Return from Louisville

I just returned from a pleasant couple of days in a river city down the Ohio, Louisville. I wasn't out in the city enough to form any reliable impressions, let alone any meaningful comparisons between Louisville and Pittsburgh as two river cities. But as befits that region's slightly more Southern tone, in the events I participated in (I was visiting friends who run a summer internship program in Louisville), there was an ease and intimacy at work that left me with a very positive impression of the place. Louisvillians seem to be just as proud of their community as Pittsburghers are proud of Pittsburgh - without the chest-thumping about Stanley Cups and Lombardi Trophies that is sometimes inspiring but often, especially when Pittsburghers use them to project superiority over other cities, juvenile.

In Pittsburgh circles, talk of Louisville usually centers on the contrast between the uber-fragmentation of Allegheny County government and the city/county consolidation in Jefferson County, Kentucky (as well as annexation of many Louisville suburbs) that produced a Louisville Metro area. (In Louisville, talk of Pittsburgh apparently usually centers on the Burgh's vibrant Downtown.) Is consolidation the answer to Pittsburgh's problems? I didn't see enough of Louisville or talk to enough Louisvillians in government (or nearby) to offer an answer to that question. But Louisville hardly seems to be out of the woods. As with Pittsburgh, the Metro area could benefit from an infusion of labor and talent from elsewhere. As with Pittsburgh, achieving that infusion requires nurturing a sense -- telling a persuasive story -- that in Louisville, there is opportunity.

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.

Dreiflüssestadt

Another piece of Pittsburgh exceptionalism shot to hell: Today I learned that Pittsburgh is *not* the original City of Three Rivers. That distinction apparently belongs to the Bavarian city of Passau, which has its own "point" - the merger of the Donau (known to English speakers as the Danube), the Inn, and the Ilz.

Age? Pittsburgh recently celebrated its 250th birthday. Passau, like Pittsburgh a city that boomed because of its critical location relative to a vital commodity (in Passau's case, it was salt), was founded 1,300 years ago.

For a truly old city, despite the demise of the salt trade, Passau seems to be doing reasonably well. Tourism is huge. The Baroque St. Stephen's Cathedral houses one of the largest pipe organs in the world. Passau sits at the crossroads of several long distance cycling routes. In decent weather, the old city is filled with cyclists from all over Europe. And several cruise lines ferry busloads of visitors up and down the rivers.

Passau has the virtues of being a charming small Bavarian (read: Baroque) city that borrows a bit of Austria (because Austria lies just a short distance beyond) and benefits from a heavy Italian influence. The buildings are German; the streets have a cobbled, winding Northern Italian feel. Today, I ate gelato in Passau -- not "eis" -- in the shadow of the Dom, across the street from an antiques dealer who had an Austrian shield mounted above his door.

More on Aldo and the Future of Small Business

There is a "next" post up at Aldo Coffee in the Mt. Lebanon coffee store's series of "what do we do now?"

I am tempted, as I suspect some others are, to see in this episode some grand narrative of Pittsburgh's struggles. I'll hold off jumping to equally grand conclusions, but I have a metaphoric cast of mind. Aldo Coffee is not alone, and it is not unique, in the challenges it faces.

Here is a first reaction: Aldo's predicament reminds me of the problems assessed in Clayton Christensen's The Innovator's Dilemma - and again in The Innovator's Solution. Aldo Coffee was a leap forward for Pittsburgh. Pittsburgh has caught up. The entrepreneur's instinct is to survive by doing the same -- premium coffee -- more and better: lower costs, higher margins, better service. Using evidence from a variety of contexts, including the steel industry, Christensen argues that this is likely to be a losing solution.

More later.

Aldo Coffee and the Future of Pittsburgh Business

Pittsburgh coffee lovers know Aldo Coffee in Mt. Lebanon. It is a wonderful shop, and it serves outstanding coffee. The owners, Rich and Melanie Westferfield, are unusually savvy and thoughtful small businesspeople. They are launching an online reflection on the future of their store -- and, by extension, on the future of small local businesses in general.

Their first post is here.

You can find some supplemental comments attached to this post.

I'll save my own reactions for another time.

Soccer for Pittsburghers

The Post-Gazette again did its best to marginalize Western Pennsylvania's large and growing soccer-loving population (and yes, I mean that last phrase seriously). I'm in Germany right now, and it isn't just bars that have large TV screens set up for public viewing. It is difficult to find a eating or drinking venue of any kind, anywhere, that is not set up for soccer - fussball, as the sport is known here.

For Americans, in Germany I have found the answer, the thing that will finally persuade the mainstream American jockocracy that soccer is worth the while of the beer-loving, SUV-driving stereotypical sportsman:

The Klokicker.

It is a urinal sieve that lets a man score goals while he pees. At last, a soccer-related product that Steelers fans -- the men, at least -- can relate to. Pass the Iron!

Paging Border Guard Bob

As the old song goes, how are you going to keep them down on the farm, after they've seen Paree?

LeBron James is forsaking Cleveland for Miami, and boy is Cleveland mad. In a public letter to fans, Cavs owner Dan Gilbert writes:

Dear Cleveland, All Of Northeast Ohio and Cleveland Cavaliers Supporters Wherever You May Be Tonight;

As you now know, our former hero, who grew up in the very region that he deserted this evening, is no longer a Cleveland Cavalier.

This was announced with a several day, narcissistic, self-promotional build-up culminating with a national TV special of his "decision" unlike anything ever "witnessed" in the history of sports and probably the history of entertainment.

Clearly, this is bitterly disappointing to all of us.

The good news is that the ownership team and the rest of the hard-working, loyal, and driven staff over here at your hometown Cavaliers have not betrayed you nor NEVER will betray you.

There is so much more to tell you about the events of the recent past and our more than exciting future. Over the next several days and weeks, we will be communicating much of that to you.

You simply don't deserve this kind of cowardly betrayal.

You have given so much and deserve so much more.

In the meantime, I want to make one statement to you tonight:

"I PERSONALLY GUARANTEE THAT THE CLEVELAND CAVALIERS WILL WIN AN NBA CHAMPIONSHIP BEFORE THE SELF-TITLED FORMER ‘KING’ WINS ONE"

You can take it to the bank.

If you thought we were motivated before tonight to bring the hardware to Cleveland, I can tell you that this shameful display of selfishness and betrayal by one of our very own has shifted our "motivation" to previously unknown and previously never experienced levels.

Some people think they should go to heaven but NOT have to die to get there.

Sorry, but that's simply not how it works.

This shocking act of disloyalty from our home grown "chosen one" sends the exact opposite lesson of what we would want our children to learn. And "who" we would want them to grow-up to become.

But the good news is that this heartless and callous action can only serve as the antidote to the so-called "curse" on Cleveland, Ohio.

The self-declared former "King" will be taking the "curse" with him down south. And until he does "right" by Cleveland and Ohio, James (and the town where he plays) will unfortunately own this dreaded spell and bad karma.

Just watch.

Sleep well, Cleveland.

Tomorrow is a new and much brighter day....

I PROMISE you that our energy, focus, capital, knowledge and experience will be directed at one thing and one thing only:

DELIVERING YOU the championship you have long deserved and is long overdue....

Betrayal by Cleveland's chosen one? It's a good thing that Pittsburghers aren't so disproportionately obsesssed with identifying themselves and their region with sports heroes.

Oh. Wait.

At least Pittsburgh's chosen ones have won championships. I'm sure that Pittsburgh has some Border Guard Bob material lying around; we could have shipped it to Cleveland - had the city asked.

Should Pittsburgh Sign LeBron James?

NBA superstar LeBron James is a free agent, which means that he is shopping himself around the league. My law professor colleague Ian Ayres, who brings an unusually keen economist's eye to the world, wonders aloud whether Cleveland (or the State of Ohio) should chip in public cash to keep LeBron in that city -- as in, LeBron might be a better economic development vehicle for Ohio than, say, a new automobile plant. The idea is captured in a single sentence: Offer both direct payments to LeBron and tax incentives for the Cavaliers, and "Turn LeBron into his very own 'enterprise zone.'"

That post emboldens me to extend a casual comment that I made to an out-of-town friend over the weekend. Given Pittsburgh's proximity to Cleveland, he wondered whether Pittsburgh was in contention to sign LeBron. I pointed out that Pittsburgh has no NBA franchise.

But why should that matter? If LeBron really is primarily a regional economic asset, like an automobile plant (or a casino, or a new arena), then it behooves the powers of Pittsburgh to consider making a bid. Sign him to a long-term contract underwritten by state-supplied tax incentives and money borrowed against the future revenues to be derived from having LeBron associated with Pittsburgh: LeBron would become an ambassador for the city, a walking and talking spokesman for all that is big and tall and bold about the Steel City. Pittsburgh would recoup its up-front investment by contracting with one or more NBA franchises for LeBron's on-court services, and of course the city could once again thumb its nose in the face of its hated rival, Cleveland.

Or, and finally, we could think constructively. Regional collaboration is all the rage; why not partner with Cleveland and invest in LeBron's future in that city? Pittsburgh could supply a bunch of cash to the Cavaliers and help that team keep its superstar. In return, Pittsburgh could negotiate for personal appearances, a share of endorsement revenue -- maybe even a larger number of Cavs games at the new Consol Energy Center.

Professional athletes as parts of public/private partnerships? As municipal employees? I suspect that I've uncovered the tip of a larger iceberg. A new day dawns.

SummerBurgh

Pittsblog may be on life support at the moment, but it still has a pulse, and I'm taking that pulse this weekend in some iconic Pittsburgh fun. Yesterday the family took houseguests from out of town to Kennywood; today we spent a sun-drenched afternoon at PNC Park. Tonight, there will be fireworks.

All over the area, I have been reminded of how much Pittsburgh is changing - slowly, and subtly, but inevitably. The girls in head scarves enjoying Potato Patch fries at Kennywood, and the Indian and/or Indian-American kids running the rides. On our way out of Downtown this afternoon we drove past the Igloo, ugly but distinctive icon of Pittsburgh's recent Tomorrowland past, and the Consol arena, bland icon of Pittsburgh's statist near-term future. Not everyone in the area likes all of the changes; mostly, I do.

Legions of Phillies fans showed up this weekend to support their team, and many of them stayed behind this afternoon to watch their children run the bases before heading out to enjoy Pittsburgh's rivers and tonight's fireworks shows. In a stadium of sit-on-your-butt Pirates fans, the Phillies fanaticism was and is refreshing, even if it is not always family-friendly. It's a nice coincidence that a passionate Philadelphia team is in town on Independence Day, reminding us of what America is all about. Not just freedom or liberty or opportunity but also duty and service.  The idea and the ideal of what the United States is today, was in its past, and will be in the future are products of our collective imaginations, efforts, and passions.

Passion and personal investment are keys. If we don't contribute our own time and energy, this country won't happen; it isn't enough to recognize and value those who have served in the armed services, the National Guard, the Coast Guard, and so on - though that's a good and important start. Passion for sport is a small tip of a large iceberg. Few care what happened on a ball field this afternoon in Pittsburgh (as we made our way down to the field after the game, a Lamborghini sports car emerged from the Pirates' players parking garage, a sure sign of the disconnect between the players and the city), but passions are riding high in southern Africa right now in a sport that matters more to far more people. Look for and seize related passions in your lives; celebrate what you do to make this country a great one. And celebrate, too, what your neighbor has done.

Happy Fourth.