Study | By Lily Alameh and Mathieu Galliot, economist at BDC The State of Entrepreneurship in 2026: Adapting to an Accelerating World

Table of contents

1. Highlights 
2. A message from the Chief Economist 
3. Introduction: A changing world 
4. Competition intensifies
5. Costs and supply chains: Two major challenges for businesses directly affected by trade tensions
6. Growth and profitability remain top priorities
7. Tariff-affected SMEs look to reduce their dependence on the U.S. market
8. Trend 1: SMEs renew their growth ambitions
9. Trend 2: AI adoption shifts into high gear
10. Productivity takes centre stage
11. Differentiation as a response to increased competition
12. Rethinking sourcing and diversifying
13. Learning and building a support network
14. Methodology and acknowledgements

Highlights

To better understand how the business environment has changed for Canadian small and medium-sized enterprises (SMEs), BDC conducted its 2026 State of Entrepreneurship survey after new tariffs came into effect and compared the findings with the 2025 results.

Costs remain a major concern, but competition is intensifying

The growing need to adapt

• Nearly half of SMEs (48%) believe that the business environment is changing at a faster pace.
• A majority (59%) of SMEs believe that companies that are slow to adapt will be at a disadvantage.

Growth and profitability are top priorities for all SMEs

SMEs are becoming more proactive

A message from the Chief Economist

The past few years have brought a series of challenges for Canadian small and medium-sized enterprises (SMEs). After navigating inflation, rising interest rates and an economic slowdown, they are now operating in an environment marked by intensifying competition, persistently high costs and ongoing trade tensions.

Yet the results of our study show that entrepreneurs are not standing still. Quite the opposite. Canadian SMEs are adapting to this new environment and actively looking for ways to strengthen their competitiveness. They are investing more in acquiring customers, improving productivity, adopting artificial intelligence (AI), and diversifying their markets, suppliers and revenue streams.

The most notable change this year is the renewed focus on growth. Today, 46% of SMEs rank expansion among their top priorities, up from 34% in 2025.

This renewed focus on growth has not eliminated financial concerns. Improving profitability remains the second most cited priority, identified by 40% of SMEs.

SMEs directly affected by U.S. tariffs are also showing remarkable resilience. Despite pressure on costs and supply chains, they continue to prioritize growth and are stepping up efforts to diversify their markets, improve productivity and increase profitability.

Our study also highlights the growing role of AI in SME business strategies. The share of businesses that consider adopting or increasing their use of AI a priority rose from 14% in 2025 to 22% in 2026 and reaches 28% among SMEs directly affected by U.S. tariffs. This increase shows that businesses are looking to use technology to improve efficiency as part of a broader digital transformation. However, the benefits will depend on their ability to integrate these tools in a structured way, tailor them to their operational needs and train their teams.

SMEs increasingly recognize that the ability to adapt quickly is a competitive advantage. A majority (59%) believe businesses that are slow to adapt risk falling behind.

Productivity also remains central to their efforts. In 2026, 88% of SMEs implemented at least one measure to improve productivity, compared with 74% in 2025.

This report also shows that competition has become a more significant challenge for Canadian SMEs. Today, 31% identify it as a major challenge, up from 24% in 2025. In an economy where demand growth remains modest, opportunities are more limited and businesses must work harder to stand out and protect their margins.

As competition intensifies, SMEs are strengthening their value proposition. To differentiate themselves, they are primarily focused on improving the quality of their products or services, refining their pricing strategies and strengthening their marketing efforts.

Overall, SMEs are responding to challenges by adapting, investing in their capabilities and pursuing growth.

Introduction: A changing world

Canadian SMEs are operating in a rapidly changing environment. Economic slowdown, rising costs, increased competition, technological advances and trade tensions are reshaping the business landscape.

After several years marked by caution and resilience, however, entrepreneurs are no longer focused solely on adapting. They are taking action.

Against this backdrop, the 2026 edition of BDC’s State of Entrepreneurship study highlights how Canadian SMEs’ priorities are evolving. Despite continued economic pressures and the introduction of new U.S. tariffs, more businesses are pursuing growth, investing in productivity, accelerating AI adoption, and diversifying their markets, suppliers and revenue streams.

These findings point to the emergence of a new entrepreneurial mindset. In an environment where competition is intensifying and opportunities are harder to secure, businesses are looking not only to strengthen their ability to adapt, but also their ability to act.

Competition intensifies

Competition has become a bigger challenge for Canadian SMEs. In 2026, 31% cite it as one of their main challenges, up from 24% in 2025.

This increase reflects a more demanding economic environment. While more SMEs are looking to grow, they must do so at a time when demand remains sluggish. When economic activity slows, businesses compete for a smaller pool of opportunities.

Cost pressures also remain a major challenge. One-third of SMEs (33%) continue to identify rising input and raw material costs as a significant concern. These pressures continue to squeeze margins, while competition has become a more prominent concern.

Since the 2025 survey, new tariffs have been imposed on certain Canadian products, including expanded duties on softwood lumber, some furniture products, steel and aluminum derivatives, and a host of new tariffs on a variety of products made by Canadian SMEs. As a result, the share of SMEs that view tariffs as a challenge increased from 19% in 2025 to 29% in 2026. Tariffs also continue to weigh on business investment.

Costs and supply chains: Two major challenges for businesses directly affected by trade tensions

Beyond tariffs, which are the primary challenge for businesses directly affected by trade tensions, two issues stand out: rising input costs (36%) and supply chain disruptions (31%).

Increased competition is also a significant challenge. More than one-quarter (27%) of SMEs affected by U.S. tariffs identify it as a major concern.

Other long-standing challenges remain, although they are less prominent. Nearly one in four SMEs (23%) are affected by a shortage of skilled workers, while access to financing remains a challenge for 16% of businesses, or about one in six.

Figure 1: Main challenges faced by SMEs over the past 12 months

Growth and profitability remain top priorities

After a year marked by uncertainty around tariffs and the postponement of many projects, Canadian SMEs are ready to pursue growth again.

As Figure 2 shows, expansion, whether local, provincial or international, has become the most frequently cited priority for the next 12 months. In 2026, 46% of entrepreneurs rank it among their top priorities, compared with 34% in 2025.

Businesses remain focused on profitability as they pursue growth. In fact, improving profitability remains the second most cited priority, identified by 40% of SMEs in 2026. In a context of modest economic growth, high costs and ongoing tariffs for some businesses, profitability remains a key strategic concern.

SMEs also place a strong emphasis on retaining customers. These findings suggest that businesses are looking not only to grow, but also to protect their margins in an environment that remains complex and uneven across sectors.

One of the most significant changes since 2025 relates to AI. The share of SMEs that view adopting or increasing their use of AI as a priority rose from 14% in 2025 to 22% in 2026. This increase reflects growing interest in the efficiency and productivity gains these technologies can deliver.

Overall, Canadian SMEs are balancing careful cost management with renewed growth ambitions. While cost control and profitability remain essential, entrepreneurs appear more focused on the future than they were a year ago.

Tariff-affected SMEs look to reduce their dependence on the U.S. market

More than half of SMEs directly affected by tariffs (52%) say their top priority is finding new customers and expanding into new markets, whether elsewhere in Canada or internationally. Their goal is to reduce their reliance on the U.S. market and limit the impact of tariffs.

Nearly one-third (32%) are focused on improving profitability, while 28% are looking to reduce costs.

AI is also playing a growing role in their plans. It is a priority for 28% of SMEs affected by tariffs, compared with 22% of SMEs overall.

In response to trade tensions, these businesses are taking a proactive approach focused on expanding beyond the U.S. market, improving efficiency and strengthening profitability.

Figure 2: SME priorities for the next 12 months

Artificial intelligence also plays a greater role in their plans. It is a priority for 28% of businesses affected by tariffs, compared with 22% of all SMEs.

In the face of trade tensions, these companies are taking a proactive approach that focuses on expanding beyond the United States, improving efficiency and boosting profitability.

Trend 1: SMEs renew their growth ambitions

The share of SMEs with growth ambitions has increased significantly since last year, rising to 78% from 67% in 2025. Many businesses are now focused on growth.

Over the past 12 months, nearly two-thirds of SMEs (64%) have gained new customers in their own region. Nearly one-third (29%) have expanded their customer base into other parts of Canada, while 15% have attracted customers outside the United States. Despite tariffs, 11% of SMEs have also gained new customers in the U.S. market.

Despite these challenges, most businesses affected by U.S. tariffs continue to pursue growth. More than half (58%) have won new customers in their region, 47% have done so elsewhere in Canada and 26% have expanded their customer base beyond the United States.

Despite tariffs, 18% of these SMEs have also succeeded in attracting customers from the United States.

To reach customers outside their home province, SMEs rely primarily on word of mouth and referrals (37%), digital marketing and online advertising (37%), and direct sales through websites and e-commerce platforms (35%).

Marketing strategies vary across industries. Technology companies tend to favour digital channels, while manufacturers are more likely to rely on in-person interactions. Our research shows that it is essential to diversify marketing channels to reach customers whose buying journey is more fragmented than ever. In short, this year’s findings show that SMEs are becoming increasingly focused on developing new markets.

Figure 3: SMEs’ growth ambitions

Trend 2: AI adoption shifts into high gear

AI is becoming an increasingly important strategic priority for Canadian SMEs. While it was still widely seen as an emerging technology just a few years ago, it is now a business priority for 22% of SMEs, up from 14% in 2025.

This trend is part of a broader shift toward digital transformation. According to BDC’s Digital Maturity Study, 36% of SMEs already have a technology adoption plan that includes AI, and 96% invested in digital technologies in 2025. Businesses that already use AI intend to build on that momentum: 72% expect to increase their investment in AI over the next 12 months.

Figure 4 shows that industries are adopting AI at different rates. AI is most often identified as a priority in the technology and information sector and in transportation and warehousing, where 33% and 32% of SMEs, respectively, consider it a priority. Manufacturing follows at 24%.

These sectors tend to rely more heavily on automation, data analysis and operations management. As a result, AI can deliver quick gains in areas such as planning, sales, task automation and inventory management.

By contrast, AI is less often a priority in the primary sector, construction, and accommodation and food services. Even so, it can help businesses in these sectors improve a range of activities, including:

• administration and management;
• planning;
• customer service.

For SMEs, the challenge is not simply adopting AI but integrating it in a meaningful and structured way. Results from BDC’s Digital Maturity Study show that businesses gain more value from AI when they:

• have an adoption plan;
• train their teams;
• use high-quality internal data.

In today’s environment of moderate economic growth, intensifying competition and continued pressure on margins, AI is an important tool for improving productivity. It remains one of the few factors where SMEs can take direct action.

Figure 4: Percentage of SMEs that list AI adoption as one of their priorities for the next 12 months, by sector

Productivity takes centre stage

In a more challenging and competitive environment, a growing number of Canadian SMEs are taking steps to improve efficiency. In 2026, 88% implemented at least one initiative to boost productivity, up from 74% in 2025.

Adopting new technologies (30%) remains the most common way to improve productivity. Still, SMEs are doing more than simply adding new tools. Figure 5 shows that 28% increased their use of existing technologies, up significantly from 20% in 2025.

Businesses are also investing more in employee training. Nearly three in 10 (28%) stepped up their training efforts, compared with 22% the previous year. This increase may be linked to the accelerating pace of digital transformation and AI adoption. To make the most of new technologies, businesses need more than the right tools. They also need the skills to use them effectively.

Businesses with growth ambitions are particularly active in this area. Among them, 94% have taken steps to improve productivity, compared with 69% of those focused mainly on maintaining their current operations.

Younger entrepreneurs are particularly active in improving productivity. Among business owners under 35, 99% have invested in initiatives to increase productivity, compared with 78% of those aged 55 and over.

Overall, SMEs are leveraging technology, training and automation to strengthen their competitiveness and support growth.

Figure 5: Actions taken by SMEs over the past 12 months to increase productivity

Differentiation as a response to increased competition

In a more competitive environment, Canadian businesses are looking for ways to stand out. The vast majority (85%) have taken at least one step to differentiate themselves from their competitors.

Price remains an important lever. Nearly one-third of SMEs (31%) adjusted their pricing strategy over the past 12 months in response to increased competition.

Businesses are also focused on enhancing their offerings, whether through customer service (33%) or improvements to their products and services (30%).

Figure 6 shows that SMEs are also investing in their brand (27%) and stepping up their marketing efforts (27%) to attract customers.

Manufacturers are especially active in differentiating themselves. Facing increased economic pressure since tariffs were introduced, many have taken steps to differentiate themselves from the competition. Among them, 55% focused on service quality, while nearly half (48%) adjusted their pricing, compared with 31% of SMEs overall.

Figure 6: Actions taken by SMEs over the past 12 months to differentiate themselves from their competitors

Rethinking sourcing and diversifying

Over the past 12 months, more than half of SMEs (54%) started working with a new supplier. That figure rises to 72% among SMEs directly affected by U.S. tariffs.

Most SMEs that added suppliers found them in Canada. More than one-third of SMEs (36%) found a new supplier within their province, while 20% turned to suppliers in another Canadian province. Smaller shares found new suppliers in other countries outside the United States (8%) or in the United States (4%). Amid ongoing trade uncertainty, SMEs appear to favour suppliers in Canada or outside the U.S. market.

Reducing costs is the main reason SMEs switch suppliers, with nearly half (49%) citing it as a key objective. But cost is not the only factor driving these decisions. Supplier reliability is important for 37% of SMEs, while 30% are looking for a stronger business relationship or better service.

Trade tensions are also shaping sourcing decisions. Among businesses that changed a supplier, 30% did so to replace a U.S. supplier, while 20% specifically wanted to buy more Canadian products and services.

Figure 7: Percentage of companies that began working with a new supplier in the past 12 months

Cedar greenhouse maker plans export push beyond U.S.

Cedar-Built Greenhouses in Abbotsford, B.C. sells handcrafted greenhouse kits made from premium western red cedar.

Its CEO, Scott Frost, had been thinking for years about diversifying his company’s exports beyond the U.S. But when the U.S. administration began threatening and imposing tariffs on Canadian goods, the urgency increased dramatically.

The company wasn’t itself subject to U.S. tariffs, but sales south of the border still dropped by 30%. “If U.S. customers think it might be tariffed, they won’t even bother,” Frost says. “They’ll just go somewhere else. It turns people away even from the get-go.”

Frost approached BDC for help to export to other countries.

Find out what happened next.

SMEs diversify their offerings to keep growing

Canadian businesses are pursuing a range of diversification strategies to navigate uncertainty, stay profitable and grow.

Over the past 12 months, more than one-third of SMEs (36%) gained new customers outside their province. Beyond geographic expansion, nearly four in 10 (39%) also diversified their products or services.

This strategy is even more common among businesses affected by U.S. tariffs, with 58% expanding their offerings.

Product and service diversification is also more prevalent among medium-sized businesses (75%) and manufacturers (more than 60%). The trend is even stronger among SMEs seeking a major transformation of their business (62%) or significant growth (61%).

Figure 8: Changes in the level of diversification (products and services) among SMEs over the past 12 months

Tariff-affected SMEs take action to reduce the impact

SMEs affected by U.S. tariffs are implementing a range of measures to limit their impact.

Three strategies stand out. Nearly one-quarter of these businesses:

• are diversifying their supply chains to include countries not affected by tariffs (24%);
• are expanding into new markets that are less exposed to tariffs (24%);
• are seeking government funding or programs to help offset tariff-related costs (24%).

These businesses are also focusing on their offerings and productivity. Nearly one in five has introduced new products or services that are not affected by tariffs. A similar share has stepped up marketing efforts and invested in automation to reduce production costs.

Figure 9: Actions taken by SMEs directly affected by U.S. tariffs to mitigate the impact

Aeris Protective Packaging takes it global to reduce risk and drive growth

Montreal‑based Aeris Protective Packaging Inc. carved out a niche in the protective packaging market by focusing on fragile, high‑value items like computers, musical instruments and automotive parts.

At its peak, 80% of its business was in the U.S. For years, that concentration worked. Then the company began facing a series of disruptions. The first major wake‑up call came during the COVID‑19 pandemic.

Then, trade policies became increasingly volatile. Tariffs shifted overnight. Carriers charged duties and refused refunds. The cost of raw materials rose sharply.

This unpredictability made one thing clear: Aeris needed to diversify in markets where it was already active.

Find out what happened next.

Learning and building a support network

In a more demanding business environment marked by economic uncertainty, rising costs and increased competition, SMEs need to adapt quickly. Nearly half (48%) believe the business environment is changing faster than it was two years ago, while 59% believe companies that are slow to adapt risk falling behind.

In response, entrepreneurs are taking action. Across the country, they are pursuing growth, improving productivity, diversifying their businesses and seeking out new suppliers to stay adaptable and competitive.

Table: How SMEs are responding to a changing business environment, by region

But business owners are not focused solely on growing their businesses. They are also investing in their own development. In 2026, more entrepreneurs: 

• participated regularly in networking activities;
• sought guidance and support;
• took training courses.

These efforts are helping entrepreneurs adapt more quickly and pursue new growth opportunities. 

Despite the challenging environment, business owners are investing more in their skills. 

Networking gains momentum

Among entrepreneurs who network, 97% say they benefit from it.

This year more than half (55%) attended at least one networking event a month, up from 45% in 2025.

According to business owners, networking events provide valuable advice and fresh ideas. They also help entrepreneurs stay motivated and create opportunities to build partnerships.

Figure 10: How often entrepreneurs participate in networking activities

Mentorship is also on the rise

The share of business owners who have a mentor increased from 42% in 2025 to 58% in 2026.

Entrepreneurs with stronger growth ambitions are more likely to have a mentor. Three-quarters (75%) of those aiming for significant growth have one, compared with 30% of those focused on maintaining their business at its current size.

Mentorship can help business owners avoid common management mistakes, especially early in the life of their business. Survey results also show an association between mentorship and satisfaction with profitability. Among business owners who receive mentoring, 67% say they are satisfied with their level of profitability, compared with 33% of those who do not.

Figure 11: Proportion of entrepreneurs with a mentor by growth ambition

Training is also on the rise

In a rapidly changing business environment, training remains an important way for entrepreneurs to build skills and support growth.

In 2026, more than half of business owners (53%) reported taking a training course, compared with 40% in 2025.

The most popular topics were business strategy, marketing and personal development. These choices reflect a desire to strengthen both business performance and leadership capabilities.

Figure 12: Types of training undertaken by entrepreneurs

Flexible financing and expert advice to help you plan for the future

• Explore our financing options to help your business grow and stay competitive.
• See if specialized support could help you take your business to the next level.

Methodology and acknowledgments

An online survey was conducted with business owners and decision-makers from the Forum Research panel and other affiliated panels.

Survey period

First wave: June 8 to 29, 2026 (1,500 respondents)

Second wave: September 4 to 13, 2026 (1,000 respondents)

Weighting

The data were weighted by region and number of employees.

Margin of error

For a probabilistic sample of 1,500 or 1,000 respondents, the maximum margin of error is ±2.5 percentage points, 19 times out of 20. Because this survey is based on a non-probability sample, this information is provided for reference only.

The 2025 survey was conducted among 1,502 business owners from the Sago Asking Canadians online panel between July 17 and August 1, 2025.

Acknowledgments

This study was made possible thanks to the contributions of Alexandra Fioriello, Annie Jolicoeur, Roseline Joyal-Guillot, Catherine Schwartz and Samuel St-Pierre Thériault.

The study is based on survey data and publicly available information analyzed and interpreted by BDC. BDC is solely responsible for any errors or omissions. All figures have been rounded. Readers are responsible for how they use the information presented in this report.