Howard Lindzon yesterday wrote about the falling US Dollar, and what it meant to him.
Lindzon is a Canadian (did I just out him?) who lives in the US of A. Smart man for doing that. He said he moved to Arizona to play golf. I’m thinking of moving to the US, for other reasons.
Anyway, like Lindzon, I’m Canadian. I’ve lived in Montreal - the greatest city in the world - since I was 6.
Montreal is a fantastic place to start a company, but not the best to scale it.
In media and technology in particular, nothing comes close.
With regards to technology, the government pays back 40-60% in R&D tax credits. So say for example we spend $1M developing our search technology (oh, we didn’t, nowhere close), the government will reimburse us anywhere from $400,000 to $600,000. It’s pretty wild and a reason companies set up here for tech and what not.
Media is also pretty good, because we have plenty of creative and multi-lingual people. Montreal is also a hub for foreigners coming to North America - be it from Asia, Europe, South America or Africa - and it definitely explains why our cast of actors and hosts at WatchMojo.com come across as attendees of a UN meeting.
What about Sales, you ask?
But the point of this post, I swear there is one, is that the CDN/USD foreign exchange has radically changed the reality of startups operating in the city.
This is my third consumer internet media company running out of Montreal, though the first I start. My two previous were successful, and this one is starting to look like it could be bigger than both of those, maybe even when put together.
But one thing that makes it more challenging is the USD/CAD foreign exchange rate.
In 2000:
My first experience in this regard was with a search engine in 2000. The company’s yearly billings that year were $18M or so, that’s in USD. Yes, even back in 2000, I actually thought companies should generate revenues and earn profits (see An Entrepreneur’s Fatal Mistake for more on this).
Costs? All in Canadian. Well, not all: travel and marketing are in USD, but labor, rent and a lot of overhead that usually kills companies is in CAD. That’s a major windfall right there.
2000-2005:
Second company was a men’s online publisher. I was in charge of ad sales. Here are the approximate sales I booked, until 2004 I was alone, in 2005/06 I ran a team of three, including myself:
What happened in 2003, btw? Anyway, as you can see, at one time, the FRX was 1.59. One.point.five.nine folks!
Bottom line (literally): over that five year period, we netted CAD$2M more which probably covered all - if not most - of our costs. That is one amazing comparative advantage.
2006 - present:
We still have comparative advantage, costs are lower here, tech R&D pays off, etc. But times have changed:
This past week I went to the bank to cash a client’s check and the exchange was 1.06! One.point.zero.six. I walked back to the office thinking: man, that’s different.
In other words, I have to sell almost 1.5 times more revenue to be equally off as I was from 2000-05. That’s a radical departure from those days. Of course, you could be reading this and say: “well, why should you have an unfair advantage?” And that’s a fair observation, but it’s an incorrect one in that the USD/CAD are largely positively correlated vis-a-vis global currencies, and the USD is falling against all of the world’s currencies. This has good and bad repercussions for business, who like us, will have to adapt.
For me, one way is to realize that sure, the costs of operating a division out of the US might be more expensive due to the cost of living, but that the additional 60% currency premium has evaporated and to scale the company from a sales and marketing perspective, maybe it’s Manhattan-time.
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