New Accelerate Okanagan Report On Tech Industry: Devil Is Again In the Details

Problems Persist With New 2016 Accelerate Okanagan “Tech Industry Analysis”

 Accelerate Okanagan should be commended for publishing a document, the stated goal of which is to “assist in attracting new talent, companies, and potential investors to the Okanagan, as well to inform policy makers and the media.”  Such reports are commonly used to promote a community or region’s economy. However, as with the earlier 2015 report, there are persistent issues, particularly with the industry definition and methodology of the study.  The result is questionable data and numbers that simply do not pass a basic “sniff test.” Accepting the results of this study as published may only serve to mislead community leaders on planning, and mislead prospective entrepreneurs considering relocating here.

I taught Industry Analysis at the University of British Columbia, and my entire career has been in high-tech in Silicon Valley and globally, beginning with many years at Intel Corporation, so my assessment is exclusively from a professional perspective. A PowerPoint presentation of my work in this area is posted on this website, under the heading Professional Stuff.

The report begins by explaining that the study was completed by an unnamed third party, apparently affiliated with Small Business BC.  A review of the Small Business BC website, staff, and services indicates the organization is almost exclusively organized and resourced to provide services only to individual small businesses. For example, scanning SBBC’s “Market Research” heading, it indicates that its services are focused entirely on smaller scale research for an individual small business, not a large scale analysis of an entire industry in a region.  Industry analyses of such scale are better suited to a local educational institution like UBC, with all the requisite skills and resources.  Though I have no inside knowledge, it seems reasonable to surmise that some degree of budgetary constraint and political influence were involved in the selection of SBBC, and a desire to emphasize local promotion over objective accuracy.

With regard to methodology and industry definition, the Report states that it follows the methodology of British Columbia’s High Tech Sector Report, the most recent of which is from 2014. A closer look at this methodology can be found on the provincial government website. A separate document is listed, “Defining the British Columbia High Technology Sector Using NAICS,” published fifteen years ago in 2001. My review of this document indicates that while it offers some useful discussion, it is seriously out of date and in need of revision.  A more professional approach would have required the development of a more current methodology relevant to the Okanagan situation. The BC methodology document does provide some very cogent cautionary remarks on high-tech industry definition and methodology:

The “high technology” sector is a popular subject of discussion and analyses, partly because it is viewed as an engine of growth both in the past and for the future. However, the high-technology sector has no specific and universally accepted definition. Defining and measuring the high technology sector can be done as part of basic research at the level of individual firms. A second, more “modest” approach uses pre-existing data collected on “industries” which are defined for general statistical purposes. The challenge is to determine which of these industries warrants inclusion in the measurement of the high technology sector.

The AO Report author seems to have accepted both approaches. Page 4 of the Report explains that the author decided to also include “the previous survey undertaken by Accelerate Okanagan.”  The previous AO survey was simply a Survey Monkey survey submitted by individual local businesses. The results were apparently compiled without additional professional judgment applied, or follow-up contact with companies by phone or other means and cross-referencing with the more “modest” macro data methodology mentioned in the 2001 BC document. IMHO, if my assumptions are correct, the Survey Monkey data should have been thrown out as unreliable, or regenerated with much greater scrutiny and judgment applied.

Then there is the issue of Kelowna as an employment market, as noted in the recently reported Bank of Montreal (BMO) and BC Business low national and provincial rankings of Kelowna’s employment market. These issues have also been reported in KelownaNow.  Hootsuite, whose founder is from Vernon, consciously chose Vancouver to start his company.  CEO Ryan Holmes openly admitted that he did not base Hootsuite in the Okanagan because he knew he would not be able to attract the necessary talent here. It is also important to note that a significant number of local business and community leaders met with the BC Labour Minister and reported that their primary concern was a lack of Temporary Foreign Workers, not economic development or the growth of the local high-tech industry.

The AO Report touches on these issues only very tangentially and indirectly in the closing pages. A more credible approach would have been to confront these local problems directly, citing the BMO report for example, and what AO and the community plan to do about it.  Clearly, there are unresolved and ignored contradictions with the AO report that damage its credibility and usefulness.

Finally, this week’s media coverage of the report has died down, having duly reported all the desired sound bytes, but a Google search shows that the media coverage has so far been nearly exclusively from the local Okanagan media which does not meet the stated goal of the AO effort to broadcast the promotion beyond the Okanagan.

Read the complete AO September 2016 report here:

Click to access Economic_Impact_Study_2015_Edition.pdf

MAYO615 REPOST from January, 2015:

AO Tech Industry Report Lacks The Rigor Necessary To Give It Much Credibility

Read the AO January 2015 press release and access the full report here

The AO report’s “economic impact” conclusions are based on 2014 Survey Monkey voluntary responses, which are problematic due to an apparent lack of critical assessment. The report does not follow the kind of rigorous industry analysis performed by leading technology consultancy firms like International Data Corporation (IDC) or Gartner. The definition of an “industry,” for example the “automobile industry in Canada,” involves broad activity around all aspects of “automobiles,” but at some point, firms like Kal Tire or “Joe’s Brake Shop” might be excluded from a definition of the automobile industry.  The report does not mention the rigor applied to this industry analysis, so the question is left open, “What exactly is the “tech industry” in the Okanagan?”  A well-defined $1 Billion industry is the mobile advertising industry in Canada.  Is that what we have in the Okanagan? By way of comparison, I reported on New Zealand’s Ice House tech incubator economic impact report, which has much greater credibility.  The AO report is essentially claiming that the Okanagan technology economy is more than twice the size of New Zealand’s…That’s too big of a leap of faith for me. Read New Zealand’s Ice House Startups Achieve Impressive Results and contrast it with the AO report.

Then there is the issue of Kelowna as an employment market, as noted in the recently reported Bank of Montreal (BMO) and BC Business low national and provincial rankings of Kelowna’s employment market. These issues have also been reported in KelownaNow. Clearly, there are unresolved contradictions with the AO reports.

Read More: Kelowna’s Low Jobs Ranking

Read More: Okanagan economy likely to worsen next year

I offer a summary view of “industry analysis” here: Industry Analysis: the bigger picture

Can Accelerate Okanagan’s Report On Local Tech Industry Economic Impact Be Believed?

 AO Tech Industry Report Lacks The Rigor Necessary To Give It Much Credibility

Read the AO press release and access the full report here

The AO report’s “economic impact” conclusions are based on 2014 Survey Monkey voluntary responses, which are problematic due to an apparent lack of critical assessment. The report does not follow the kind of rigorous industry analysis performed by leading technology consultancy firms like International Data Corporation (IDC) or Gartner. The definition of an “industry,” for example the “automobile industry in Canada,” involves broad activity around all aspects of “automobiles,” but at some point firms like Kal Tire or “Joe’s Brake Shop” might be excluded from a definition of the automobile industry.  The report does not mention the rigor applied to this industry analysis, so the question is left open, “What exactly is the “tech industry” in the Okanagan?”  A well-defined $1 Billion industry is the mobile advertising industry in Canada.  Is that what we have in the Okanagan? By way of comparison, I reported on New Zealand’s Ice House tech incubator economic impact report, which has much greater credibility.  The AO report is essentially claiming that the Okangan technology economy is more than twice the size of New Zealand’s…That’s too big of a leap of faith for me. Read New Zealand’s Ice House Startups Achieve Impressive Results and contrast it with the AO report.

Then there is the issue of Kelowna as an employment market, as noted in the recently reported BC Business low ranking of Kelowna at 17th. Clearly, there are unresolved contradictions with the AO report.

Read More: Kelowna’s Low Jobs Ranking

Read More: Okanagan economy likely to worsen next year

I offer a summary view of “industry analysis” here: Industry Analysis: the bigger picture

To See The Future Of The Western Canadian Economy Look To Texas

UPDATE: May 21, 2015.  Goldman Sachs has just released an oil price forecast suggesting that North Sea Brent crude will still be $55 in 2020, five years from now.  As Alberta’s Western Canadian Select (WCS) bitumen is valued lower on commodity markets this is extremely bad news for Canada. Further, the well-known Canadian economic forecasting firm, Enform is predicting that job losses across all of western Canada, not only Alberta, could reach 180,000. 

UPDATE: January 15, 2015. Target announced today that it will be closing all 133 stores in Canada, including the Vernon and Kelowna stores. eliminating at least a couple of hundred local $10/hr jobs and a handful of slightly better paid management jobs. The Wall Street Journal is reporting that Target’s 17,000 + Canadian layoffs of low-income workers will be the largest in Canadian history.

To Understand Alberta’s Future, Look to Texas

Brace yourself. I haven’t gotten the sense that the coming economic bust in western Canada has yet sunk in with all Canadians. The problem is centered in Alberta, but radiates throughout western Canada, and even well beyond in complex ways. If you want to get a credible sense of what we are facing, you need only look to journals like The Wall Street Journal, CNN Money, Bloomberg and many others to get the evidence you may seek.  Kelowna Now‘s recent story on jobs in Kelowna noted a key issue locally: many of the employed in Kelowna work up north in the oil patch. Then there is the matter of the Nova Scotia workers in Fort MacMurray and their future. Closer to home than Texas, we should also consider the radiant job loss effect in places like North Dakota and Wyoming.  SF Gate has also reported 700 layoffs by a Canadian oil company in Bakersfield, California.  The “pollyanna’s” who are denying that this is happening are “whistling in the graveyard.”

Reblogged from The Wall Street Journal Blog:

Plunging Oil Prices Test Texas’ Economic Boom

Downturn Has Many Wondering How Lone Star State Will Weather a Bust

Oil tankers are loaded with crude in Corpus Christi, Texas, in December. The area has prospered in recent years due to the energy boom in the Eagle Ford shale formation, but falling prices could test that.

Retired Southwest Airlines co-founder Herb Kelleher remembers a Texas bumper sticker from the late 1980s, when falling energy prices triggered an ugly regional downturn: “Dear Lord, give me another boom and I promise I won’t screw it up.”

Texas got its wish with another energy-driven boom, and now plunging oil prices are testing whether the state has held up its end of the bargain.

The Lone Star State’s economy has been a national growth engine since the recession ended, expanding at a rate of 4.4% annually between 2009 and 2013, twice the pace of the U.S. as a whole.

The downturn in energy prices now has triggered a debate over whether Texas simply got lucky in recent years, thanks to a hydraulic-fracturing oil-and-gas boom, or whether it hit on an economic playbook that other states, and the country as a whole, could emulate.

One in seven jobs created nationally during the 50-month expansion has been created in Texas, where the unemployment rate, at 4.9%, is nearly a percentage point lower than the national average.

But a big dose of the state’s good fortune comes from the oil-and-gas sector. Midland, which sits atop the oil-rich Permian Basin, had the fastest weekly wage growth in the country among large countries: 9% in the 12 months ending June 2014.

Now that oil prices have plunged nearly 51% from their June peak to $52.69 a barrel, some Texans sobered by memories of past energy busts are bracing for a fall. The argument among economists and business leaders isn’t whether the state will be hurt, but how badly.

Mr. Kelleher is among the Texans predicting this won’t be a replay of the 1980s oil bust and banking crisis, which drove the state unemployment rate to 9.3%. As evidence, he and others cite a more cautious banking sector, a tax and regulatory environment favorable to business, and a state economy less dependent on energy and other resources.

“Texas has become a well-rounded state,” Mr. Kelleher said. “People did remember not to overextend themselves.”

Michael Feroli, a New York-based economist at J.P. Morgan Chase & Co., is one of the skeptics of the “this-time-is-different” camp. Although the oil-and-gas industry today makes up a smaller share of Texas’ workforce than it did in the mid-1980s, it accounts for roughly the same share of its economic output, he said. So a decline in oil prices similar to the plunge of more than 50% seen in the mid-1980s, he said, could have a similar result: recession.

“If oil prices stay where they are, Texas is going to face a more difficult economic reality,” Mr. Feroli said.

Oil exploration companies already are scaling back drilling plans for next year. Oil-field-service companies that provide labor and machinery, such as Halliburton Co. andSchlumberger Ltd. , are laying off workers. The number of oil and gas rigs in Texas, which had grown 80% since the start of 2010, has been dropping over the past few weeks. The rig count in the state stood at 851 at the end of December, down from 905 in mid-November, according to oil-field-services firm Baker Hughes Inc., which compiles the data. Meanwhile, yields on junk bonds tied to energy companies have soared as investors brace for financial fallout from the oil-price bust.

Yet Dallas Fed President Richard Fisher likens the J.P. Morgan report to bull droppings. He noted that sectors including trade and transportation, leisure and hospitality, education and construction all have produced more new jobs in recent years than energy. Houston has experienced fast growth in the medical sector, Austin in technology.

“This is a test,” Mr. Fisher said. “Is Texas indeed as diversified as people like me say it is?”

ENLARGE

Analysts at the Federal Reserve Bank of Dallas estimate that a 45% decline in the price of oil—from $100 a barrel to near $55—will reduce Texas payrolls by 125,000, all else being equal. Payrolls were up 447,900 in November from a year earlier, or 3.9%. The Dallas Fed estimate implies growth of more than 300,000, or nearly 3%, even with a lower oil price, still faster than the national average of 2%.

Pia Orrenius, a Dallas Fed regional economist, sees the price bust washing through the Texas economy in both positive and negative ways. It could help the booming petrochemicals sector and manufacturing by lowering costs. A construction boom centered on petrochemical plants is already under way along the Gulf Coast, a source of blue-collar jobs. Yet the price bust will hurt sectors like construction, transportation and business services that have expanded to serve the oil industry, and consumer spending more broadly as workers lose their jobs.

“We will see significant spillovers,” Ms. Orrenius said.

Nowhere is the evolution of the Texas economy more apparent than in Houston, the nation’s fourth-largest city, with 2.2 million people.

After oil-and-gas prices crashed in the mid-1980s, energy companies in the city laid off thousands of petroleum engineers and other well-paid industry workers, and the real-estate market crumbled, helping trigger a regional-banking collapse. One in six homes and apartments in Houston stood vacant at the beginning of 1987, and the county tax rolls dropped by $8 billion, according to a history of the bust by the Federal Deposit Insurance Corp. That prompted civic leaders to push for an expanded medical sector and more diversified economy.

Today, the Texas Medical Center is the world’s largest medical complex, with more than 20 hospitals, three medical schools and six nursing schools, employing 106,000 people. Health-care and social-services companies made up 10.4% of jobs in the greater Houston area in 2013, compared with 5.9% in 1985, according to Labor Department data. Roughly 4.3% of jobs in the county were in the oil-and-gas industry last year, down from 5.9% in 1985.

Still, most of the 26 Fortune 500 companies based in Houston are in energy, includingPhillips 66 , Halliburton and Anadarko Petroleum Corp. , and energy employees flush with cash recently spurred a run-up in real-estate prices in the region that has raised red flags among some economists. Fitch Ratings recently declared that Houston home prices were the second-most overvalued in the country, behind Austin, when compared with historical averages, and that current prices may be unsustainable, citing the current oil-price drop.

The energy boom has strengthened the state’s budget. Revenues are expected to take a hit with falling levies on oil and natural gas production, but less than previously. The levies accounted for 9.4% of state tax revenue in 2013 compared with 20.2% in 1985, according to data from the Texas state comptroller’s office.

Texas banks also appear to be in better shape to handle a shock than they were in the 1980s. Between 1986 and 1990, more than 700 Texas banks and thrifts failed. During the worst of the last financial crisis in 2008 and 2009, seven Texas banks failed, according to the FDIC. Fewer than 1% of state banks have high measures of nonperforming loans now, compared with 20% in the late 1980s, according to the Dallas Fed.

Texas is the only state that limits home-equity borrowing to 80% of a home’s value, a provision enshrined in its state constitution. The rule helped keep Texas homeowners from piling up debt against their homes during the national real-estate boom of the 2000s. Only 10% of nonprime mortgages were underwater in 2011 in Texas, compared with 54% in the rest of the U.S., according to the Dallas Fed.

“Even though we saw our banking brethren in other states doing these crazy deals, we refused to do so because we remembered the ’80s,” said Pat Hickman, chief executive of Happy State Bank, a community bank in the Texas Panhandle. “We learned lessons.”

Texas has something else going for it: A bounty of resources other than oil and natural gas, most notably, land and people.

The state’s population grew 29% between 2000 and 2014, more than twice as fast as the U.S. as a whole, according to the Census Bureau. The median age in Texas was 34 last year, 3 1/2 years younger than the nation overall. Growth has come from a combination of migration from other states, immigration and a higher birthrate than the national average.

The U.S. economy has been restrained in recent years by slow labor-force growth. Texas, on the other hand, has more young people entering their prime working years and fewer elderly residents, as a percentage of the population, than does the nation overall. That has given its economy a solid foundation of available workers.

Workforce and land were two factors that drew Firefly Space Systems, a manufacturer of low-orbit rockets, to the Austin area earlier this year. The firm needed a place to launch test rockets and chose Texas over Los Angeles for an expansion. It found a supply of tech-savvy workers in the Austin area and plentiful land.

“It was the geography, and it was making sure our employees were comfortable there,” said Maureen Gannon, the firm’s vice president for business development. The firm plans to hire 200 people in coming years.

Okanagan Economy And Jobs Market Likely To Worsen Next Year

Alberta Oil Economy Crash Reverberates in B.C.

2015 Seasonal Okanagan Economy Likely To Suffer:

Apparently all we need are more Temporary Foreign Workers

BC Business low ranking of Kelowna jobs market only adds to the problem

Future Shop, The Sequel

UPDATE: January 15, 2015. Target announced today that it will be closing all 133 stores in Canada, including the Vernon and Kelowna stores. eliminating at least a couple of hundred local $10/hr jobs and a handful of slightly better paid management jobs. The Wall Street Journal is reporting that Target’s 17,000 + Canadian layoffs of low income workers will be the largest in Canadian history.

Just this week, Kelowna Now reported that B.C. Business ranked Kelowna 17th in B.C. for the quality of its jobs market. Seven key economic indicators were used to help reflect the health of a city’s job market including: income growth, average household income, population growth, unemployment, labour participation, the percentage of people with degrees and taking transit.  This came as no surprise to many. As if to underscore the issue, the comments on Kelowna Now’s Facebook page were in overwhelming agreement with the poor ranking, sprinkled with scathing criticism of the local jobs market, local government, and the local establishment, who seem not to be interested in the local economy.

In a jaw dropping display of callous indifference to the local economy and jobs market, local Kelowna community leaders, including UBCO Deputy Vice Chancellor, Deborah Buszard, met to discuss local employment. Coming on the heels of the B.C. Business report, Kelowna Now reported the discussion at the meeting. The main theme in this reported discussion was how can Kelowna get more cheap TFW labour for tourism. Apparently there was no higher level discussion about the recent B.C. Business ranking of Kelowna at 17th in jobs. No discussion of the local Target closures, or the lack of economic development, and denial of impending oil economy crash. This is why Kelowna is going nowhere fast.

READ MORE: Kelowna Business Community Calls For More Temporary Foreign Workers

As if to make matters worse, the plummeting price of Western Canadian Select, essentially Alberta refined bitumen, and dire global oil economy forecasts, have cast a dark cloud over the Okanagan economy’s prospects in 2015. Our largely seasonal tourism and service industry economies are likely to suffer serious shocks from Alberta’s problems.  The sightings of those red numbered license plates are likely to decline next summer. Both The Wall Street Journal and CNN Money are forecasting a recession in Texas in 2015, which mirrors the situation in Alberta, and is a wake up call to Kelownan’s.  At the same time, CBC’s The National has been broadcasting a discussion series this week on The Politics of Oil, and how Canada has bet the entire economy on oil rather than diversifying and investing in the future.

Read more: Kelowna’s Low Jobs Ranking

Read more: WSJ: Texas Heading for Oil Recession

Why I Hate Dragon’s Den

 

A local journal today glowingly reported that not one, but two local companies had won investment on the Dragon’s Den Canadian “reality” television show. What struck me about the two, apparently best  “winning ideas” from our community, was how utterly mundane they were: an “empty beer bottle handling system” and “illuminated party clothing.”  As an entrepreneur myself, I first need to give respect to the two entrepreneurs who achieved this success with the likes of Kevin O’Leary and the other investors. It is no mean feat and they should be acknowledged and congratulated for it. On the other hand, these are not the kind of ideas that are going to make a major dent in the local or Canadian economy. Meanwhile in Vancouver, two startups, D-Wave and General Fusion are working on Big Ideas that could change our lives.

Dragon’s Den is nothing more than artificially concocted alleged “reality” TV entertainment. In many cases, the “entertainment value” comes at the expense of the entrepreneurs themselves, some of whom should never have been put on television in the first place. IMHO, this is what is fundamentally wrong with Dragon’s Den. It is pure Fantasyland.  My own UBC entrepreneurship students have also developed similar, and very worthy “small business” ideas.  But as worthy on a small-scale as they may be, these ideas do not further any vision or goal of entrepreneurship’s importance to the Canadian economy.   I judged a graduate student entrepreneurship competition this week which was dominated by Web apps. This is happening in the face of overwhelming evidence that there is very little opportunity or investor interest left in Web apps. Someone recently estimated that there will soon be a Billion Web apps out there. Curiously, Dragon’s Den seems to cull out Web apps entirely, though they must see a lot of them, and prefer to broadcast the eccentric entrepreneurs with really wacky ideas because of their entertainment value.

“Entrepreneurship” has become the current fad, garnering TV viewers and advertiser dollars, and simultaneously conveniently ignoring the bigger issues for the Canadian economy.  Large sums of government dollars are being doled out without adequate oversight as to the return on the investment.  I was recently advised by someone to “follow the government dollars” being  thrown at entrepreneurial incubators.  There seems to be no consideration of the importance of Big Ideas, and solving Big Problems.  Just entertainment for entertainment’s sake, viewer ratings and advertising dollars.

Coming from Silicon Valley, the current Canadian entrepreneurship landscape looks to me like a confused overheated and over invested mess to me.  If I were Kevin O’Leary, I would not be able to live with myself on Dragon’s Den. as if giving a shit only for making his own money equates to some greater economic purpose for Canadians. I prefer to chase Big Ideas.

 

Winfield Man Latest to Do a Deal on Dragons’ Den

Another Okanagan businessman has made a deal in the Dragon’s Den.

Winfield’s Casey Binkley received four offers from the Dragons for his product FastRack that he pitched along with his partner Mitchell Lesbirel.

Casey Binkley (left) and partner Mitchell Lesbirel pitch to the Dragons

The product was invented by Lesbirel to solve the problem that many bars and restaurants have with collecting and clearing their empty bottles after a busy night. Emptying bottles that spill and cause cardboard boxes to tear as the bottles fall out everywhere is a hassle that many in the industry and beyond are familiar with. Lesbirel found a way to solve that problem with a simple plastic rack that allows for draining, easy organization and transfer to cardboard boxes with no mess.

As part of their pitch, the two men ran a fun race that the Dragons participated in as a part of their demonstration of how the product works.

Photo Credit: Facebook

The partners asked the Dragons for $50,000 for 10% of their business and eventually settled on a deal with Jim Treliving. Along with his expertise in the restaurant industry, Treliving offered $50,000 for 5%, 9 months with no royalty, dropping down to 3% after he gained his capital back.

Binkley and FastRack are the second Okanagan company to make a deal with the Dragons in recent weeks, after Kelowna’s Fur Glory appeared on the showwith their special illuminated party clothing.

You can learn more about FastRack on their website and check out their pitch in the video below.