Wither Waterloo?

Research in Motion is not a healthy company. It makes a product no one particularly wants for a price no one particularly wants to pay. The reason for the company's decline will no doubt be chronicled in a thousand MBA case studies, but I imagine at the end of the day it will simply be a tale of complacency in the face of change, over-confidence in the face of challenge, and stagnation during the punctured part of punctuated evolution of the mobile device market. But, I'm not the guy to talk to about that. I don't know from management. But I do know from regional development, and especially the role of small firms and entrepreneurship in regional development. The major question amongst nerds like me is that if RIM does implode, if it either dies a quick natural death (unlikely), or if some corporate raider takes advantage of its low share price to acquire the company and strip it for assets (likely), or it slowly shrinks over a period of several years until it's simply another has-been (99.9% chance), what will happen to Waterloo?

Christine Dobby, Mark Hartley and someone called "Financial Post Staff" think that it'll be good times! Waterloo, as you must know if you're reading this (since I'll likely be the only reader and I know this) is what you might call an 'entrepreneurial hot zone.' There are a huge number of small software startup firms in the region and these firms are all desperate for workers. I intervened around 30 entrepreneurs, investors, and economic development officials from the area as part of my dissertation and almost all of them mentioned the difficulty of hiring skilled workers. This was in part RIM's fault: they would suck up all the best workers, leaving slim pickings for the rest of the region's economy.

Ottawa is the model for this. When Nortel Networks died its slow death throughout the past decade, there was always the hope that the thousands of workers laid off from the company's Ottawa HQ would enter the local tech market, either by working for other local firms or by starting up their own firms. The former plan didn't end up working out because most of Ottawa's software economy was based around the TelCom sector, whose decline in 2001 had sealed Nortel's fate. Just as a massive labor pool of highly trained engineers was available, there was no one looking to hire. The entrepreneurship thing didn't really happen either. Nortel employees were used to working in a very large firm, many of them did not want the lifestyle of an entrepreneur. It's hard to accept 100-hour workweeks for no salary when the federal employee who lives next door is out by 4:30, get's a month's vacation and *gasp* has a pension. What entrepreneurship did exist was really an outcome of people who loved living in Ottawa but who needed to create jobs for themselves. These were largely small consultancies that will never grow or produce jobs.

I predict Waterloo will have a similar experience (few laid off workers joining the local labor force or starting local firms), but for different reasons. Waterloo's technology economy is far more diversified than Ottawa's. So it's not that no one will be hiring. It's just that there is a complete mismatch between the skills and expectations working at RIM and the skills and expectations of working for a small firm. Small firms pay less, offer fewer benefits, and expect workers to be far more flexible in what they do and how they do it. Not everyone thrives in such an environment, especially if they've spent a good deal of their career in a large, hierarchical company like RIM. One of the chief complaints I heard from entrepreneurs in Waterloo regarding employees was that it was hard to find workers who could work successfully in small firms.

But you know where there are high-tech jobs in large organizations? Just down the 401 in Mississagua and Toronto. Microsoft, Google, IBM, Intel, they all have offices or campuses in the GTA that are a reasonable commute from Waterloo. Not a nice commute, the Queen's Express Way is pretty much the worst stretch of highway in North America, but a reasonable commute none the less. Unlike ex-Nortellers in Ottawa, former RIM employees won't have to uproot their lives to find a similar employment situation. They'll just have to drive eest to suburban Toronto's plentiful office parks.

RIM's decline will hurt Waterloo, a lot. I think that as a whole, the entire regional economy is resilient enough to survive this. They have great institutions, institutions like the University of Waterloo and Communitech that will always do a great job of attracting talented people to the region and encouraging growth. And I think it is critical that the region try to support former RIM employees' local endeavours, from joining existing firms to starting their ow. However, it's clear that simply having a large pool for very skilled workers isn't an economic panacea. These workers can't simply be slotted in to existing job openings. It will be an ongoing process, one that will have far more failures than successes.