Canadian Entrepreneurs and VCs - Focus on What Canada Does Best: Mining
There’s a fundamental problem with Canadian tech entrepreneurship: many of the brightest Canadian entrepreneurs leave to the United States to start their companies. If you’re looking to start the next Facebook or Instagram, starting in Canada doesn’t seem like the best proposition for your business. The benefits of starting a company in America seem clear: larger market, more top-tier talent, more funding, and being in a country that’s the leader across many domains. If you want to be the best, you need to be amongst the best (or at least it helps to be).
So for both American and Canadian investors, there’s this question of: “Why should I invest in a company based out of Canada - what are the benefits? Shouldn’t they operate primarily in the US if they can?”. Of course, you can have your headquarters based in Canada and deal in the American market, but as I’ve heard investors say in the past: “What’s the point of that? If they were serious they’d just move to the States”.
I think their line of reasoning makes sense to a large extent. For me to want to start my company in Canada, or to want to invest in a Canadian company, there needs to be a clear reason why it would be beneficial to do so from a business standpoint. Often, most of the reasons that draw me back to Canada are personal, rather than business oriented. I am myself a Canadian entrepreneur, and I started my first company in the States. I originally moved out to Seattle to work at Microsoft, started a company in Seattle and then relocated to NYC. I think of moving back to Canada in the long-run, but since I want to eventually start another company, I know that doing it in Canada would be more difficult, and the expected returns on my effort would likely be smaller. Given that it’s already incredibly hard to start a successful company, why would I try to do it in Canada and add additional friction to the process?
So, the question then becomes, are there some industries where there is actually less friction in Canada than in the States? What are areas where Canada can be a market leader in terms of technology, and where can there be clear competitive advantages for tech entrepreneurs to remain in Canada?
This question is similar to the one that e-commerce site Fab asked themselves when they were deciding where to pivot:
Dream again. “We asked ourselves, If we could do anything, what would we do?” says Goldberg. “Then we asked three questions: What are we most passionate about? What are we good at? Where is there an underserved market? The answer was design, design, design.”
In the case of Canada, I have an answer I think could be given to all 3 (with a bit of imagination): Natural Resources and Mining
What are we good at?
Canada is one of the global leaders when it comes to natural resources and mining. America and other countries may be good candidate for exploring this industry as well, but if Canada focuses and specializes around this, they could have competitive advantages
Where is there an underserved market?
Better software in the natural resources and mining space … my guess is not too many designers and computer science students are thinking about this. I’ll list some high-level problems that come to mind to be solved given my limited knowledge of the domain.
What are we passionate about?
Certainly mining may seem a bit unsexy at first, but I’m guessing that once you enter the domain it could be quite interesting - especially because it feels so unexplored. More effective mining can solve real problems, and create real value - and I think that resonates with most entrepreneurs.
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I’ve talked with a few friends about this, including a breakfast session I had this morning with another entrepreneur whose current job involves helping retain Canadian entrepreneurs and who has ties to the mining industry. Given those conversations, I decided to take a bit of time and actually get these preliminary thoughts writing.
I think investors investing in Canadian companies, and entrepreneurs choosing to build their companies back home, would do well to have a clear investment thesis about competitive advantages in Canada. It could be that mining is an industry that is likely ripe for software disruption. As Marc Andreesen puts it, “software is eating the world” , and I think mining might be an appetizing next meal.
A Canadian VC focused on exploring the theme of mining in the software sector, that supports high-tech entrepreneurs who want to explore that domain, could do exceptionally well. A great start would be if a VC could offer potential entrepreneurs, who may not know that much about the mining industry, the opportunity to partner with domain experts like professors in the mining industry, or even to work closely with the mining companies that are already building software so that they could do some exploratory research on the state of the industry
Why I think mining is ripe for disruption (in Canada)
Full disclosure: I don’t know all that much about the mining industry, but this are just my high level cursory thoughts.
The Ugly Duckling
It’s unsexy, requires domain expertise, and likely requires a lot of schlep as well: all things both Peter Theil and Paul Graham identify as being filters that prevent most software entrepreneurs from seeing the readily available problems to be solved there. This means that if you took some talented developers and designers, who bring best practices from other software domains, and partnered them with sufficient domain expertise and connections, they could likely be a disruptive force. The fact that most software developers and designers are not thinking about this space makes the barriers from competition lower!
Big Data + Design
The two problems that most readily spring to mind when I think of mining are prospecting (i.e. analyzing large data sets from surveys to determine if the land is a good choice for development), and scheduling of resources (i.e. you have a wide diversity of different types of mining techniques, and different tools needed for different terrains etc. - how do you effectively allocate and schedule all your employees and machinery - I know a bit about this having worked on Microsoft Project which is a scheduling tool). Both of these problems seem to rely on being able to deal with large data sets, and extract signals from noise out of those data sets. They are both statistical optimization problems of different forms. One company, Goldcorp, who was struggling, open-sourced their survey data (not at all standard at the time in the mining industry) and ran a challenge open to everyone in order to use new techniques to identify promising prospects - this turned out to be an amazing success for them, as the new methods employed uncovered large swathes of new, previously unnoticed targets (http://www.bullnotbull.com/archive/wikinomics.html).
At present, big data has potential to transform countless industries, as the infrastructure (e.g. databases, distributed computing etc.) are coming into place, along with the mathematical methods, to actually draw useful knowledge from the otherwise useless abundance of data we’re now collecting.
On the design side of things, I just have this gut feeling that the people designing software for the mining industry, and also the people designing the processes that are used in mining as a whole, are not currently setting the highest bar in terms of design. So, I think there is a real opportunity for design thinking, and process analysis, to also be a disruptive element in this domain.
Hardware Renaissance
My former cofounder @kareemamin and I have talked about it at length, and Paul Graham even wrote an article about it, but it definitely feels like there’s an impending boom in the hardware space, because a lot of the right ingredients are coming together.
It’s becoming easier to design and manufacture hardware components, and the idea of Hardware + APIs is becoming more pervasive. The idea of sensors + APIs is one I’m particularly interested in. In the mining space there’s a real opportunity to explore new surveying technology, and to automate mining with the use of robots.
There’s actually also probably a lot of interesting opportunities in the mobile + tablet space as well, given the remote nature of the work.
The Industry is Large, and has High Growth
In Canada alone the mining industry accounts for about $57.4 billion of Canada’s GDP (2011), and had a growth rate of 4.5% between 2010 to 2011, versus the overall growth rate of 2.5% for Canada’s GDP as a whole. Also, mining is something that I’m guessing is booming as an industry worldwide, and so the software you build in Canada has definite room for international expansion.
Canada Has a Good Mix of Tech Talent + Mining Domain Expertise We have a healthy mining industry big mining companies are here, and domain expertise is here.
“Canada’s wealth in natural resources places it in a unique global position. We are second highest in terms of the production rate of nickel, third in platinum, aluminum and diamond, and fifth in zinc. We also are host to 19 percent of the world’s exploration spending – compared to 12 percent in Australia and eight percent in the United States.” (http://www.canadiangovernmentexecutive.ca/article/?nav_id=988)
I do think there is an interesting question though of how much of the overall value being generated by the mining industry software companies could capture (i.e. it may not be that much, and this whole hypothesis may be wrong then :) ).
Here’s a list of some of the larger mining companies in the world from Forbes
Problems to Solve in Mining
- Surverying/Prospecting (both hardware and techniques for doing it, and software for analyzing the data)
- Buying/claiming a stake in land (how do you do this digitally?)
- Scheduling + Resource Allocation
- Mobile + Tablet Applications for employees in the field.
- Regulation + Environmental Compliance Software
- Automatic Mining (robots for surveying and for the actual extraction of resources)
- Waste Removal ‘The waste removal and placement is a major cost to the mining operator and to facilitate detailed planning the detailed geological and mineralisation characterization of the waste material forms an essential part of the geological exploration program.’ (Wikipedia)
- Sale and Refinement of what is mined (didn’t read too much about this, but guessing there’s many problems to be solved here to.
Final Thoughts
There are likely many other industries that Canada may be well equipped to tackle and focus on from a software perspective. I don’t know all that much about the mining/natural resource industries, and have no good sense of how large software businesses in the space could become.
With any of these industries, it would be interesting to see from a VC’s perspective why they think the particular industry is a good bet for software businesses, and why Canada may be well positioned to take it on. It’s interesting to think about these other industries as well, and about how Canada can create compelling opportunities for software entrepreneurs based on Canada’s competitive advantages.