CULTURE & ENTREPRENEURSHIP: Building Canadian Cultures of Innovation & Impact – The John Ruffolo Interview

The predominant economic global conversations currently circle around several key themes. Declining productivity, misalignment (and growing mistrust) between employees and employers, widening prosperity and digital divides, mismatched innovation and under-delivering ecosystems. For government and business leaders there is an urgency to find models that will accelerate new economic growth and unlock new opportunities and prosperity for all. Many believe that fostering passionate entrepreneurs and creating entrepreneur-friendly business conditions is the route. John Ruffolo , Founder and Managing Partner of Toronto-based Maverix Private Equity , is one of Canada’s most passionate – and outspoken – advocates for entrepreneurship as an economic unlock. His career, and his company, have been at the forefront of championing those entrepreneurs and entrepreneurial conditions across North America. In recent days the topic of culture has been raised (again) by one of Canada’s most-lauded global success stories as one of those conditions that impede the true unlocking of an entrepreneurial ecosystem. Against that backdrop, having the opportunity to chat to John was timely and fantastic.

HB: John, always appreciate time with you. Inevitably we’ll get to Harley Finkelstein’s commentary about Canadian ambition and the 600lb beaver in the room, but first I’d love some brief background on you and your own connection with – and affinity for – entrepreneurs.

JR: Good to see you Hilton. I adore Harley and think he’s raising a very important topic we all need to talk about – and solve here in Canada. You asked about my background and I’d say I’m a “full circle entrepreneur” <Laughs>

Let me explain.? I grew up in a very large and extended immigrant family. Following the classic stereotype, I was in the bottom one third quartile of age in my family, yet I was the first to achieve a post high school education. By necessity my family were very entrepreneurial. Not because they wanted to, but because as immigrants, no one would hire them. They had no choice. Not surprisingly their aspiration for the younger generation was to “break the cycle” by becoming a professional versus a tradesperson. A lawyer, a doctor, an accountant, something other than a tradesperson.

So my professional career began very early when, around 25, I built the tech practice of Arthur Andersen. Early on I was fascinated by tech entrepreneurship, and I advised the biggest companies in the world, but what I loved most was the startup ecosystem. My move to Omers was an opportunity for me to start moving closer to real entrepreneurship. I wanted to feel more closely associated with their success. And it was through capital and getting into “the game” with them, but it's the closest outer ring to to the entrepreneurs themselves. That journey ultimately positioned me for Maverix, a firm built by entrepreneurs for entrepreneurs. That is the ethos of our firm.

The irony is I had the grooming of being an entrepreneur early on and it’s kind of come full circle for me.

HB: I’m passionate about the role of culture in building and ensuring the environment for business success in any sized organizations. I’m keen to get your perspective on culture on two fronts. One the importance of culture here at Maverix the firm you founded and then, secondly, as you evaluate entrepreneurs and opportunities that come to you seeking advice and funding.

How important is culture John?

JR: Great question and I completely align with your perspective on culture Hilton.

When we built Maverix, and if I show you the original white paper from 2019, it was an attempt to build an organization from the Culture Up. That was very intentional. In fact, the very first person I got in as an advisor was a culture coach.

When you walk down the hall here at Maverix, you will see five key defining principles. The first is; entrepreneurs are our partners. But as you said those principles aren’t Culture.

Culture is how those principles are lived. In the ways we work. In how we behave toward each other. And, most importantly, how we make the tough decisions day by day on our business.

Trust me, in this sector, tough decisions are a part of daily life.

Getting specific. For each of the five, there's about five or six associated behaviors which the team, through our culture coach, have sat down and agreed to. Principles, or corporate values, really do need that level of clarification so we all know exactly what those words mean and what expectations those set. Inside our organization those Principles really are a social contract that exists across our firm and we are unambiguous about how these are principles we genuinely live by daily.

What I’m particularly proud of is how we have fully embedded this into the firm. Firstly each employee is expected to read these Principles and behaviours and sign off on them before they join. Remember, as I said, this is a social contract and there should be no confusion about how deeply we hold ourselves to that. Secondly, and this aspect I think is equally important, annually our people are asked to read these and recommit to them. We go even further and have our culture coach sit down with our folks and discuss whether these Principles and behaviours are still fit for the organization today. That conversation means we have a mechanism to evolve our thinking as the business grows and that our employees feel part of that evolution. I’d be lying if I didn’t say it is intense, even agonizing, but me and my co-founder Mark are completely bought into doing it this way. ?

HB: Spectacular John and that level of diligence is admirable. What I’m hearing is that everyone has a very clear sense of how to behave and, ultimately, make decisions in a consistent and unambiguous way. Tell me more about that.

JR: 100 percent. This way of operating means we have very clear expectations of the behaviours we want – and for calling out behaviours that are in breach of that social contract between us. The second part is vital. We’ve all heard – and likely struggled with – stories about behaviours that are tolerated by management even when they flagrantly go against the supposed values of the organization. Not here.

Every quarter our culture coach comes in and privately asks each person if there were breaches of culture or behaviours. Then we call it out. We sit together and either agree that that was a breach or there should be a change in the behaviour as we evolve and grow. There's no hiding in that process. It is just so fundamental to how we operate here. If there was a breach, then we have an obligation to terminate that person’s employment but if it is a case that we need to rethink or rearticulate a behaviour, then we do that.

This isn’t some “dog eat dog” environment but a very purposeful, participatory and I believe respectful way of operating. We are very clear about what we value here, what behaviours are associated with those values and our expectations of each other.

That tone and expectation applies as rigorously and equally to me and Mark as it does our newest employee.

?Let me give you a concrete example. We operate an environment that says “freedom from judgement” meaning we want our people to call BS, to talk truth to power, to say the things that are on their mind and not fear retribution or punishment for talking out of turn. That can be very invigorating because it is very unusual inside many organizations. Of course always do it respectfully and have data and facts to underpin your point of view – this isn’t a free-for-all <Laughs> BUT…and it is an important but, our people need to appreciate that same spotlight will be shone on them too. It is a two-way street. You’ll absolutely be given direct, unambiguous feedback on how you’re showing up and behaving with the same equal candour that we want you to provide input and feedback to colleagues and clients. So this isn’t for the feint-of-heart but, in our opinion, that universality of how our principles and associated behaviours are executed are a vital and vibrant part of our culture.

HB: Love that example John. Switching gears. How important is culture when you’re evaluating potential new opportunities and new entrepreneurs that come to Maverix????

JR: In simple terms, I’d say that 70% of the evaluation of an investment opportunity is based on the team. A huge part of that evaluation is trying to understand the individuals and the culture that they're setting. And when we get it wrong, it's invariably the culture that they set through the organization.

There are typically three chunks from a diligence perspective. One, what’s the problem that it's solving. Is there a real market? What’s the Total Addressable Market? Is it genuinely solving a problem? That fundamental stuff. And, by and large, investors do a good diligence job here. Then there’s the financial diligence. You could argue many are probably too conservative here, but they do a good job from a technical perspective ensuring the finances both current and projected make sense.

In my experience, the worst job is in the third category which is the people diligence. Of course, there’s a difference between folks you’ve worked with or invested in before and those you’re meeting for the first time. You can do some measure of analysis of their network and what their network says about them and their pedigree.

There is no way to completely avoid risk in any investing. If you’re seeking that, you’d never invest in anything. It’s about avoiding what I call is the dumb risks. On the people side that requires, among other things, doing a deep battery of psychological tests on the leaders of a potential organization.

What type of leader are they individually and collectively? Will they create an environment, a culture, where what they’re trying to achieve can actually happen?

It’s not an exact science but we spend a disproportionate amount of time on this because it’s a crucially important part of our due diligence.

?It does surface a difference, I think, in investing perspectives here and in the US. Transactional investments, with an emphasis on deal size and deal velocity, are more typical south of the border. For us we emphasize relationship transactions where elements like leadership, culture etc are more important. It does mean we, as Maverix, need to operate slightly differently when looking at US opportunities as there’s an expectation of moving at speed in making deals. Candidly if the process means that all they're doing is evaluating us on a transactional basis, we politely decline every time. That’s because they're not sharing the value of relationship that we are. And it's okay, there's plenty of capital in the United States to fill in that hole. But that's not who we are.

HB: I appreciate that US and Canada context and, more specifically, how your culture impacts your evaluation of opportunities too. I’m keen to chat about culture in a broader sense and that is the discussion around country culture. In recent days, Harley Finkelstein, the President and co-Founder of behemoth Shopify, has lambasted Canada for a lack of ambition, a deep risk-averse culture and a malaise he’s calling the 600lb beaver in the room . How you respond to that observation?

JR: As I've said, I’ve tremendous affection and respect for Harley and what Shopify has achieved. The crucial part is that Harley’s comments are not interpreted as a knock against Canada’s entrepreneurs themselves. Sure, I’ve heard the frequent comments about Canadian entrepreneurs electing to exit early and not seeking the longer, harder journey to more significant exits. My perspective is that is entirely their choice. For some that’s a lifestyle or life-stage choice and who am I to comment on their choice? It's incredibly hard to build any successful business so we should congratulate those who do succeed.

In my career, I’ve seen numerous Canadians go South and create significant success in the US. That means it is not our entrepreneurial talents and potential we should be debating, it’s the conditions our entrepreneurs face in building and scaling their efforts locally. However, blaming the government solely is a weak and easy complaint. We’re in the private sector and this is inherently a private sector issue to tackle.

Where I strongly agree with Harley is that government needs to get out of the way and not create additional hurdles and impediments. Canada’s much-lamented tax system is a classic example. It is unnecessarily complicated and woefully out of date. That’s a prime example of government getting in the way. While this may be an unpopular opinion in some quarters, vilifying successful entrepreneurs – as the Canadian government did earlier this year with their Capital Gains narrative – is another example where government makes entrepreneurship tougher. Trust me, it is tough enough without having to contend with those types of moves by our government.

I see three legs to this particular stool if we want to create a similar entrepreneurial environment to the one in the US. There are all access opportunities. Access to capital is one and the taxation example I gave is a great example of that. Access to talent is another vital one. During Covid Canada had an amazing foreign workers system that saw great talent come to Canada. In recent months we’ve replaced that program with one that is less robust. I’m a huge proponent of immigration as it is a real accelerant for any country. Look globally and you’ll see that astute countries are putting aggressive immigration programs in place to attract global talent. Until recently Canada was doing something similar but we made that program weaker and that will hurt us if we don’t become a real beacon for the talent we need to compete globally.

The last is access to markets and customers. The US and China have done an excellent job here. There are numerous elements to this from IP protection, government procurement and standard setting. But there are broader components where government and private sector can work better together. The best example is Silicon Valley, arguably the greatest concentration of innovation and value creation in history, that was built with enormous investments from the DARPA and the US military. More recently the Biden Administration’s Inflation Reduction Act which sought to create preferential conditions for US organizations to have greater access to markets and customers. These are all examples of doing more to help propel Canadian entrepreneurs forward.

If we genuinely want our entrepreneurs to build – and stay here – for the long-term, there are so many ways to create more favourable conditions for that.

Finally, I’ve expressed strong opinions publicly about the dangerous levels of spending that Canada continues to spend. Money we just don’t have and will create a debt that will inevitably cripple us. That needs addressing because, in equal terms, going in the other direction and mindlessly slashing our investments isn’t how we create real prosperity in Canada either.

HB: I’ve had people suggest that Canada’s ability to successfully avoid the 2018 Financial Crisis was due to financial good governance and a deep risk aversion. While that was a brilliant posture at the time, we’ve now taken that risk aversion attitude and let it permeate all our industries. Is there any truth in that perspective or is it just an interesting myth?

JR: Not sure that’s not some post-rationalization thinking to be honest. Have a solid and strong financial system, like Canada had in 2018, is a definite asset we shouldn’t dismiss out of hand. As I look at our banking system today I hear a lot of bragging about wonderfully low loan>loss provisions. That’s excellent but where is the other side of that coin? Where is the growth in loans to fuel growth and provide funding to capital-hungry organizations? To that point, why aren’t we embracing Open Banking more enthusiastically versus clinging to out-dated models, models that our local customers bristle against? Surely, using Open Banking as an example, having a more nimble and agile financial system is better for all of us.

Ultimately, having such a risk aversion lens in how our institutions operate really is a zero-sum game. Eliminate the dumb risks, as I said earlier, but no risk at all means zero returns too. That’s why I will continue to counsel for infinitely more balance in how we look at these issues.

HB: Sage point John. My final question. What advice do you give to your peers in both the public and private sector? You’ve detailed several “access” opportunities but is there other advice you’d give as it relates to building these amazing entrepreneurial organizations?

JR: I’m going to echo my earlier point about building a firm from the Culture up. It’s hard, hard work and doesn’t give you a moment to take your eye off the ball, especially at the beginning, but the rewards are definitely there. Specifically rewards like an environment where there is more transparency and trust and, therefore, the ability to make tough decisions faster and with more consistency. In my experience that ability – the one to make tough decisions quickly and consistently – is a real superpower for any rapidly-growing entrepreneur. Building a business is one of the hardest, most grueling things a person can commit to, doing that without a strong culture makes it even harder. <Laughs> Why would you deliberately make it harder on yourself?

HB: I couldn’t have said it better John. Appreciate your time as always. Particularly your candour and your directness. Bon chance to you and the Maverix team and clients.

JR: My pleasure. Thanks for the conversation Hilton, I really enjoyed it.

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