Allegheny Conference Address

The annual meeting of the Allegheny Conference is approaching. Not surprisingly, I haven't been invited to speak. I'm not part of the business community; I'm not an economist or a planner. I have only some years of observing technology communities. I have some strong intuitions about what happens in Pittsburgh. My conclusions incorporate some anecdote and some speculation. But nothing ventured, nothing gained; if my diagnosis is that Pittsburgh needs more risk-taking, then who am I to hold back? So if I were invited to address the Allegheny Conference, then this is what I'd say:

Good morning, ladies and gentleman, guests and visitors. It is an honor to be asked to address this group.

I have one message, and one message only: Go home. The future of Allegheny County and the Western Pennsylvania region don't depend on your involvement. They depend on your getting out of the way.

What do I mean by that?

The economic future of this region depends on building jobs. Jobs require new businesses to supply them. And new businesses need at least four things: ideas, money to build companies around those ideas, people to run those companies, and the ability to move those ideas into companies, where the money and talent can go to work.

Pittsburgh has no shortage of ideas. There are two world-class research universities located in Oakland, generating incredible research in computer science, engineering, and the life sciences.

Pittsburgh has no shortage of money. Our venture capital resources don't match what you'll find in Menlo Park, New York, or Boston, and we could always use more, but money is not our weakest suit.

Pittsburgh falls short, though, in the other two areas.

First, Pittsburgh doesn't have a critical mass of mid-level managers who are willing to step in and carry the ball in early-stage companies, growing them until they succeed, or fail, or get bought out. We have a seemingly endless number of brilliant researchers, and a fair number of "serial entrepreneurs." But researchers are rarely equipped to operate companies, and serial entrepreneurs need Chief Operating Officers, and VPs of this and that, and a batch of Directors, and managers below them. We can't possibly grow these people here, at least not fast enough. So we have to persuade them to move in. But here's the catch: they're reluctant to move in unless they have some assurance that they'll have a career path -- not just that they'll have a job when they arrive, but that they can move across the street (so to speak) to a new company, when that first company craters, or when their ambition gets the better of them. Every technology lawyer, investor, and executive that I've ever talked to in Pittsburgh shares this frustration, that we have the science in Pittsburgh, but not the management. Solving it is essential.

I don't have a cure-all for that problem. But I believe that the solution is connected to my last point, because solving it requires having a supply of new businesses that can absorb this supply of talent.

I said that growth requires ideas, money, talent, and the ability to move ideas into the private sector, where money and talent can take over. Our second big failing is this: Pittsburgh is doing a terrible job at moving ideas to where the private sector can make use of them.

Where are these great ideas? Most of them, these days, are coming out of the University of Pittsburgh and Carnegie Mellon University. How do they get out into the private sector? The universities have claims on IP developed by researchers, so the universities have to spin off companies and license IP to them, or license IP to existing companies. And right now, that's where the problem lies: Like the vast majority of research universities across the country, Pitt and CMU aren't being aggressive enough in getting research results out of the lab and into the boardroom. Again, I hear this time and time again -- from lawyers downtown and from researchers at the universities. A small number of universities have had some big successes in this area. Stanford, MIT, Columbia, Wisconsin. No university wants to leave an extra dollar on this table.

But they should. If there's an economic upside to what's coming out of Oakland, then for the good of the region Pitt and CMU shouldn't try to keep all of that for themselves. My own alma mater is located in a depressed urban community: New Haven. My college spent years saying that the best thing that it could do for New Haven was to be a fabulous university. That was code for: We'll take care of ourselves. About a decade ago, Yale changed its tune and started making direct investments in the city, partnering with New Haven in a variety of ways. The city isn't "well," but it's a lot better. Pitt and CMU can use technology transfer negotiations the same way: Invest in the region, and let the region profit. Use lower equity requirements and reduce royalty rates. Leave upside on the table for the entrepreneurs and future investors. Don't negotiate every deal like it's the next home run. Play small ball: make a lot of small bets, instead of a few big ones.

Let me be clear that I'm not knocking the hard-working folks who run technology transfer offices at Pitt or at CMU or elsewhere. They're doing what they're told: The CEO wants results, and to ensure results, the CEO wants control. But that's not the way a new technology economy works. Some people would look at this and conclude: low risk, low return. I grew up in and practiced law in the Silicon Valley. I worked with venture capitalists, researchers, and entrepreneurs. I conclude: A new technology economy grows from the bottom, not from the top.

Right now, Pittsburgh is trying to grow from the top. That's why you're having this meeting: it's growth from the top. So change has to come from the top. And with all due respect to the history of the Allegheny Conference, that's why I'm telling you to go home. It's why I'd send the same message to Mark Nordenberg, who has done an extraordinary job as Chancellor of Pitt, and to Jared Cohon, his equally remarkable counterpart at CMU. Private sector CEOs and top management at the universities need to join forces and -- let it go. They need to turn their technology loose.

Pittsburgh's CEO culture is deep and strong. The top folks are talented and have enormous respect for one another, and they spend a lot of time doing what CEOs do well: strategic planning. We have consortia and greenhouses, alliances and councils and conferences. Strategic planning, though, doesn't grow companies or jobs. There's so much planning, and so much CEO involvement and control, that the money and the talent and the ideas can't find each other.

What I'm talking about is cultural change as well as economic change, and it's difficult, and it can't happen overnight -- even if people agree that it should. In fact, I would be delighted to be proven wrong, to be shown compelling evidence that top-level strategic planning of the sort that Pittsburgh engages in can and does lead to sustained economic growth. Because then the hard work of change could be avoided. But I'm skeptical; I don't think that such evidence exists. So feel free to prove me wrong. But if I'm right, and if the changes that I'm describing don't happen, then I'm convinced that Pittsburgh will remain what it is today: a city of enormous promise. Enormous, but unfulfilled, promise.

Thank you.

Link: http://www.post-gazette.com/pg/05295/593016.stm