car payments and just paid off my graduate student loans last year.

I guess I would like to see an approach to attracting high calibre talent to these initiatives - we seem to have no problem paying millions of dollars / yr to government officials to operate these programs but then we starve the actual people who are doing the work and taking the risks. Why not flip that model around a bit?

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