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Opinion: Canada faces an entrepreneurial drought

The private sector's vitality depends on growing numbers of new businesses. But in recent decades the flow of startups has slowed

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Discussion of Canada’s economic growth is increasingly centred on headline-grabbing investments: new mega-plants, global headquarters and big public subsidies for major projects. But economic strength is not built on billion-dollar deals alone. It is replenished by a steady stream of new businesses, and that stream is dangerously close to drying up.

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Business startups have fallen dramatically over the long term in Canada. Since the mid-1980s, business entry rates have dropped by nearly half. More recently, the trend has become even more troubling: since early 2024, more businesses have been closing than opening. In the third quarter of 2025, exit rates reached 5.8 per cent while startup rates fell to 4.9 per cent. Outside of the pandemic, those are among the weakest figures in a decade.

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Small- and medium-sized enterprises (SMEs) employ more than 60 per cent of Canada’s private-sector workforce. They are not a niche segment of the economy. When fewer small businesses start, grow and thrive the country loses more than storefronts. It loses competition, innovation, local services and productivity. And our economy becomes less dynamic.

At the Canadian Federation of Independent Business (CFIB), we speak to small-business owners every day, not only through surveys and data collection, but directly in phone calls, emails and thousands of storefront visits every week. The message we hear has become remarkably consistent: owners of small businesses feel forgotten.

As governments announce large investment deals, big nation-building projects and corporate partnerships, many small-business owners feel they are being left to navigate rising costs, red tape and economic uncertainty on their own. Too many say they have become an afterthought in policy discussions — and that neglect is reflected in declining business confidence.

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In a recent CFIB survey, two-thirds of small-business owners said they feel unsupported by their governments. Only three per cent believe their government has a clear vision for entrepreneurship, and just four per cent feel it truly has their back. Little wonder that 55 per cent of CFIB members recently said they would not recommend their children start a small business today.

Meanwhile, governments focus on attracting and retaining big firms with targeted subsidies, sector-specific strategies and investment tax credits aimed at scale. There is a role for these tools. Big firms obviously matter. But policy may have tilted too far in their direction. If governments are serious about improving productivity growth, small businesses must be part of the strategy.

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That begins with lowering the cost of doing business. Tax competitiveness for small firms needs to improve, with simpler rates and thresholds and capital gains and succession rules that encourage entrepreneurship and keep ownership rooted in Canadian communities. Red tape reduction should be measurable and transparent, treated with the same discipline applied to spending and taxation.

On its own, regulatory compliance costs Canadian businesses more than $50 billion a year, and the smaller the business, the heavier the burden. Per employee, compliance costs are far higher for SMEs than for large corporations. Small business don’t have compliance departments, just owners filling out paperwork at the kitchen table.

Small firms spend the equivalent of more than a month every year navigating unnecessary paperwork. Nearly nine in 10 say it reduces their productivity and ability to grow.

Internal trade also needs to be unlocked. It should not be easier to sell or produce abroad than across provincial borders. A genuinely unified domestic market would give small firms room to scale and compete at home.

Finally, competition policy should ensure new entrants have a fair shot, while business succession needs to be practical and affordable. With a wave of retirements approaching and trillions in business assets set to change hands, Canada cannot afford to see viable firms close simply because transitions are too complex or too costly.

A country that neglects its small businesses eventually finds its economic resilience has thinned. Fewer startups mean fewer future mid-sized firms. Fewer independent firms mean less competition. Less competition weakens productivity, which means slower growth, lower incomes and fewer opportunities for the next generation.

Small businesses provide stability in uncertain times and anchor communities when conditions get tough. But the data tell us the flow of new small businesses is drying up. Governments need to act now. Making entrepreneurship easier is not about favouring one part of the economy over another. It is about reinforcing the foundations on which Canada’s economy is built.

Brianna Solberg is CFIB’s director of provincial affairs for the Prairies and Northern Canada.

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