The future of RIM and the future of Waterloo

Research in Motion, the maker of the venerable BlackBerry cellphone has had a hard time as of late. Another disappointing quarter has left their shares at a 5 year low, and speculation about their future has already started, with rumors of buyouts and declines swirling around. This is a continuation of their annus horribilis which has already seen the lack-luster launch of the Playbook which was supposed to revitalize the company's cutting-edge image, but didn't. But this post isn't about RIM's market opportunities or new strategies. I don't have a clue about this; In full disclosure I'm writing this on a Mac Mini, with an iPad (*sigh, iPad 1) and iPhone 4 charging next to me. What I do want to think about is what a declining RIM means for the future of entrepreneurship the Kitchener-Waterloo region. Startup North got the ball rolling on this topic yesterday. They argue that while RIM has pumped maybe 100 million dollars into Canada's entrepreneurial economy over the past several years, through acquisitions and and venture investments, Google has done the same amount in only the past 12 months. Furthermore, most of RIM's acquisitions have been located in Toronto, not Waterloo. In terms of pure dollars and connections with startups, RIM has very little happening in Waterloo. Though its headquarters is located there at it employs thousands of developers and engineers locally, to a lot of entrepreneurs' it's essentially a blackhole that sucks up all the talent. There are very few, if any, spinoffs from RIM. One of the local startups that is in anyway associated with the BlackBerry ecosystem is Kik, who made a pretty damn popular instant messaging system for the Blackberry. But, they're now they're being sued by RIM. While Kik now supports iOS and Android, they've left the BlackBerry behind. If anyone knows about other spinoffs from RIM, I'm all ears.

(I should add that my PhD dissertation focuses on the local social and cultural factors that underpin high-tech entrepreneurship in Canada. As part of this research, I've interviewed dozens of entrepreneurs in Waterloo, with a specific focus on their relationship to RIM)

I wouldn't say that RIM is hurting local startups. Many of the entrepreneurs I've talked to have said that they often see RIM senior execs at Communitech (the local economic development group), and that they give out advice and are generally nice people. I mean, this is Canada after all. RIM also helps startups indirectly as well. A lot of the entrepreneurs I talked to — from bleeding edge microchip designers to graphic designers working out of their basements — said that just being associated with RIM by being located in the same city is an advantage. I would argue that much more than the University of Waterloo, RIM has been the main reason why Waterloo is now synonymous with high-tech.

If RIM continues its decline and becomes a mere Nokia or Motorola, Waterloo's image will be tarnished. If RIM can no longer take on the cream of UW's co-op crop, Waterloo's imagine will decline and fewer of the world's best computer scientists will come to the city. Other startups like SandVine and Desire2Learn show that Waterloo is more than just RIMtowne, and the continued presence of Google and Microsoft in the region prove that the city is and will be one of the hubs of raw computing talent in Canada, if not the world. But, a declining RIM and the continued rise of startups in Vancouver, Toronto and Montreal might sap talent from the region.

However, back over at StartupNorth, there was the thought that maybe RIM's coming layoffs will be a boon for entrepreneurship in the region. This is what happened in Ottawa. As Nortel died its slow death, the laid-off engineers and developers started their own businesses, creating a renaissance of entrepreneurship in the city. That's true, but it's also not. It's true that even as Nortel slid into nothingness, entrepreneurship grew in the city (see figure)

But, the bulk of these firms were little IT consulting shops set up not by entrepreneurial world killers who wanted to take on Cisco, but by older engineers who didn't want to move. They had houses with mortgages (and this was not a fantastic time for selling your house), they had kids in schools and husbands and wives with local jobs. Leaving Ottawa just wasn't an option for some people. And Ottawa is a pretty great place to be an IT consultant. Some of them went straight back to consulting or contracting for Nortel, and over time many of them starting working with the federal government.

But many of these firms are very successful, they're not the kinds of firms that lend themselves to regional economic development or growth. They don't make products, so their revenues only grow with their billable hours. They don't hire many people, and they're not great platforms for new entrepreneurs to hone their skills. Rather, by and large they are lifestyle firms that generate a good income for the owner, and maybe a few other employees. Not that there's anything wrong with this, only that this isn't entrepreneurship in the way that many people imagine. Afterall, these weren't died in the wool entrepreneurs, these were workers at a very large company who were suddenly laid off. They want a nice comfortable life, they're not necessarily willing do 18 hour days or 100 hour weeks any more.

Waterloo is less of a great place to be an IT consultant. Sure, if RIM lays off people, it'll need to bring on contractors, but there are few other big players in the region that need large amounts of IT outsourcing done. Certainly, there's no federal government presence like in Ottawa. There is just not a whole lot of room in the local economy for a lot of small IT shops.

So, what will happen if RIM continues its decline, leading to large layoffs of highly skilled developers and engineers? The majority will find other jobs locally, no doubt of that. Google, Microsoft and the rest would love to scoop up that talent for their mobile divisions. Some of the younger and unattached ones will leave for greener pastures: Toronto, Vancouver, Montreal, San Francisco or Boston. This will be the biggest loss for the community. But those who do stay will may create their own startups. But the vast, vast majority of these will be lifestyle firms with very little growth potential. I will be very surprised if out of, say, a 500-person layoff from RIM, if even one truly innovative startup will result.