Scaling Success: Enabling Small Businesses to Grow

Small businesses play a vital role in driving innovation, creating meaningful jobs and boosting economic growth. Historically, small businesses have been a key driver of job creation in Canada, employing nearly 70% of the private sector workforce. Despite slower employment growth over the last four years, small businesses continue to account for almost half (43%) of all job gains.

However, many small businesses face significant challenges that inhibit their ability to scale and contribute more to Canada’s productivity and economic growth. Scaling Success, a follow-up to a Portrait of Small Business in Canada, analyzes the characteristics of small businesses positioned to become a high-growth firm and provides a breakdown of the factors needed to help them achieve their potential — for the benefit of all Canadians.

Characteristics of Small Businesses Projecting High Growth

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The common characteristics for small businesses that are most likely to expect high growth include:

• 5–19 employees
• 3–10 years old
• Located in Ontario and Quebec
• Based in manufacturing, accommodation and food services, or professional services
• Owned by immigrants or visible minorities
• Export

The Challenges Facing Small Businesses Wanting to Grow

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Years of slow economic growth, low productivity and underinvestment have weakened Canada’s global competitiveness and resulted in declining living standards for Canadians. Small businesses, which form the backbone of the Canadian economy, have found scaling in this context to be challenging.

Meanwhile, increased input costs, high inflation, difficulty attracting and retaining labour, and weak consumer demand are big obstacles for many Canadian businesses, and the smaller the business the more pronounced these challenges are.

What Small Businesses Need to Scale

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Among the most crucial factors for growth are:

Access to Financing

Financing is often the make-or-break factor for small businesses aiming to scale as they need more capital to support expansion, hire additional staff and invest in new technologies.

While there are various financing options available, many small firms face significant hurdles in securing the funds. This challenge is especially acute for younger firms and those owned by underrepresented groups who may face higher borrowing costs and/or more restrictive lending conditions. As a result, many small businesses are turning to alternative financing sources, such as marketplace lending or government-backed loans that provide greater flexibility but also come with higher costs. 

Providing more accessible lending options and targeted government programs will be key to unlocking the growth of Canada’s small businesses.

The Ability to Export

Small businesses account for only 18% of total exports even though they make up 90% of Canadian exporters. Exporting provides a crucial pathway for small businesses to scale by expanding their market reach and increasing their revenue streams. Firms that successfully enter international markets often gain a competitive advantage, diversify their operations and increase their resilience against domestic economic fluctuations.

While digital tools like e-commerce provide opportunities for Canadian businesses to reach new global markets and customers, many small businesses still face challenges, such as understanding foreign market regulations, managing logistical complexities and securing the necessary financing to support international expansion. Programs and resources targeted at overcoming these knowledge and financing gaps can help small businesses unlock the growth potential that exporting offers and increase their share of total exports.

Technology

Businesses that invest in technology — whether to upgrade systems, automate processes or adopt digital tools — tend to improve productivity and lower costs. Nearly 28% of small businesses report that adopting new technologies improved their operations.

However, many small businesses, particularly those in traditionally non-tech industries, struggle to invest in these tools. Supporting small businesses in adopting new technologies through incentives, training and easier access to digital tools will help to ensure that they can scale, compete and grow in today’s economy.

A Supportive Policy Environment

The effectiveness and impact of the numerous federal, provincial and local programs and entities mandated to support small businesses depends on their ability to target and address clear market failures efficiently.

By simplifying financing, reducing regulatory burdens, fostering export capability and prioritizing upskilling of workers, governments can create a business environment that promotes growth.

Read the full list of policy recommendations.

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Canada’s economy depends on enabling existing small businesses to scale.

By focusing on businesses that are actively seeking growth, and by implementing targeted solutions to address the barriers they face, we can ensure that Canadian small businesses become the high-growth firms that Canada needs.

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