Pittsburgh Grows?

Sunday's Post-Gazette featured the latest "Regional Insights" column by Harold Miller.  It's all about the need to start and grow new businesses in the Pittsburgh region:  by encouraging new research and development, supporting and investing in local funders, supporting and investing in service firms that provide technical assistance to local startups, and buying the products and services that local startups produce.  (A version of the column appears at Harold's blog.)

I don't disagree with any of Harold's basic points.  I would add two more:

First, Pittsburgh's existing combination of basic research and investment capital is exceptional for a region of this size, and it has been exceptional for many years.  As Harold argues, more is always better.

But what is truly missing here -- and what has been missing for many years -- is an infrastructure of professional services and community culture that can bring people, knowledge, and money together in productive ways.  You can put investment capital in the same room as new ideas -- literally, as Project Olympus will do again tomorrow afternoon -- and that will not be enough to generate a good and sustainable flow of new little companies.  That's because Project Olympus (like Innovation Works, or the Idea Foundry, etc. etc.) is only one node on the network, and it can't do much more than push new ideas out the doors into the waiting hands of a small number of investors.

A robust infrastructure to grow new companies -- a large and frequently refreshed pool of managers to take over from researchers/founders, and a broad, accessible, flexible, and reasonably priced legal community to shepherd those companies through successive challenges of capital formation, entity organization, employment, tax, and immigration hurdles, compliance issues, and intellectual property problems -- doesn't yet exist.  (A legal and regulatory climate in Pennsylvania and Pittsburgh that is more new empoyment-friendly than the current climate would help, too.)  Until that infrastructure evolves, and until Pittsburgh's business and educational leaders focus on that issue, then Pittsburgh will continue to struggle in the league table for new business formation.

Second, anyone in the business of new business should be focused on where the customers are and on what the customers want, and what they will want.  Go, as Willie Sutton never said, where the money is.  And while it is warm and fuzzy and not a bad thing at all to recommend that Pittsburgh regional consumers support new local companies by buying their products, the truth is that there just isn't enough cash in the region to make our own startup economy grow.

I kid at Pittsblog about the Cupcake Class, but the real point of that idea is regional income:  In aggregate terms, Pittsburgh does *not* have the levels of income to support lots of new companies selling primarily to local customers.  Take Dozen, a local company that started by selling cupcakes but succeeded by growing out of the cupcake business.  (That may well have been the plan all along.)  Dozen is a baker and a caterer.  Dozen still sells cupcakes, but Dozen also sells lunch at the Warhol.  It's a diversified enterprise.  Why diversify?  My guess is that the margins in cupcakes are good, but a Pittsburgh company can't sell enough cupcakes -- and just cupcakes -- to make the business go and grow.   Pittsburghers are happy with donuts.   I am not talking just about retail and end-consumers.  The only firms in town that I hear about really kicking down doors with new business, new customers, and new hires are selling to -- China.  That's not just Westinghouse.  Every time I turn around in my own neighborhood I'm listening to tales of business trips to China.  That's where the money is.

What should Pittsburgh do about that?  Stop obsessing about nonstop flights to Paris.  Figure out a way to increase nonstop flights from PIT to the West Coast -- Seattle, San Francisco, and Los Angeles.  From there, it's easy to hop on a flight to Beijing or Shanghai.


1 Response to "Pittsburgh Grows?"

Sheel said... 10/17/2010 1:21 PM

Here's a great article about this from Paul Graham, founder of Ycombinator.

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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.

All opinions expressed at Pittsblog 2.0 are those of their respective authors and of no one (and no thing) else, least of all the University of Pittsburgh.

Pittsblog 2.0 has a motto: "It's steel good in Pittsburgh." Say it aloud, with a Pittsburgh accent.

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