Pittsburgh's New Big Thing

Chris Briem and I are trying to come up with a metric for recognizing Pittsburgh's Next Big Thing. Specifically, how will we know when we have a new FreeMarkets, Fore Systems, or Respironics on our hands?

Of course, looking for the Next Big Thing is precisely the Wrong Thing To Do, because it emphasizes "looking for Pittsburgh's industrial savior" over "building a sustainable new economy."

Still, it's fun. And Chris could put the question in the New Pittsburgh Stock Exchange.

If Pittsburgh were a Silicon Valley and rich in companies About To Hit The Big Time, we could set a numerical bar: The next company to cash out -- IPO, sale of the company, etc. -- for some big number. Or we might say: Some big sales number, some number of quarters in a row.

Do either of those metrics make sense here, and if so, what would the thresholds be? Low enough to be makeable; high enough that crossing the line would measure something distinctive and significant. I'm inclined to dismiss things like money raised in venture or angel rounds, but perhaps we could measure something like successive up rounds, or percentage increase in company valuation from round to round.

Or should we use a different metric?

Comments

9 Responses to "Pittsburgh's New Big Thing"

Schultz said... 4/06/2007 9:36 PM

Interesting topic. From my recent experience working with a few startups out of Pitt and CMU I would say there is a good chance at least one of them is acquired someday.

Maybe a metric is X number of local Web 2.0 companies acquired? Lot's of great talent over in Oakland developing sites such as Qlique, Tipping Blog and Mave., among others.

Another metric - how many of the big west coast tech companies open new offices or expand their current Pittsburgh locations? While Seagate didn't open up a huge office in the strip a couple years back, it did bring a substantial amount of PHDs from other areas to Pittsburgh. More brain power can't hurt. Ditto for Google and Microsoft - will they expand their Oakland locations?

Schultz said... 4/06/2007 9:43 PM

Here is another idea:

"Will Pittsburgh ever have clean air?"

Shadyside Soot

Jim Morris said... 4/07/2007 1:43 PM

It's the earnings, stupid! Web 2.0 companies demand so little investment that it's reasonable to expect them to be profitable from the beginning. Yahoo was. Also, being conservative about declaring success is a 'burgh thing.

Mike Madison said... 4/07/2007 3:29 PM

How about a standard that works for Web 2.0 and non-Web 2.0 companies? Presumably this would have to be some ratio of percentage, not an absolute number.

Anonymous said... 4/08/2007 11:37 AM

Respironics is a huge success, but for this to be fun, it can't take 35 years to become the big thing.

And, we can't look to the next big company as one that gets acquired. That mentality has to go. That simply means some other region gets the next big thing from Pittsburgh. We need to look at the next big company as the one doing the acquisitions. One indicator could be the number of acquisitions that they've made in the last 2 years. It's a sign that 1) they have cash or equity, and 2) they have the basis to support growh (i.p., customers and employees.)

Another indicator of the next big thing is the number and growth of employees. Yes, it can mean there is a high run rate and will burn out quickly, but the next big thing will have a lot of employees, too. Set the threshold at an expected 1000 employees in 3 years. Or 200 in 3 years if you want a sign for an earlier stage/low revenue company.

Another indicator is year-over-year or quarter-to-quarter revenue growth rates - past and expected.

Another could be the rate of customer acquisition which could reflect a model with significant network effects like an e-Bay, Google or Yahoo!

Another could be how much money they've raised from OUTSIDE the region. If this region is lacking in risk capital, then this could be a sign that others with risk capital believe it can be a big thing...it also increases the likelihood they'll become big elsewhere.

To test them, apply your metrics backwards to Fore Systems, FreeMarkets, Respironics, Medrad, Lycos and Vocollect. Would they have predicted the next big thing? Would the metrics have predicted too many companies that didn't become the next big thing?

By the way, I think the next really big things are Respironics and Medrad. More jobs and wealth will be created out of there in the next 5 years then Fore and FreeMarkets ever did. Why doesn't this get any attention? because they're not receiving money from economic development groups??????

Schultz said... 4/08/2007 1:06 PM

"And, we can't look to the next big company as one that gets acquired. That mentality has to go."

My point regarding Web 2.0 acquisitions - those entrepreneurs that are able to cash out after a successful acquisition will be the future Glen Mechems or Chris Allisons of our region. Both are using the wealth they created here to fund new ventures throughout our region.

The acquisition mentality does not have to go. It is essential if we want more of that risk capital coming from investors here in Pittsburgh rather than seeing our top startups leave town to follow the money.

Jim Russell said... 4/08/2007 1:38 PM

% (market share) of regional ROI might prove to be a useful metric. I would define "big" as dominating the region's start-up landscape. If you see a company making a big leap in % of Regional ROI, you have a company that you should track as "emerging big thing."

Jefferson Provost said... 4/08/2007 4:02 PM

How are you going to find out things like sales, earnings, investment, and ROI for startups? Private companies don't have to generate public quarterly reports, and there are lots of good reasons for them to keep those data private.

Seems like your metric has to be something that is pubic knowledge.

Anonymous said... 4/09/2007 1:39 PM

Hmmm...drop in population, drop in labor force participation, increase in inequity...is that fiddling in the background?
The P-G editorial on Sunday seemed to put the region's problems primarily on governmental fragmentation and inefficiency. After all, the sports teams are good and the convention center is booked? It's hard to fathom a group think that allowed that one out in the daylight.
Basically Pittsburgh has to be able to do something better than anyone else, be able to make money at it, and in a manner, and at a scale, sufficient to spread the wealth. It is doubtful that one company, or the Steelers even, can acheive that.
How about looking at industries rather than companies? Which are becoming larger, more efficient, taking a greater market share, commanding higher prices, and selling more goods outside of the region?

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Pittsblog 2.0 is written by Mike Madison, a law professor at the University of Pittsburgh. Send email to michael.j.madison[at]gmail.com. Mike also blogs at Madisonian.net, on law and technology. Chris Briem of Null Space drops by from time to time.

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