February 27, 2001

"Waterloo’s Secret Formula"

Waterloo—Adam Zimmer and Mike Neame won’t graduate from the University of Waterloo (UW) until this spring but that has not stopped them from founding Arius Software Corporation, which employs 10 people and has already landed $1.5 million in private investment.
The pair are not unique at UW.

In fact, they are but two in a rich history of entrepreneurs who have emerged from UW.

People like RIM cofounder Mike Lazaridis, Cyberplex cofounder Dean Hopkins and PixStream cofounder Stephen Basco trace their start to their student days at UW. In some ways none of these leaders have strayed far, because all have ventured back onto campus to speak in the lecture halls and encourage the current crop of budding entrepreneurs. Not only are they role models, but they are also fundamental to the network of business people young UW entrepreneurs turn to for support and guidance.

In 1994 the Office of Research published a book profiling 100 companies which have spun off from the campus and in the last half dozen years this trend has only gathered momentum.

UW economics professor Larry Smith says he has spoken with 400 teams of students interested in starting companies during his 20 years at the University, although not all have taken the plunge into business. Smith says there is nothing on the horizon to deflect this growth curve and he anticipates that student businesses will proliferate more than ever in the coming years.

Research In Motion (RIM), for example, was started in 1984 by students and is continually in the news as it acquires more contracts and buys up buildings to accommodate its 1,100 employees.

So what’s the secret? Does UW have the secret formula to breed great entrepreneurs?

No one at UW is claiming to hold the secret recipe, but the University’s approach to education and its successful co-op program suggest it may have found the right combination to help foster the entrepreneurial spirit.

“The University from the early days was unusual because it was founded by business persons, they don’t do things in the normal way,” says Smith.

The tradition of encouraging businesses to sprout up around the University has gathered momentum through the years. A key factor in the proliferation of UW startups has been a policy allowing researchers and creators of intellectual property to own their creations.

This means UW attracts people who want to pursue the commercial value of what they have created. The University is more like a steward facilitating innovation, giving creators a free hand to take their ideas to market. While UW is not alone in its approach to intellectual property, this stance is rare among institutions. “It is a less common scenario and we believe that, in no small way, has led to the success of commercial enterprises,” says Paul Guild, vice-president of research at the University.

In 1995 the University established the Institute for Innovation Research, of which Guild is the director. Funded by private investors, five faculty and 20 grad students at the institute have studied how investors select companies to fund. While the decision-making process is complex, they have learned that the criteria emphasized by successful companies shifts over time, depending on the stage of the business.

UW has passed this information on through courses and seminars to students interested in entrepreneurship.

Oddly enough, UW does not have a business program.

Students in mathematics, engineering and computing, as well as other departments, do have the option of specializing in business. The courses they take include information on how to prepare a business plan, how to attract venture capital and make presentations. This is another factor in the success of the student entrepreneurs.

“My role is to get people thinking of it. The costs and benefits. Not to propagandize it but so they know they have two choices, employee or business owner,” says Smith, who teaches some of these courses. Not all students are willing or able to take the risks associated with starting a company—they may need the guarantee of a co-op job to pay expenses or they may prefer to remain employees. Smith thinks students at other institutions are equally capable, but they may not be encouraged to think about becoming business owners to the same degree and may not be as alert to the possibilities.

Any discussion of UW’s entrepreneurial record almost inevitably leads to the University’s co-op program.

UW’s co-op program started in 1957 when the idea of sending students out into the workforce for some experience relevant to their studies was new to Canada. Waterloo now has the biggest co-op student program in Canada, with 10,000 students sent out into the workforce each year. By the time they graduate, co-op students have been through several work terms (four to six, depending on the program) and sometimes they bring back ideas that become the seeds from which new businesses flow.

“We’ve had a rising tide of students coming to us who say, ‘what I want to do is start my own venture,’” says co-op coordinator John Cullen. Some go through the co-op interview process and either don’t get the job they want or say they’d prefer to go into business for themselves. Others attempt to have a part-time business on the side, but it takes a long time to get going.

Many students like Arius’ Zimmer want to use their co-op work term to create their own companies. The University, sensing an opportunity to further foster entrepreneurship, will launch an enterprise co-op on May 1.

Enterprise co-op students will start with a business plan, work with a mentor and keep a daily log of their activities. Ideally, students will find their own mentors who provide guidance rather than directing the student.

UW is currently looking for both mentors and companies willing to contribute a small amount to the co-op opportunity fund, which might provide $1,000/month to help get a student started, significantly less than they make on a work term. If the business is successful, or they end up taking another job, the student would be encouraged to pay the money back so that it can help support a new round of enterprise co-op students.

Whether it has been the alumni mystique of UW or the though of leaving the country, many Waterloo grads have decided to build their businesses at home rather than south of the border.

While many students spend their work terms in Silicon Valley, Cullen says few plan to stay. He suggests that many UW grads believe that starting their own Canadian company will provide the lifestyle and challenge they are looking for.

But while UW may revel in the success stories of its grads, the current students are no longer waiting for graduation to get a leg up in the lucrative world of high-tech. Last summer, two UW students founded the Entrepreneurs Association of the University of Waterloo. The group now has 450 student and alumni members. Two of the Association’s advisors are UW president Dr. David Johnston and Guild. “(That the president and vice-president are advisors) is a signal of the fact that Waterloo sees itself as providing an environment in which entrepreneurship can flourish. We are prepared to stand with the students who would like to start their own businesses,” says Guild.

But as UW continues to lean towards entrepreneurship, some may begin to question whether or not the school is abdicating its role as an educator in order to become a high-profile incubator.

Guild says there is a need for incubators but UW won’t be one of them. “I believe that the University should focus on pre-incubation of new efforts and stay out of incubation. It should leave that to private investors,” Guild says.

With the door wide open, many incubators have stepped into UW’s entrepreneurial hothouse, taking a close look at UW grads included in Brightspark and IdeaPark. The students themselves have seized the opportunity and have founded Kickstarts.com.

The founders hope the venture will serve as a bridge to help connect students and their ideas with the professionals and investors.

“In our years at Waterloo, we heard from other students who had great ideas but had issues and were not able to start companies,” says Mike Zavershnik, cofounder of Kickstarts and a 2000 economics grad. “We’re looking to build a portfolio of companies and grow with their success over the years.” Kickstarts is now offering a package of $100,000 in consulting for one or two student ventures selected through a local competition, but they will open up their contest to students across Canada in 2001.

“(These companies) tend to come find us. They are looking for ways to get an early look to see innovation on campus,” Guild says. They are entirely independent of the University, but part of the overall strategy to encourage entrepreneurship.

This year the UW plans to hire someone for the J. Trevor Eyton chair of entrepreneurship, a faculty position dedicated entirely to scholarly research and teaching of entrepreneurship throughout the University.

Guild says it’s just another part of UW’s recipe for entrepreneurial success. “We take a lot of pride in the success of these companies and our effectiveness in taking ideas out of labs through creative minds and seeing these things blossom.”

Who wants to be a young entrepreneur?

Adam Zimmer and partner Mike Neame began developing software during their fourth co-op work term and created their company, Arius Software Corporation two years ago. Now their company has 10 employees and has attracted $1.5 million in private investment.

The duo will begin working full-time at Arius later this spring when they graduate. While the pair won’t have student loans to pay off, they aren’t raking in the big bucks just yet.

The plan is to reinvest any money into the firm.

“Other students look at us with a mixture of admiration and surprise. A lot would like to think they could do this as well, but on the other hand they are aware it’s a lot of work,” Zimmer says.

Zimmer talked with SVN’s Janet Baine and offered up his list of tips for would-be young entrepreneurs:

• Find good advice from people you can trust: while there are lots of people willing to advise you, they may not have your best interests at heart and instead are considering what would work best for them.

• Tap into resources such as local organizations and individuals. Zimmer turned to Communitech, an association for technology companies in Waterloo Region and Guelph, which presented them with a framework to meet other organizations. “You can benefit from the experience of another firm.” It was also through Communitech that they connected with the man they hired on as VP of sales and marketing, Ted Shapiro.

• Realize that when you do a business presentation, it is not for yourself but for a diverse group of people with various backgrounds who may not have the same technical or business background you have.

• When you build your business, you may be able to do it cheaper or faster, but it is better to build bigger than your current needs, to accommodate future growth.

• As an employer, you can’t simply hire all your friends. “You have to act like an employer, which is different than being a student. You can’t hire all your friends, but have to hire people on merit.”

• Being in business involves taking risks. “If you risk less, the upside is less as well…there is no critical mass. It is hard to take the plunge.” Students who attempt to have a business on the side take a smaller risk, but find it difficult to get their company off the ground.

• Building trust with a client takes time, often a few months. “When you are writing software, people have to trust your advice and technical ability.”

• When you start your company, you are your company. But as business picks up you have to adapt new methods. Zimmer wrote the first pay cheques for other students from his personal account, then moved to a business account, then started using a software package before hiring an accountant. He says this is a trivial example of how things have changed. “When you start out the business, you are the business. As you get busier and busier, you can’t do everything.”

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