How Kitchener-Waterloo Became an Innovation Hub

Its Roots Run Deep
A year ago I made
the big move from Toronto to Cambridge – part of the Kitchener-Waterloo region
located an hour away from Toronto. It’s a beautiful part of the world removed from
the gridlocked hustle and bustle of its big city neighbour. But what’s most interesting
to me is that while the Kitchener-Waterloo region, also known as the Tri-Cities
region, has become a global hotspot for entrepreneurship, it has much less to
do with Blackberry than you might think.
But before getting
into why, it’s important to note that in just the past five years alone, nearly
2,000 startups (most of them high tech) have emerged in this traditionally blue-collar
region of 550,000 people. That is massive. But KW, as it is often called, has a
rich and deep history of technology innovation. The smartphone was invented
here. The touchscreen display was invented here. Google’s G-mail was invented
here. Google Chrome is being perfected here. (Thanks mainly to the Google engineers
living and working in Kitchener-Waterloo, it is evolving from a browser into a
browser-based operating system.)
How did a region
boasting three small cities become such a global technology powerhouse? Was it simply
by riding the coattails of Blackberry? That would be the easy answer, and the
wrong one. KW would be a ghost of its former self if that were the case.
The reality is, KW
was an innovation hub well before Blackberry became a household name. How did
it come to be that way? Was it one person’s singular vision? Was it a collective
effort by government and business? Or was it, perhaps, just pure luck – nothing
more than a random series of events?
Since I had recently
moved to the region, I wanted to find out. What I learned is that an innovation
hub is like a great tree – or rather a cluster of trees, as famed startup
financier Fred Wilson likes to put it. It takes time and nourishment from multiple sources, along with a good
location, for something to grow from a sapling into a colossus that now spreads
its branches all over the world.

But it didn’t begin
in 1997 when RIM went public. Or even in 1984 when RIM began as the brainchild
of Mike Lazaridis and his engineering partner Douglas Fregin.
It all started in
1953, when a young man named Gerry Hagey left his executive communications position
at B.F. Goodrich to become the president of a tiny post-secondary institution
named Waterloo College. Hagey and his boss, B.F. Goodrich President Ira Needles,
shared a vision. They wanted to create a world class educational facility that
would feed the business community with talent and in turn be fed by the
businesses it helped build and launch. 
To make their vision a reality, they were
determined to transform sleepy Waterloo College into a high performing, business-oriented
science and engineering facility. A key turning point was the decision to
convert the college into a co-op university, one of the first of its kind in
North America. Waterloo would combine classroom
education with real world work experience, and shockingly at the time, a
degree would take five years, not four.
During these early
years, Ralph Stanton, the head of Waterloo’s math department, sensed that his
field – numerical analysis – might become a key engine of modern business. He
turned out to be right, because numerical analysis spawned the algorithms that
underlie modern day computing. When Stanton and his colleague J. Wesley Graham established
its Computing Centre in 1960, “suddenly math had a practical application,”
reports Don Gillmor in an article in Walrus
Magazine.
And so the
University of Waterloo became known to engineers and computer scientists across
the world for its academic excellence. Today, UW has “arguably the largest pool
of math and computer science talent in the world” and has spawned more than 250
science and tech companies. When asked if there was one thing that, if it disappeared, would make Waterloo
disappear as a tech ecosystem, Ted Livingston, CEO of a fast-growing KW startup
called Kik, was quoted as saying, “That one thing, and one thing only, is the
co-op program at the University of Waterloo.”
If UW was the
driving force behind Waterloo’s current ecosystem, what other forces combine to
help an ecosystem grow and flourish? Startup ecosystems have access to a steady
stream of talent and funding. Entrepreneur and business professor Daniel
Isenberg says the entrepreneurship ecosystem consists of six domains: a
conducive culture, enabling policies and leadership, availability of
appropriate finance, quality human capital,
venture-friendly markets for products, and a range of institutional
and infrastructural supports. 
Writing on the blog
of KW startup incubator Communitech, John Lorinc says that successful startup ecosystems need the right
combination of developmental features and evolutionary traits. They must have “ready
access to a full range of funders, from angels to ventures” combined with “the
expanding presence of firms that will entice talented expats to return after
working elsewhere.” BlackBerry has been an “angel” investor for over 30 years,
and despite its downsizing, their investments are not going away. But for the
Kitchener-Waterloo ecosystem, there’s more to it than that.
“There’s less
competition than in the Valley, where everybody is trying to hire,” says Thalmic
Labs’ Aron Grant in a recent Toronto Star interview. Government funding and tax
credits help, including a federal tax credit program that reimburses up to 60
per cent of an engineer’s salary. (In fact, government funding is important, some
might say crucial, to startup ecosystems. For example, did you know that Silicon
Valley required millions of dollars of government funding to get started? And that
it happened not in the 1980s or 1990s, but way back in the 1940s and 1950s[i], as entrepreneur
Steve Blank points
out in a fascinating video.)
No one company can
create an ecosystem. It didn’t happen in Silicon Valley and it didn’t happen in
KW. Much of the recent growth of KW as a true innovation ecosystem wouldn’t
have happened if Blackberry had remained dominant, says Iain Klugman, CEO of
Communitech. Although Waterloo “has really become a major startup centre, and
tech centre,” Klugman pointed out in a Toronto Star
interview
, “there is no single dominant technology in the region — companies
do everything from robotics, telecom, digital imaging to wearable technology.”
But ultimately the
University of Waterloo is the river that feeds the ‘techbelt’ that drives KW
today. And that may be Kitchener-Waterloo’s greatest strength – next to its
talented group of engineers and mathematicians and computer scientists.
Source: The Secret History of Silicon Valley by Steve
Blank. https://www.youtube.com/watch?v=ZTC_RxWN_xo
Stanford University helped
feed the techbelt that is now Silicon Valley. It nurtured the innovators that
populated the campus and the labs. The university administrators actually encouraged students and professors to
get out of their ivory towers and into the real world. The University of
Waterloo created a similar nurturing environment. Their philosophy for students
and faculty alike was, ‘you create it, you own it.’ The university gets no cut.
The entrepreneur gets sole ownership of all patents and intellectual property.
US venture capitalist
Paul Graham points out that “there are no technology hubs without first rate
universities. If you want to make a Silicon Valley, you not only need a
university, but one of the top handful in the world.”[ii] The
University of Waterloo certainly qualifies.
But a world-class university
is necessary but not sufficient for success as an innovation hub. There are
always intangibles at work, including maybe a bit of luck. So as an
increasingly wider group of cities and regions across the world aspire to
become innovation centres, at the end of the day there is no guaranteed recipe for
success. But one thing is certain. Because the roots of KW’s innovation run
deep, the region’s identity as an innovation hotspot is unlikely to diminish for
years and probably decades to come.


[i]
Defense funding during World War II and the Cold War, along with one Stanford
professor, set the stage for the creation and explosive growth of
entrepreneurship in Silicon Valley.
[ii] Universities and Entrepreneurial Ecosystems: Elements of the Stanford-Silicon Valley Success. Ernestine Fu, Tim Hsia. http://www.kauffmanfellows.org/journal_posts/universities-and-entrepreneurial-ecosystems-stanford-silicon-valley-success/

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