Back to Pittsburgh's Entrepreneurial Future

I am traveling too much these days to blog here regularly, so it is weirdly reassuring to note that while I'm away, not much changes in Pittsburgh. I started this blog back in 2003 because I was puzzled by the region's inability to capitalize on what I - as a relative newcomer and outsider - regarded as some extraordinary financial and technological (R&D) resources. Guess what? I've been away for good, long stretches this Summer, yet despite a lot of interesting and productive activity since then, people around here are *still* scratching their heads.

Among recent media notes, the Post-Gazette and Pop City both ran stories about two weeks ago that focused on the cultivation of small tech companies in the region. Pop City profiled Project Olympus, the CMU-based brainchild of Lenore Blum (a remarkable and world-leading computer scientist), which is designed to bring academic CS research out of the lab and into the purview of investors. So long to the sluggish and inefficient world of university tech transfer offices? Not so fast. The PG had a different take.

Pop City, being Pop City, was ebullient about the whole thing:

[S]ince its inception in 2007, Project Olympus has already spun off 23 start-up companies in the Pittsburgh area. In a knowledge based economy it is all about the talent; the talent of every age group. Project Olympus is proving itself a model of the cross generational collaboration that will be necessary for not only Pittsburgh, but for the United States overall, to compete in a global knowledge economy.
The Post-Gazette's glass was half-empty, with a perspective that would have been right at home in the Pittsburgh media circa 2003. Or 1999:

While Pittsburgh has proven good at giving birth to small tech firms, the city's effort to be an alternative to tech heaven Silicon Valley has been hurt by its difficulties in helping those young companies to mature. The recession has worsened the problem.
Lenore Blum spun the PG story more positively in a letter to the editor, but the long-term truth is inescapable.

There are two things at work here, neither of which is really addressed either in the media or, so far as I can tell, in the local business community itself.

One is the story. The Pittsburgh business/tech community won't get traction nationally and internationally -- it won't support local moves from startup to mid-size company or acquisition target -- unless and until that community can tell a story of passion and local resources that doesn't just make Pittsburgh attractive but that makes investors and managers elsewhere want to get in on Pittsburgh's action. Maybe that involves making Pittsburgh cool. Maybe it involves making Pittsburgh hot. "Lifestyle" media have attracted a lot of investment over the last few years, most of it wasted, in my opinion. Pittsburgh now has umpteen glossy, mostly useless magazines dedicated to making middle-class Pittsburghers envious of wealthy Pittsburghers, and making wealthy Pittsburghers feel good about themselves. Modestly better was the Imagine Pittsburgh campaign, but Imagine Pittsburgh was/is corporate milquetoast, as befits something coming out of the ACCD. The region needs something more powerful -- it needs the stories, lots of stories, of people who are here and who are not just making this place better, but who are here doing amazing things. Changing people's lives. And who can create opportunities for others to do the same.

Pittsburgh needs to create the sense that there is something happening here that other people can get in on only by coming here themselves. As one local VC put it in the PG, "Contrasted with Silicon Valley, the number of spin-offs from public companies didn't really happen here .... "No one is jonesing for Pittsburgh companies."

Does Google's plan to expand in Pittsburgh help on this score? Somewhat, but not as much as some local boosters might hope. Google's facility in Pittsburgh will give a professional home to some talented folks who might otherwise have relocated to Mountain View, but Google itself won't do much for Pittsburgh's wow-factor unless those talented folks start leaving Google in their own spin-offs -- and staying and succeeding here. Google isn't a solution for Pittsburgh. Google can be a platform for others' solutions.

Two is the ongoing lack of an effective infrastructure for nurturing start-ups from "tiny" to "mid-size." It has never been enough to put smart people with new ideas in the same room as investors, though both Pop City and the PG (in good faith) leave that impression. Pittsburgh has had lots of smart people over the last decade; Pittsburgh has a growing pool of investor capital. What Pittsburgh still does not have in sufficient quantity is

(i) reasonably priced legal help, for dealing with employment, tax, corporate, capital formation, immigration, and occasional IP issues in a one-stop, one-shop format, from the perspective of "we're here to partner with you and share in your success" rather than "we're here to bill you by the hour." If you read through Pittsblog archives, you'll see that this has been a long-standing theme for me. Pittsburgh has somewhat more of this activity than in the past, but still, it has not nearly enough.

(ii) other professional services/sectors that are oriented to small and emerging tech companies: real estate, tax and accounting, insurance, regulatory compliance. Special note here about regulatory compliance. Compliance needs are massive for firms that want to compete in biomedical, bioscience, and med-tech sectors.

(iii) management. Most of the attention to R&D in Pittsburgh gets focused on the universities. CMU and Pitt (and don't forget UPMC - as well as research and entrepreneurship coming out of Pittsburgh's other universities) are pretty healthy generators of new small companies. But university faculty are notoriously and understandably bad at building companies. (Raul Valdes-Perez, until last summer the CEO of Vivisimo and now its Executive Chairman, is the exception who proves the rule.) Few small companies can grow to mid-size without transitioning away from the technologist/founder and toward professional management. Investors won't sign on without faith that business people are in charge of the business. Pittsburgh has plenty of management talent, but it doesn't have enough senior and mid-level management talent with experience growing small companies. Why not? Chicken-and-egg: To build a deep bench of these people, you need a healthy diet of these companies coming (into existence) and going (onward and upward to greater success, or out of business). When one opportunity ends - fails, or succeeds - these people need something new to do. In the Silicon Valley (though not only in the Silicon Valley), historically it's been pretty easy to jump from job one to job two, if only because the volume of opportunities was so large. In Pittsburgh?

Quick: Set aside the two dozen spinoffs of Project Olympus and the graduates of AlphaLab. Name a dozen Pittsburgh companies that are currently in growth mode, aiming for $50m in annual revenues and an exit/acquisition strategy in five years, give or take. If you can do that, fantastic; Pittsburgh is making more progress than I thought. If you can't -- if you can come up with, say, six of those companies -- then Pittsburgh is going to continue to struggle to attract talented leadership for those opportunities. And VCs are going to continue to move the better companies out of the region, to places where it is easier to attract leadership and monitor the companies' performance.

I'm on the road again shortly. Meanwhile, I am waiting for the next shoe to drop at Aldo Coffee in Mt. Lebanon before posting about the imperative to innovate. Not every small business challenge in Pittsburgh is a start-up tech company trying to figure out how to go public or get acquired.


10 Responses to "Back to Pittsburgh's Entrepreneurial Future"

Stephen Gross said... 7/26/2010 1:16 PM

Thanks for the insightful article. A few thoughts/comments/questions:

* I agree that Pgh-based media (magazines, anyway) is mostly boosterism. I had high hopes for Pop City, but they are chanting rah-rah way too much.

* The transition from startup to midsize is indeed critical. What metrics do we have to track this transition in Pgh?

* The business-services-to-support-transition-to-midsize argument is compelling. What service(s) exist now in Pgh to support this? which ones are missing? Which ones should expand to meet this effort?

The Wiz said... 7/26/2010 2:59 PM

Duquesne University has, or at least had, a small business outreach center that would consult with start ups and small businesses. Don't know how complete it was.

Look to Youngstown, Ohio to see what they have accomplished with their incubator program. They have several tech companies the biggest is Turning Technologies. And they work closely with Youngstown State U.

Pittsburgh needs a technology center that companies can locate in that offer more than space. It should include the professional services mentioned in the main post along with tax breaks for start-ups the first five years.

Locating the companies in one area would allow them to share resources, technology, and contacts. They could share experiences and solutions to common problems.

Another problem is the regulatory nightmare a company runs into when it is time to expand. Trying to expand runs into huge problems with permitting processes for any large concern.

To build a facility that would accommodate five hundred people runs requires things like water, sewer, power, communication DEP studies, utilities, access roadways, parking, storm water issues, and more. Since these facilities often have to cross some distance, you may have to deal with ten municipalities, five authorities, multiple utilities, state and federal approvals, and more. It takes two or three years of approvals to do a major expansion. . . .or you could call India and they would have it up and running in six months.

We need to have pre-approved areas with all facilities in place for such companies to locate into when they are ready.

Anonymous said... 7/26/2010 5:27 PM

I feel there is a vital piece missing - how important it is to the sustenance of tech companies, you decide.

As a new import to Pittsburgh, one thing I notice is how white-second-generation American it is. There is a lack of cultural diversity or at least it is not proportionate to the diversity that exists in the tech areas as a whole.

I'm not saying bay-area doesn't have all-american tech companies. However truth of the matter is that a large portion of the tech workers are Asians/Indians/Eastern-Europeans. I don't think this is a coincidence - it has been proven time and again, that people who leave their home country in search of "something better" are generally more given to risk taking. And it is the risk takers that breathe air into start-ups and new initiatives.

In comparison, Pittsburgh does not seem to be able keep the non-Americans in. CMU and Pitt both have rich cultural diversity among students, however this diversity is mostly absent among the people who choose to stay back in the region after they graduate. And I believe this affects the vibe and puts a lid on the scope of innovations the area is capable of.

Mike Madison said... 7/26/2010 8:56 PM

I'm a native of what is now the Silicon Valley, so I think that there is a kernel of truth to the observation about immigrants and risk taking. The Asian/Indian/Eastern European character of the SV immigrant community is a recent historical development, but the West Coast has always been a haven for risk takers -- dating all the way back to the Gold Rush, to the Russians on the North Coast, and to Spanish missionaries.

Pittsburgh has had its share of immigrant enthusiasm -- but its last meaningful blast of that energy was well over 100 years ago.

The Wiz said... 7/26/2010 9:58 PM

Here's a good article on the Y'town Business Incubator

Y'town has been listed as one of the top ten places by Entrepreneur Magazine

Picturing Pittsburgh said... 7/28/2010 1:16 PM

Very interesting post. As a lawyer turned real estate agent in Pittsburgh, I have noticed that the city is of two minds when it comes to technology. We have a great talent pool and a number of impressive start-ups that are steeped in cutting edge technology. However, the culture in Pittsburgh is decidedly low-tech. I am one of a few real estate agents to have my own individual website and an active online presence. I think if the culture were more diverse and technologically oriented we might be able to keep more companies here.

I also was intrigued by your one stop shopping idea for legal, tax, accounting help, etc. I don't know that other cities offer legal services in a more affordable way. However, it would be a great idea for a new Pittsburgh business. My agency, Howard Hanna, dominates the Pittsburgh market. This is, in part, a result of their unique one stop shopping offerings: mortgage, title, insurance, etc. People do like that convenience when they are buying or selling homes in Pittsburgh.

Stephen Gross said... 7/29/2010 10:39 AM


A few comments/questions:

* I agree that the diversity of Pgh is lacking. That said, the connection between diversity and economic growth is a fairly complicated issue.

* You seem to suggest that one source of diversity could be the graduate pool at CMU/Pitt. Is this a practical idea?

* Is it really that hard (from a regulatory perspective) to move into a bigger office building? I hadn't realized... I mean, aren't there office buildings just begging for tenants out there somewhere?

Skeptical Czarina said... 8/03/2010 10:26 AM

I am a recent transplant to NC but I have followed your blog for some time now and my heart belongs to Pittsburgh.

What frustrated me the most about Pittsburgh was the way in which it just did not change. While in some ways that was a good thing, ahem real estate never inflated so it never crashed there, but in other ways it hurts the area alot.

I have only been in the Triangle area of Raleigh-Durham for a few months now but I can already see how this area uses the resources of the loval educational and medical institutions and continues to flourish by attracting out of town talent.

Pittsburgh would do well to realize the kind of growth this area has seen in the past ten years.

MH said... 8/03/2010 8:59 PM

I left the Triangle for other reasons, but all of the trees having sex in my nose made me glad to go. It was worse than Snowpocalypse as far as forcing me to stay in the house and it happened every April.

The Governor Calls Me "Gov" said... 8/04/2010 2:34 PM

Not quite on point, perhaps, but I was reminded of this post when reading this morning's P-G article about what I always admired as a promising local startup--ModCloth--getting a recent infusion of capital... then promptly moving its headquarters to San Fran. Disappointing to a Pittsburgher, although I think it's probably a good move for a lifestyle company like this one.

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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] Mike also blogs at, on law and technology. Chris Briem of Null Space drops by from time to time.

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